Market Report: Dividend fears cause National Grid tumble

The power was pulled from National Grid amid fears of a dividend cut as the wider London market also took a tumble yesterday. Vague rumours that the energy company could cut its dividend sent it to the bottom of the benchmark index.

This isn't the first time this suggestion has hit the stock. Back in January, a note from Deutsche Bank's energy experts warned that it could cut its dividend by 10 per cent.

But some attributed yesterday's 5 per cent fall to profit taking – the electricity and gas network has gained more than 13 per cent in past four months as its strong dividend has attracted investors. Meanwhile, Citi's analysts put the move down to the increasing attractiveness of US bonds – a trend that also hit the wider market as investors began to sell out of equities.

Citi scribblers point out National Grid is sensitive to movements in US Treasury yields because US investors make up 40 per cent of its investor base. The "move downward in the share price appears to reflect this" they said. Better economic prospects for the US have pushed up US Treasury yields, which has raised the required return on National Grid for these US investors and prompted some to sell.

High-yielding energy groups Centrica, down 14.1p to 378.6p, and Scottish & Southern Energy, 59p worse off at 1,569p, were also hit by dividend concerns.

National Grid slipped 42.5p to 797p but Yusuf Heusen, a sales trader at spread-better IG, said: "With dividend increases still the plan at National Grid, we could see buyers creep back in if no change in policy emerges."

National Grid's descent was mirrored by the wider market. The FTSE 100 was off by nearly 2 per cent – down 134.84 to 6,627.17. The drop wiped off Wednesday's gains and took the index back to levels of two weeks ago.

London's blue-chip index has yo-yoed for the past four trading days. The profit-takers were winning yesterday as punters were spooked by concerns of stalling growth in Europe's powerhouse after Germany's labour market revealed an unexpected rise in unemployment. This was accompanied by a warning from the International Monetary Fund about the outlook on China and the aforementioned attractive US bond yields.

Alastair Winter, the chief economist at Daniel Stewart & Co, said: "Bargain-hunting should be highly selective until US data on Thursday and Friday and China's on Saturday is duly digested, which may not be until well into next week or even beyond."

Mike van Dulken, the head of research at Accendo Markets, said: "We could still go all the way to 6,550 for a near 5 per cent digestion of the prior gains."

Vague tittle-tattle centred on Shire again with US Bristol Myers Squibb said to be interested in the pharmaceutical group, but most traders dismissed the rumours and it lost 26p to 2,187p.

Russia's Evraz, down 3.9p to 140p, was knocked by news it will be removed from its Stoxx Europe 600 Index next month. The miner and steel producer, which counts Roman Abramovich as one of its biggest shareholders, is also likely to leave the FTSE 100 in next month's reshuffle.

Mid-cap gold miner Centamin Egypt has agreed to take a 4 per cent stake in Ethiopia-focused and Aim-listed explorer Alecto Minerals. Centamin ticked up 0.48p to 39.04p while Alecto sparkled 0.3p to 1.25p.

On the small caps, oil explorer RusPetro got a loan extension and interest-payment waiver from Sberbank, and the shares added 3.75p to 42.5p.

The Iraqi Kurdistan-focused oil explorer Gulf Keystone Petroleum said it would split its chief executive and chairman roles ahead of its plan to move from Aim to London's standard market. The shares advanced 2p to 152p.

After months of speculation, online-dating company Cupid confirmed it is in talks about the sale of its "casual" dating arm. These include websites benaughty.com and flirt.com, but the shares lost 0.75p to 76p.

On the ISDX Growth Market, previously Plus Markets, the listed property group Makkah and Madinah reported a $39.8m (£25.7m) profit, compared with a $5.9m loss last year. The shares were static at 3.5p.

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