Pandemic wipes 12% off global dividends in 2020

Dividend cuts in 2020 were most severe in the UK and Europe, which together accounted for more than half the total reduction in payouts globally.

The “worst crisis since the Second World War” saw global dividend payouts sink in 2020, according to the Janus Henderson Global Dividend Index, although the fall was less severe than feared.

As a result of the pandemic, global payouts fell 12.2% on a headline basis (including special dividends) to $1.26 trillion last year, equivalent to an underlying fall (which strips out special dividends) of 10.5%, the report says. However, £1.26 trillion was higher than the $1.21 trillion Janus Henderson had previously forecast, thanks to a smaller-than-expected fall in the fourth quarter of 2020.

Dividend cuts totalled $220 billion between the second and fourth quarters, but companies still paid out $965 billion to their shareholders.

UK among hardest hit

The cuts were most severe in the UK and Europe, which together accounted for more than half the total reduction in payouts globally. This was largely due to enforced dividend cuts that financial regulators imposed on banks. However, the US was resilient, with payouts rising 2.6% to a new record as companies conserved cash and reduced share buybacks to protect their dividends.

One company in eight cancelled its payout to shareholders altogether, while one in five made a cut and two-thirds either held steady or increased their dividend.

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Banks forced to suspend payouts

Banks accounted for one-third of global dividend reductions by value, more than three times as much as oil producers, the next most severely affected sector. Six in 10 consumer discretionary companies cut or cancelled payouts, but the classic defensives - food retail, pharmaceuticals and personal products - were well insulated, the report says.

Looking forward, payouts in the first quarter of 2021 are likely to fall, although the decline should be less severe than that seen between second quarter and fourth quarter of 2020, especially as banking dividends start to resume.

‘Extreme disruption’

Janus Henderson’s best-case scenario sees 2021 dividends up 5% on a headline basis to a total of $1.32 trillion, an underlying increase of 2%.

In the worst-case scenario, payouts could fall 2% on a headline basis, or 3% in underlying terms.

“Although the pandemic has changed the lives of billions in previously unimaginable ways, its impact on dividends has been consistent with a conventional, if severe, recession,” says Jane Shoemake, investment director for global equity income at Janus Henderson. “Sectors that depend on discretionary spending have been more severely impacted, while defensive sectors have continued to make payments.

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“The disruption in some countries and sectors has been extreme, but a global approach to income investing meant the benefits of diversification have helped mitigate some of these effects.

“Finally, as is usual in challenging economic environments, dividends are exhibiting stability relative to profits. This is one reason why dividends are such an important consideration for investors.”