- Distributions will drop 12.2% globally to $ 1.26 trillion in 2020, down 10.5% on an adjusted basis
- Q4 ended the year with a smaller decline than feared
- Every eighth company cut its dividend entirely and every fifth cut it, but two-thirds of the companies increased it or kept it constant
- The largest dividend payers in Germany included Allianz, Siemens and BASF
- China, Hong Kong and Switzerland, along with Canada, are among the countries with the best performance
- Banking, oil, mining, and consumer discretionary were hardest hit, while the classic defensive industries remained largely unscathed
- Janus Henderson’s best-case scenario assumes dividends will rise 5% to a total of $ 1.32 trillion in 2021 (adjusted + 2%)
The worst-case scenario envisages a decrease of around 2% in gross dividends (adjusted -3%)
Dividend cuts: Europe & UK hard hit
Most serious were the dividend cuts in the UK and Europe, which together accounted for more than half of the global drop in payouts. This is mainly due to the restrictions imposed on bank dividends by regulators. “According to our index, Germany did very well compared to the rest of Europe with an adjusted decline of 12.9%.
The small number of strong banks in Germany, even before 2020, supports the comparatively better result. In addition, German insurers have not given in to pressure from the EU insurance regulator to suspend dividends. That slowed the downward trend considerably, ”said Daniela Brogt, Head of Sales Germany & Austria at Janus Henderson Investors, analyzing the results for Germany.
While distributions in Europe and the UK fell below the 2009 level (when Janus Henderson started calculating the dividend index), they rose 2.6% to a new record in North America. North America performed so well mainly because companies were able to hold cash and protect their dividends by suspending or reducing share buybacks instead, and because regulators were more generous with banks. In the Asia-Pacific region, Australia was hardest hit as earnings are heavily dependent on bank dividends, which regulators capped until December. Apart from Canada, China, Hong Kong and Switzerland were also among the countries with the best performance. Brogt comments: “Overall, we were positively surprised by the result. However, it also shows how important it is to be diversified. ”
Q4 ended the year with a smaller decline than feared
Payouts for the fourth quarter fell 14.0% to a total of $ 269.1 billion, while the decline was only 9.4% on an absolute basis. This was less severe than expected as companies like Sberbank in Russia and Volkswagen in Germany reintroduced the suspended dividends in full, and others like Essilor in France brought them back to lower levels.
The special dividends were also higher than expected. In the US, the dividends announced for the next four quarters turned out better than generally thought.
How has Corona affected global dividends?
While the cuts and cuts totaled $ 220 billion between April and December 2020, they were far exceeded by the actual payouts of $ 965 billion. Every eighth company cut its dividend entirely and every fifth cut it. Two thirds of the companies increased it or kept it constant. Banks accounted for a third of global dividend cuts by volume, more than three times as much as oil producers – the second hardest hit sector. Six out of ten cyclical consumer goods companies cut or canceled their distributions, but the classic defensive industries – food retail, pharmaceuticals, and toiletries – remained largely intact. Among the world’s larger equity markets, the impact has been particularly severe in Spain and France – 71% of companies there have cut, compared with just 9% in Canada.
The outlook for the full year remains extremely uncertain
The pandemic has worsened in many parts of the world, even as vaccines offer new hope. It is important that the bank dividends are reinstated in the countries where they were cut. However, they will not even come close to 2019 levels in Europe and the UK, which will limit the potential for growth.
The regions of the world that have proven to be stable in 2020 are likely to repeat this performance in 2021. However, some sectors are likely to continue to have problems until economies can fully recover.
A slow subsidence of the pandemic and the lag caused by the first quarter point to a 2% decline in payouts for the year as a whole (-3% adjusted). In the best-case scenario, growth of 2% on an adjusted basis is assumed at this point in time, which corresponds to an overall growth of 5% to a total of 1.32 trillion US dollars.
Jane Shoemake, Janus Henderson’s Global Equity Income Team Client Portfolio Manager, said, “While the pandemic has changed the lives of billions in ways unimaginable, the impact on dividends has been a traditional, if severe, recession. Sectors dependent on discretionary spending were hit harder, while defensive sectors continued to pay dividends. At the country level, countries like Great Britain, Australia and parts of Europe had to cope with a steeper decline because some companies had probably already paid out too much before the crisis and due to regulatory interventions in the banking sector. On a global level, however, the decline in distributions between the second and fourth quarters of 15% year-on-year was more moderate than the decline after the global financial crisis. ”
The effects of the crisis have been extreme in some countries and sectors, but a global approach to income investment meant that the benefits of diversification helped mitigate some of that effects. Crucially, the world’s banks (which usually pay most of the world’s dividends) mostly went into crisis with healthy balance sheets. Bank dividend distributions may have been restricted by regulators in some parts of the world, but the banking system has continued to function, backed by the solid capitalization that is essential for the proper functioning of economies. ”
“After all, as usual in a difficult economic environment, dividends show stability in relation to profit. This is one reason why dividends are such an important consideration for investors. ”
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