We have all seen first-hand how the coronavirus crisis has reduced dividend payouts from our investment portfolios. According to the latest Global Dividend Index data from Janus Henderson, global dividends were down 12% in 2020 to $1.26trn. Although a worrying fall, this was far better than expected thanks to a less severe fall in Q4 payouts than what had been expected. While cuts and cancellations totalled $220bn between April and December 2020, companies still paid their shareholders $965bn, far outweighing the reductions. Janus Henderson noted “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.”
They also reported that “the dividend cuts were most severe in the UK and Europe, which together accounted for more than half the total reduction in payouts globally, mainly owing to the forced curtailment on banking dividends by regulators”. But even as payouts in Europe and the UK fell below the levels last seen in 2009, they rose 2.6% on a headline basis in North America to a new record high. Janus Henderson also stated, “in North America companies were able to conserve cash and protect their dividends by suspending or reducing share buybacks instead, and because regulators were more lenient with the banks.
In Asia, Australia was worst affected, thanks to its heavy reliance on banking dividends, which were constrained by regulators until December. Elsewhere, China Hong Kong and Switzerland joined Canada among the best performing nations.”
While Q4 payouts fell by 9.4% to a total of $269.1bn, this was less severe than expected as many companies restored suspended dividends to full strength, while others brought them back at a reduced level. Special dividends were also larger than expected, while in the US the dividends announced for the next four quarterly payments were also better than expected.
Banks, which usually pay the largest share of the world’s dividends, accounted for one third of global reductions by value as dividends were restricted by regulators in some parts of the world despite going into the crisis with healthy balance sheets. In the last week, we have seen here in the UK the four major high street banks all announcing a return to dividend payments in 2021, albeit at a reduced rate with the maximum allowed under current regulatory guidance.
Janus Henderson identified that “oil producers were the next most severely affected sector, while 6 in 10 consumer discretionary companies cut or cancelled payouts, but the classic defensives - food retail, pharmaceuticals and personal products - were well insulated.”
As investors we often have a home bias to portfolios, and this is often the case in income portfolios as the UK has had a strong history of paying high dividends. But while the disruption from the crisis in some counties and sectors has been extreme, taking a global approach to income investing has meant the benefits of diversification has helped mitigate some of these effects.