Jeremy Warner: Investors left to sweat over fate of M&S dividend

Outlook Investors were braced for much worse, so when Marks & Spencer revealed a decline of "only" 7.1 per cent in like-for-like sales over the Christmas period, everyone was able to breathe a sigh of relief, not least Sir Stuart Rose, the chairman, who can now reasonably claim that, though he may be selling less, he's more than holding his own against a rotten market. Encouragingly, M&S also shows signs of getting to grips with the self-inflicted problems it has had in its foods division.

So the focus now turns to the future. Are the £175m to £200m of cost cuts announced yesterday enough to save the dividend? If consensus forecasts for the year to the end of March of around £625m in pre-tax profits are met, the dividend, a vital prop to a share price which in other respects looks highly valued compared to peers, is still just about covered by earnings. But what about the year after, when most analysts expect profits to fall still further?

On the positive side, lower interest rates and fuel bills are putting money back into people's pockets. Less clear is whether they can be persuaded to spend it, or, with growing fear of unemployment, will use it to pay down the mortgage or otherwise save. In the meantime, Marks & Spencer has become unduly dependent on its one-day "spectaculars" to sustain top-line sales. This is a potentially dangerous treadmill to have got itself on to, for it further erodes gross margins and makes cash flow very lumpy.

In any case, M&S doesn't have to make the decision on the final dividend until May, which leaves plenty of time to find out how the year is shaping up. The long-term health of the business comes before the short- term size of the dividend. Sir Stuart says he is not going to pay the dividend at all costs, but claims he is genuinely not at this stage trying to soften investors up for a cut. It all depends on how trading pans out, and on that score, he's in the hands of consumer confidence and the future of the economy. Madame et Monsieur, faites vos jeux.