Dividend outlook remains “extremely uncertain” after year of slashed pay-outs

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Global dividends fell by 12 per cent in 2020 to USD1.3 trillion in the full year of 2020, after cuts and cancellations reached USD220 billion between April and December. 

Companies in the UK and Europe made up more than half the value of cuts and cancellations combined, according to a new report from UK-based asset manager Janus Henderson.

The UK saw the largest total fall in dividends, with total pay-outs falling by 41 per cent to an annual sum of USD62.5 billion. This compared to falls of 32 per cent in the rest of Europe, 18 per cent in Asia Pacific ex-Japan, and 10 per cent in emerging markets. 

In 2020, London-listed Royal Dutch Shell cut its dividend for the first time since 1945 due to a collapse in oil prices, and major banks Barclays, HSBC, Lloyds, Royal Bank of Scotland and Standard Chartered all halted payments.

“At a country level, places like the UK, Australia and parts of Europe suffered a greater decline because some companies had arguably been over-distributing before the crisis and because of regulatory interventions in the banking sector,” says Jane Shoemake, client portfolio manager on the Global Equity Income Team at Janus Henderson.

Banks were responsible for over a third of all global dividend reductions, cutting or cancelling USD70 billion of payments, more than three times as much as the second largest sector for cuts, oil and gas producers. 

“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,” says Shoemake. 

In North America, dividends actually rose by nearly 3 per cent. In its latest global dividend report, Janus Henderson writes: “North America did so well mainly because companies protected their dividends by suspending or reducing share buybacks instead, and because regulators were more lenient with the banks.”

In all, one-in-eight companies cancelled dividends altogether and one-in-five made a cut.

In 2021, Janus Henderson says that there is “still another challenging quarter to come”, but falls are expected to be smaller than those in 2020.

“Importantly we will see banking dividends 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,” writes the investment manager.

Under its “worst-case” outlook, pay-outs are expected to fall another 2 per cent in the full year of 2021 on a headline basis. “The pandemic has intensified in many parts of the world, even as vaccine roll-outs provide hope,” reads the report. 

Its best-case expectation for 2021 is limited by a “slow escape” from the pandemic and likely first quarter falls in dividends. 

“It is quite likely we will see companies pay special dividends in 2021, utilising strong cash positions to make up some of the decline in distributions in 2020. This, along with a likely boost from exchange-rate factors, mean we could see headline growth of 5 per cent for the full year to a total USD1.32 trillion,” says the investment manager.