Royal Mail puts dividend cut in post for shareholders

Royal Mail is slashing its dividend by 40% next year, the latest blow to its army of small shareholders and staff who own 10% of the company.

But that will help pay for an £1.8 billion investment over the next five years to protect the UK’s postal service and boost its parcels delivery arm.

It is aiming to have a second daily parcels delivery service in place by 2023 as smartphone “night-owl” shopping booms. The demand for next-day parcels delivery is exploding, says Royal Mail.

Chief executive Rico Back, who saw 70% of investors vote against his pay last year, is fighting a decline in the letters business.

Royal Mail had to issue a profit warning in October due to a slump in letters.

It had a better second half as political strife across Europe saw more leafleting from political parties.

A second Brexit referendum would be a boon to Royal Mail. “Elections are always good for postal businesses,” said Back.

Royal Mail will honour its 25p dividend this year but slash it to 15p from next year, a blow to the 400,000 small investors who hold the stock.

“This is not a decision we have taken lightly as we know how important the dividend is to our shareholders,” said Back.

But profit for the year rose £29 million to £241 million thanks to growth in parcels and business overseas. The shares, which hit fresh lows yesterday, rallied 6% today to 224p. They floated at 330p.

Today is the first major strategy update since privatisation in 2014. Back’s five-year plan will see Royal Mail start collecting returns from customers at their home. It announced this week that it will introduce 1400 parcel postboxes in the UK.