Globally, pandemic caused $220bn of dividends cutsThe most recent Janus Henderson Global Dividend Index reveals that cuts were most severe in UK and Europe.
February 22, 2021 — DENVER–(BUSINESS WIRE)–During the worst crisis since World War II, US dividends proved resilient, increasing 2.6% year-over-year to a record high of $503.1 billion in 2020, as just one in fourteen US companies cancelled its dividend between April and December according to the latest edition of the Janus Henderson Global Dividend Index.
Globally, dividends fell to $1.26 trillion during the year, down 12.2% on a headline basis. This was better than Janus Henderson’s best-case forecast of $1.21 trillion thanks to a less severe fall in Q4 payouts than anticipated. Janus Henderson’s index of global dividends fell to 172.4, a level last seen in 2017.
The dividend cuts were most severe in the UK and Europe, which together accounted for more than half the total reduction in payouts globally, mainly owing to the forced curtailment on banking dividends by regulators. In North America, companies were able to conserve cash and protect their dividends by suspending or reducing share buybacks instead, and regulators were more lenient with the banks. In Asia, Australia was worst affected, thanks to its heavy reliance on banking dividends, which were constrained by regulators until December. Elsewhere, China, Hong Kong and Switzerland joined Canada among the best performing nations.
Q4 Ended The Year With A Smaller Fall Than Feared
Globally, Q4 payouts fell 14.0% on an underlying basis to a total of $269.1bn while the headline decline was just 9.4%. This was less severe than expected as companies like Sberbank in Russia and Volkswagen in Germany restored suspended dividends at full strength, while others like Essilor in France brought them back at a reduced level. Special dividends were also larger than expected, while in the US the dividends announced for the next four quarterly payments were better than expected.
How Did Covid-19 Affect Global Dividends?
Although cuts and cancellations globally totaled $220bn between April and December 2020, companies nevertheless paid their shareholders $965bn, still far outweighing the reductions. One company in eight cancelled its payout altogether and one in five made a cut, but two thirds increased their dividends or held them steady. Banks accounted for one third of global dividend reductions by value, more than three times as much as oil producers – the next most severely affected sector. Six in ten consumer discretionary companies cut or cancelled payouts, but the classic defensives – food retail, pharmaceuticals and personal products – were well insulated. Among the world’s larger stock markets, the impact in Spain and France was particularly widespread with 71% of companies making reductions compared to just 9% in Canada.
Payouts are expected to fall in Q1 2021, although the decline is likely to be smaller than between Q2 and Q4 2020. The outlook for the full year remains extremely uncertain. The pandemic has intensified in many parts of the world, even as vaccine rollouts provide hope. Importantly, banking dividends will resume in countries where they were curtailed, but they will not come close to 2019 levels in Europe and the UK, and this will limit the potential for growth. Those parts of the world that proved resilient in 2020 look likely to repeat this performance in 2021, but some sectors are likely to continue to struggle until economies can reopen fully.
A slow escape from the pandemic, and the drag caused by the first quarter, suggest that global dividends may fall by 2% (headline) for the full year in a worst-case scenario (-3% underlying). A best-case at this stage suggests an increase of 2% on an underlying basis, equivalent to a headline rise of 5%, yielding a total of $1.32 trillion.
Matt Peron, Director of Research at Janus Henderson said: “Covid-19’s impact on dividends varied significantly across different regions and sectors, which underscores the importance of taking a diversified approach to income investing. With the first set of 2021 dividend announcements in the US looking better than projected, central-bank policy expected to keep interest rates low and economies poised to rebound as vaccine distribution expands, equity income strategies will be increasingly important for many investors.”
Unless otherwise stated all data is sourced by Janus Henderson Investors as of 31 December 2020.
Past performance is no guarantee of future results. International investing involves certain risks and increased volatility not associated with investing solely in the UK. These risks included currency fluctuations, economic or financial instability, lack of timely or reliable financial information or unfavorable political or legal developments.
Each year Janus Henderson analyze dividends paid by the 1,200 largest firms by market capitalization (as at 31/12 before the start of each year). Dividends are included in the model on the date they are paid. Dividends are calculated gross, using the share count prevailing on the pay date (this is an approximation because companies in practice fix the exchange rate a little before the pay date), and converted to US$ using the prevailing exchange rate. Where a scrip dividend is offered, investors are assumed to opt 100% for cash. This will slightly overstate the cash paid out, but we believe this is the most proactive approach to treat scrip dividends. In most markets it makes no material difference, though in some, particularly European markets, the effect is greater. Spain is a particular case in point. The model takes no account of free floats since it is aiming to capture the dividend paying capacity of the world’s largest listed companies, without regard for their shareholder base. We have estimated dividends for stocks outside the top 1,200 using the average value of these payments compared to the large cap dividends over the five-year period (sourced from quoted yield data). This means they are estimated at a fixed proportion of 12.7% of total global dividends from the top 1,200, and therefore in our model grow at the same rate. This means we do not need to make unsubstantiated assumptions about the rate of growth of these smaller company dividends. All raw data was provided by Exchange Data International with analysis conducted by Janus Henderson Investors.