Global dividends suffer biggest quarterly fall since the 2008 financial crisis

Lauren Mason
Global dividends suffer biggest quarterly fall since the 2008 financial crisis

Global dividends plummeted by $108.1bn to $382bn in 2Q this year, according to Janus Henderson's latest Global Dividend Index, marking an underlying decline of 19.3% - the biggest fall seen since the study was first launched in 2009.

All regions except the US suffered a drop in payouts, with the UK and Europe seeing the biggest falls at 54% and 45% respectively on an underlying basis.

France and Spain were the only two individual larger stockmarkets to experience a sharper fall than the UK, as more than half of the UK's companies either cut or cancelled dividends altogether.

All regions except the US suffered a drop in payouts, with the UK and Europe seeing the biggest falls at 54% and 45% respectively on an underlying basis."

The UK's dividends were most heavily impacted by the likes of HSBC, Shell, Lloyds and Glencore, although the study notes several large UK companies had been paying out an "excessively large portion of their profits as dividends for some time", meaning the pandemic is giving many of them "an opportunity to reset investor expectations, which will make future payouts more sustainable".

Europe suffered a similar fate, with 54% of companies reducing their payments. Of these, two-thirds were outright cancellations.

While France and Spain were among some the most severely impacted with cuts of at 57% and 70% respectively, Sweden and Italy also struggled. Germany, on the other hand, saw dividends fall by just a fifth while Swiss dividends were flat in year-on-year terms.

Almost half of Europe's dividend cuts came from the banking sector.

While financials and the consumer discretionary sector saw the sharpest falls in payouts, healthcare and communications proved most resilient.

As such, US dividends actually increased by 0.1% with only 10% of firms cutting their dividends.

The report also noted that US companies set their dividends once per year and pay them in four equal instalments starting from Q4, meaning investors are more likely to see the impact of the pandemic on payouts near the end of the year.

Many US firms also opted to suspend share buyback programmes rather than cut dividends, which in 2019 totalled $700bn according to estimates by Goldman Sachs.

Dividends in Canada grew by 4.1%, as the coronavirus outbreak was less severe.

Japan also fared well on a relative basis, with four-fifths of companies actually increasing or maintaining their dividends while only four firms - including Japanese stockmarket giant Nissan - cancelled their dividends altogether. Overall, payouts in the country fell by 3.1% on an underlying basis.

The rest of Asia Pacific saw sharper falls, most of which came from Australia, where bank Westpac suspended its dividend following pressure from the Australian Prudential Regulation Authority.

This alone accounted for more than 60% of Asia Pacific's 11.2% decline in 2Q.

In emerging markets, payouts fell by 13.2% on an underlying basis but 25% on a headline basis, with the report noting it is "more difficult" to assess the impact of Covid-19 on EM dividends than other regions. For instance, while the pandemic has affected some countries - such as Brazil - far more than others, each country has varying payout patterns.

For instance, it stated Chinese dividends for 2020 relate to 2019 profits and so are "largely fixed", while Russian dividend payments are "unpredictable at the best of times", with potential still for Sberbank to pay its missed dividend later in the year.

"2020 will be the worst year for dividends since at least the Global Financial Crisis," the report concluded.

"We should also caution that the peak-to-trough decline in dividends is only likely to be established at the end of 1Q2021.

"The big question remains what will happen to US and Canadian dividends in Q4. Half the gap between our two scenarios is determined by how much companies there will reset payouts for Q4 and beyond.

"The evidence so far suggests cuts in North America will be less severe than in Europe, the UK and Australia, thanks to lower payout ratios and the ability of companies to absorb a lot of the crisis's impact by reducing or postponing share buybacks."

The report also expects Japan, Asia and some emerging markets to be "less severely affected", although the impact on dividends from these regions are - like the US - likely to see a more delayed reaction, "resulting in a drag on dividend growth into 2021."

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