Wellian Weekly 08.06.2020

Global Income

Three months ago, investment firm Janus Henderson published its usual quarterly global dividend review and judged 2020 looked set to deliver a fifth consecutive year of record dividends, with global payouts totalling $1.48 trillion expected, some 3.9% higher than 2019. But that was then.

Three months on, the more sober assessment of 2020 contained in the firm’s latest global dividend review is a great deal more downbeat. Its best case scenario sees a decline in global dividends of 15% this year to $1.21 trillion, a drop of $213bn. Its worst case scenario sees a decline of 35%, $933bn.

Obviously, these figures could be wrong, and frankly, no one knows what might lie ahead. But accepting it at face value for a moment, it’s worth comparing this with Link Asset Services’ own UK-specific forecast, which projects UK dividend income falling by more than half this year.

Obviously, Link Asset Services’ figures could be wrong, too, but the contrast between the two estimates is difficult to ignore. Global equity income investors are going to see a worst-case fall in income of around 35% while UK equity income-investors are going to see a fall of 55% or so. That’s a 20% gap in an investor’s income.

A lot of UK equity income investors will have portfolios heavily biased to the upper reaches of the FTSE 100. That’s not surprising, of course, and apart from anything else reflects the prominent role of big dividend payers such as Royal Dutch Shell, HSBC, GlaxoSmithKline, and British American Tobacco.  The trouble is that a number of these dividend stalwarts have abruptly fallen off their pedestals. Overall, some 45% of the FTSE 100 had cancelled, reduced, or delayed their dividend payments, including two of the four above; Shell slashing its dividend by two-thirds for the first time in 75 years and HSBC cutting it completely at the request of the Bank of England’s Prudential Regulation Authority.

There are good reasons for Janus Henderson to expect some other regions of the world to be less badly affected by the coronavirus crisis, from a dividend-paying perspective with their sectoral and regional differences to the UK. What’s beyond argument, though, is that global income investors are going to be a lot more diversified than UK-only income investors. Home-country bias may be comfortable, but at a time like this one begins to see its drawbacks. Going global isn’t without its risks, of course. Currency risk, taxation risk, political risk and volatility risk all need to be considered.

So while FTSE 100-only income investors have taken a pummelling this year, global dividends look to be less hard-hit than UK dividends. Going forward, an increased international exposure within portfolios looks smart for income investors.

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