More than three in five companies cut or cancelled dividend payments as the effects of COVID-19 rolled through the economy, according to Janus Henderson.
Australian dividend payouts fell by some 38 per cent between April and December, lagging North America, China, and Hong Kong despite the country’s relative success in containing the spread of COVID-19.
“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,” said Janus Henderson head of Australia Matt Gaden.
“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. There is still another challenging quarter to come. Q1 will see payouts fall, although the decline is likely to be smaller than between Q2 and Q4 2020.”
Banks, oil and mining, and consumer discretionary were worst hit in the dividend drought, while classic defensives – including foot retail, pharmaceuticals and personal products – were well protected.
“At a country level, places like the UK, Australia and parts of Europe suffered a greater decline because some companies had arguably been overdistributing before the crisis and because of regulatory interventions in the banking sector,” said Jane Shoemake, client portfolio manager on the global equity income team.
“But at the global level, the underlying 15 per cent year-on-year contraction in payouts between Q2 and Q4 has been less severe than in the aftermath of the global financial crisis.”
Janus Henderson’s best-case scenario for 2021 global dividends would see them rise 5 per cent to a total of US$1.32 trillion, and underlying increase of 2 per cent. That includes Q1 2021, in which payouts will continue to fall.
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