It would also have a calamitous effect on investor confidence, particularly among M&S's army of smaller investors, swelled as it has been by 50,000 eager new recruits in the last 12 months. The City would cry blue murder too, but it never makes sense to pay dividends out of capital, and that is precisely what is about to start happening.
The figures paint an ugly picture. The interim dividend of 3.7p per share announced yesterday costs a hefty pounds 103m and is nowhere near covered by earnings of 2.1p. The final dividend too, bringing total dividend costs for the year to pounds 413m, will not be covered either and will have to be paid out of reserves.
The sad fact is that as things stand the pounds 400m M&S is planning to raise from property sales will be largely swallowed up by dividend payments. There are other options. M&S's gearing is only 1 per cent if the financial services business is stripped out, and that's plainly a quite inefficient balance sheet. But again, there's no sense in gearing up if the trading performance isn't there to support it.
Further property sales on top of the pounds 400m proposed could make sense. However, raising money from selling store freeholds would be the equivalent of selling the family silver. It would provide a short term benefit the board would regret in the long run.
It has taken a long time for the penny to drop, but this company is facing very serious problems indeed. The questionmark over the dividend is just another example of it. Even so, perceptions are probably still some distance behind the reality. The other indicator which has yet to feel the heat is the price earnings ratio. Despite all the profit downgrades, on this measure the shares still stand at a premium to the sector. That surely cannot last. Put another way, the shares may still have a way to fall before they hit the ground.