Covid-19: Global dividends plunge by $108 bn in Q2

The novel coronavirus has been responsible for a global slashing of dividends, according to the latest data from Janus Henderson, with payouts falling by $108 bn across the world’s 1,200 largest companies. 

The 22 percent fall, to a global payout of $328.2 bn across the quarter, is the worst quarterly drop since the asset manager began tracking quarterly dividend payments in 2009 following the financial crisis. 

But while globally the picture is stark, payouts vary widely by region and country. The UK and mainland Europe have been most affected: in Europe (ex-UK), dividends fell by 45 percent, or $66.9 bn, with 54 percent of European companies reducing their payouts – of which two thirds were cancelled outright. In the UK, more than half of companies in the Janus Henderson Global Dividend Index cut or cancelled their dividends, with payouts falling 54 percent. ‘Among the world’s larger stock markets, only France and Spain saw bigger declines in Q2,’ writes Janus Henderson.

In fact, dividends fell across all regions apart from North America, where payouts remained almost unchanged year on year due to dividends in Canada – which has been less affected by the virus – actually increasing by 4.1 percent. 

But Janus Henderson warns that the effect in the US could be delayed due to how dividends are paid. ‘In the US, most companies set their dividends once a year and pay them in four equal instalments, starting in the fourth quarter,’ it writes. ‘Despite the extreme disruption caused by the pandemic, the vast majority of US companies have made no immediate change to payouts. Instead, hundreds of US firms have suspended share buyback programs. These were estimated by Goldman Sachs to total more than $700 bn in 2019, so halting them leads to an immediate saving of cash.’

What this means is that there could be a delayed – and prolonged – impact on US dividends. ‘The big question for the US is what will happen in the fourth quarter,’ write the report authors. ‘If many companies make significant cuts to their dividends, payouts will be fixed at a lower level until toward the end of 2021.’

The reverse could be true in Europe, where dividends are typically paid out once a year – so there could be a rebound in 2021.

‘There is no doubt that 2020 is going to be a challenging year for income investors and an active approach to stock selection will be critical,’ says Jane Shoemake, investment director on the global equity income team at Janus Henderson, in a video accompanying the release of the report. ‘It is now more important than ever to ensure portfolios are diversified as well, both geographically and by sector.’

Janus Henderson says healthcare and communications dividends were up on the quarter, while consumer discretionary companies were heavily impacted by government lockdowns and financials were impacted by regulatory bans on dividends in Europe and the UK, and regulatory pressure in Australia.