The Covid pandemic wiped $220bn (£157bn) off global dividends in 2020, but the year’s overall decline was less severe than anticipated due to a smaller than feared fall in Q4 payouts.
According to Janus Henderson’s global dividend index, global shareholder payouts fell 12.2% in 2020 to $1.26trn, in large part due to a heavy reliance on banks which faced regulatory pressure to cut dividends.
This was better than Janus Henderson’s best-case forecast of $1.21trn, thanks to a less severe fall in Q4 payouts than anticipated. Payouts during the quarter fell 14% on an underlying basis to a total of $269.1bn while the headline decline was just 9.4%.
“This was less severe than expected as companies like Sberbank in Russia and Volkswagen in Germany restored suspended dividends at full strength, while others like Essilor in France brought them back at a reduced level,” Janus Henderson said in a press release. “Special dividends were also larger than expected, while in the US the dividends announced for the next four quarterly payments were better than expected.”
Between April and December 2020, companies paid their shareholders $965bn which outweighed the reductions. One company in eight cancelled its payout altogether and one in five made a cut, but two thirds increased their dividends or held them steady, Janus Henderson said.
Regulatory pressure on banks has big effect on UK, Europe and Australia
UK and Europe suffered the worst cuts with the two regions together accounting for more than half the total reduction in global payouts. This was mainly due to the forced curtailment on banking dividends by regulators.
In March last year the Bank of England’s Prudential Regulation Authority asked lenders to suspend shareholder payouts and preserve capital as the Covid crisis took hold. Nine months later, in December, it announced they could restart dividends.
Overall, 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.
See also: Gam’s Adrian Gosden says UK is ‘past the worst’ of dividend cuts
Australia was the worst affected region in Asia due to its heavy reliance on banking dividends, which were also constrained by regulators until December.
But in North America dividends rose 2.6% on a headline basis to a new record. Janus Henderson said the region did well mainly because companies were able to conserve cash and protect their dividends by suspending or reducing share buybacks, and because regulators were more lenient with the banks.
Janus Henderson expects to see payouts fall Q1 2021, although the decline is likely to be smaller than between Q2 and Q4 2020.
Outlook for 2021 remains extremely uncertain
It said the outlook for the full year remains extremely uncertain but predicted in a worst-case scenario dividends may fall by 2% on a headline basis for the full year (-3% underlying). Its best-case scenario is for an increase of 2% on an underlying basis, equivalent to a headline rise of 5%, yielding a total of $1.32trn.
Janus Henderson client portfolio manager Jane Shoemake (pictured) said: “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.
“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.”
See also: UK equity income funds haemorrhage £501m as industry enjoys strong finish to 2020
