Global dividends showed “remarkable resilience” in 2020 despite going through their worst crisis since the second world war, according to Janus Henderson’s latest Global Dividend Index.
In the worst global crisis since the second world war which saw $220bn in dividend cuts within nine months “global dividends showed remarkable resilience”, according to Janus Henderson’s latest Global Dividend Index report.
Last year was a brutal one for income investors, with some $220bn in dividend being cut in the space of nine months. Janus Henderson’s figures show that global dividends fell 12.2 per cent on a headline basis in 2020 down to $1.26trn
There was a 10.5 per cent decline on an underlying basis, which was smaller than the cuts after 2008’s global financial crisis.
Source: Janus Henderson
This exceeded Janus Henderson’s initial ‘best case scenario’ projection for the year ($1.21trn headline). This was mainly down to a “less severe fall” in Q4, which saw some suspended dividends either fully or partially restored.
Dividends fell by 14 per cent in Q4 on an underlying basis to a total of $269.1bn and the headline decline was ‘just’ 9.4 per cent.
The Janus Henderson Global Dividend Index is a long-term study of global dividend trends. It measures the progress companies globally are making towards paying investors an income with its capital.
Jane Shoemake, investment director for global equity income at Janus Henderson, said: “Although the pandemic has changed the lives of billions in previously unimaginable ways, its impact on dividends has been consistent with a conventional, if severe, recession. Sectors that depend on discretionary spending have been more severely impacted, while defensive sectors have continued to make payments.
“At a country level, places like the UK, Australia and parts of Europe suffered a greater decline because some companies had arguably been overdistributing before the crisis and because of regulatory interventions in the banking sector.
“But at the global level, the underlying 15 per cent year-on-year contraction in payouts between Q2 and Q4 has been less severe than in the aftermath of the global financial crisis. The disruption in some countries and sectors has been extreme, but a global approach to income investing meant the benefits of diversification have helped mitigate some of these effects.
“Crucially, the world’s banks (which usually pay the largest share of the world’s dividends) mostly entered the crisis with healthy balance sheets. Bank dividends may have been restricted by regulators in some parts of the world, but the banking system has continued to function, underpinned by robust capital levels, which is vital for the smooth operation of economies.
“Finally, as is usual in challenging economic environments, dividends are exhibiting stability relative to profits. This is one reason why dividends are such an important consideration for investors.”
The Covid-19 pandemic and the measures companies had to take to cope with its financial impact were the ultimate cause of the widespread dividend cuts seen last year.
The first dividend cuts in response to the pandemic were made at the beginning of Q2. Therefore, to determine the full impact of Covid-19 on global dividends the report compared results from April to December 2020 (Q2-Q4) with the same period in 2019.
Janus Henderson’s Global Dividend Index found that dividend cuts and cancellations totalled $220bn between April and December last year.
But the report said: “We want to emphasise that despite the worst global crisis since the second world war companies in our index for the most part continued to pay dividends to their shareholders.”
Indeed, looking at 2020 overall $965bn worth of dividends were paid out, with two-thirds of companies able to increase or at least maintain their dividend. This meant
As a result, 2020’s payouts “far outweighed the cuts”, Janus Henderson said.
But that the end picture for dividends in 2020 was not as bad as expected doesn’t mean the rate of cuts wasn’t serious.
The Janus Henderson Global Dividend Index fell to 172.4, a level last seen in 2017. The index uses 2009 as a base year, with an index value of 100.
According to the report, one in eight companies globally cancelled their dividend payout completely and one in five made a cut. Six out of 10 consumer discretionary companies cut or cancelled payouts.
Banks accounted for one-third of the reductions in total. The impact on banks was felt especially in the UK, where they were put under pressure from the Bank of England ordering them to cancel all shareholder payouts for 2020.
Source: Janus Henderson
Banks were the biggest contributor to both UK and Europe’s dividend decline, which was so significant they alone contributed more than half of the world’s dividend cuts.
The index fell below its 2009 base level for the UK.
But not all areas suffered as much. North America for example saw a 2.6 per cent increase, on a headline basis, setting a new record. The report found that just one in seven companies in the US was affected.
Source: Janus Henderson
Looking ahead at the state of dividends in 2021, the report said that Q1 will see payouts fall, but the decline will be smaller than the one experienced between Q2 and Q4 last year.
Janus Henderson said: “A slow escape from the pandemic, and the drag caused by the first quarter”, could mean in a worst case scenario headline dividends fall by 2 per cent, and fall to minus 3 per cent on an underlying basis.
But in its best-case scenario, underlying dividends could increase by 2 per cent and rise 5 per cent on a headline basis.
Janus Henderson said: “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.”