Outlook for income seekers in 2021 improves as dividend cuts slow

Janus Henderson expects dividend payments to increase by 8.4% in 2021 compared to last year.

Global dividend payments continued to decline in the first quarter of 2021, albeit it at their slowest pace in a year, according to the latest Janus Henderson Global Dividend report.

Headline dividend payments (the total of all dividends received) fell by 2.9% to $275.8 billion (£194 billion) in the first three months of the year, compared to the first three months of 2020. Meanwhile, underlying payments (that strip out special dividends) fell by 1.7% measured over the same time period. While a decline, this was much less than previous quarters, where year-on-year payments have showed double-digit declines since the start of the pandemic.

Janus Henderson is now bullish about the prospects of dividend growth this year. The asset manger has upgraded its expectation of global dividends to $1.36 trillion, which would represent an 8.4% increase on a headline basis compared to 2020. Previously, Janus Henderson’s best-case scenario for 2021 was dividends up 5% on a headline basis to a total of $1.32 trillion.

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The latest data also gives a sense of the scale of damage Covid-19 has done to dividends. Over the past four quarters, most of which were during the pandemic, companies cut dividends worth $247 billion. That was equivalent to a 14% year-on-year reduction. However, this was actually a milder fall than what was seen after the global financial crisis. According to Janus Henderson, the pattern of the decline looked similar to what would be expected in a conventional recession.

In terms of sectors, mining companies stood out for payments in the first quarter. Due to the commodity price boom, miners issued large one-off dividends. As a result, collectively mining companies raised their headline payments by 85% (and 58% in underlying terms).

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Healthy increases also came from financials. This sector in particular was boosted by several firms restarting their dividends following suspensions during the pandemic. Utilities and healthcare also saw higher payouts.

Consumer discretionary, energy and technology stocks all saw their dividend payments decrease on an underlying basis.

Commenting on the new data, Jane Shoemake, client portfolio manager on the global equity income team at Janus Henderson, said: “Despite this uncertainty, we are more optimistic given that the first quarter was undoubtedly better than expected and we are now more confident that companies are willing and able to pay dividends, especially those companies that have traded well.”

She adds: “There is certainly much less downside risk to payouts this year than previously anticipated, although the timing and magnitude of individual company payouts is going to be unusually uneven, and this will add volatility to the quarterly figures. Special dividends will play a role, too.”

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When it came to the UK, underlying payments fell by 26.7%. This was largely the result of continued cuts to oil company payments. However, it should be noted that less than half of British companies in the Janus Henderson index cut dividends in the first quarter of the year, a huge improvement to previous quarters over the past year. On a headline basis, UK dividends rose by 8.1% in the first quarter due to extra payouts and special dividends.