Dividend expectations will be subject to “significant” downgrades as the reality of the coronavirus crisis hits home.
Dividend cuts or deferrals are likely to rise as companies try to conserve cash and survive the crisis, says Jane Shoemake, investment director on Janus Henderson’s global equity income team.
“During the global financial crisis (GFC) global dividends fell by almost 30 per cent from peak to trough with earnings down around 60 per cent,” Ms Shoemake said. “This happened over a 15-18 month period, whereas the current crisis has evolved in just three months from when the first case was reported in China at the end of 2019. We believe that consensus earnings and dividend expectations globally remain too high and will be subject to significant downgrades in coming weeks.”
Some of Australia’s largest institutions have already flagged the deferral of interim dividends, including Bank of Queensland, and both NAB and Westpac have signalled that it will take APRA’s guidance on the matter into consideration before paying out. UBS has also informed shareholders that it will pay its 2019 dividend in two installments after a request from Swiss regulator FINMA.
Ms Shoemake warned that some companies might also find it difficult to justify paying dividends while also accessing government stimulus programs.
“The key question will be how quickly these companies can return to paying dividends once the crisis has subsided,” Ms Shoemake said. “There has been an enormous amount of stimulus applied around the world at a much earlier stage in this crisis than in the GFC, and in some cases companies have cut their dividends out of prudence and political consideration rather than necessity.”
Ms Shoemake anticipates that dividend payments from a number of sectors will resume in 2021 – assuming best-case scenarios for the coronavirus outbreak, including a peak in virus cases, the end of government lockdowns, and a global economic rebound.
“It remains difficult to accurately forecast the likely scale of dividend cuts globally in 2020 given the highly fluid and developing situation,” Ms Shoemake said.