Sector movers: Tesco drags supermarket sector lower on divi outlook

18th Aug 2014 14:37

Grocery stocks were bucking the trend on Monday with supermarket heavyweights Tesco and Wm Morrison under pressure on concerns over their dividends.Despite wider market strength on the back of easing geopolitical concerns - London's FTSE 100 was up around 0.8% in afternoon trade - Tesco's share price was down 0.7% at 246.3p after a major shareholder suggested that the company should slash its payout.David Herro of Harris Associates, which owns a 3% stake in the UK's biggest retailer, told The Sunday Times: "In general, dividends should be covered by free cash. This is not the case with Tesco."Herro believes the company should either cut its dividend or generate positive cash flow. He said: "[The dividend] should be cut if it's paid for by borrowing."Shore Capital analysts Clive Black and Darren Shirley said they see a "reasonably high probability" that Tesco will cut its dividend by 25-50%.Meanwhile, Garry White from Charles Stanley said that "the debate is starting to move toward when, rather than if, a re-basing of the payment will take place". As for Morrisons, the company recently announced that it would extend the opening hours of half of its stores in an effort to meet the demands of "modern family life, flexible working hours and busy schedules".Shore Capital repeated a 'sell' rating for Morrisons, saying that the move could improve like-for-like sales trends but will lead to higher operating costs. They also said: "Uncertainty and poor visibility contribute to our cautious stance on Morrison's shares and our concern about the sustainability of its dividend."The stock had pushed into positive territory after earlier falls, but was underperforming the wider market, up just 0.4%.Rival chain Sainsbury's was up 0.1%.Top performing sectors so far todayTechnology Hardware & Equipment 1,097.84 +2.19%Construction & Materials 4,013.30 +1.37%Software & Computer Services 1,194.17 +1.33%Pharmaceuticals & Biotechnology 12,536.36 +1.32%Industrial Metals & Mining 1,270.75 +1.18%Bottom performing sectors so far todayIndustrial Transportation 2,797.05 -0.37%Food & Drug Retailers 3,313.98 -0.21%BC