Dublin-based KBI Global Investors has published research indicating that, contrary to many headlines, dividends have proven resilient during the covid-19 induced financial crisis.
In its UK Dividend Monitor for 2Q, LINK reported that 176 companies had cancelled pay outs, with 30 more cutting their dividend - this representing three-quarters of all 2Q payers.
Current earnings data being used by companies have a long way to go to reflect reality, with dividends providing a more meaningful barometer, but where there have been dividend cuts, they have come from companies with the weakest balance sheets or have been driven by regulators (as is the case with European banks).
Well over 80% of dividend paying companies in the MSCI World index are making dividend payments which are at least the same or better than at the onset of the pandemic."
By reviewing the direction of the dividend for all 1,600 stocks in the MSCI World Index since the end of February, KBI Global Investors says that 10% of firms reduced their dividends, while 6% suspended payments. At the same time fully 69% made no change to their dividends, with 15% increasing their payments.
This supports the view that dividends are far more resilient in downturns than investors might expect and can anchor returns when share prices carry a high degree of risk. KBI Global Investors says it prefers to focus on the direction of the dividend rather than the cash paid on the basis that it provides better information about ongoing profitability.
While recent results are made worse by regulation in the banking sector and different sequencing around dividend payments, there are many parallels with the past; KBIGI attributes this to higher starting pay-out ratios, which are harder to sustain when earnings are under pressure.
In more recent times, with earnings in freefall, companies simply have not had the reserves to temporarily shore up dividends. Across all regions, it is notable that most dividend disappointment has come from companies with the weakest balance sheets.
Viewed regionally, the bulk of the cuts have been in Europe, with the UK experiencing the highest number of cuts - 46% of its MSCI listed companies either reducing or suspending dividends. The bulk of the increases meanwhile have been in Japan. While the cultures and reputations of these regions would lead you to expect the opposite, the data shows dividend patterns are always changing, as are the financial metrics that drive them.
Commenting on its research, Geoff Blake, global head of business development at KBI Global Investors said, "The strong emphasis on quality across our portfolios has enabled us to avoid the vast majority of dividend cuts whilst retaining our key overweight emphasis to dividend yield, dividend growth, quality and better valuation."
"While there will always be timing, sequencing and regulatory issues to consider with any international comparison, the fact is that well over 80% of dividend paying companies in the MSCI World index are making dividend payments which are at least the same or better than at the onset of the pandemic."
"History can help to put current events in perspective and guide our expectations, and whilst dividend data can and will most likely change over the course of the year, what is most problematic for investors in trying to make forecasts is that the range of potential outcomes remains unusually wide. However, because dividend policy for the year has been addressed, and are accrued in advance of payment, dividend information is currently more secure than earnings information and may give us some guidance as to what to expect."
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Lowest Q3 payout since 2010