Despite global payouts falling by 11 per cent during the third quarter, there are considerable signs for optimism as 2021 approaches, according to the team at Janus Henderson Investors.
As the pandemic has worn on, so has its impact on the dividend-paying capacity of the world’s companies, according to the latest edition of the Janus Henderson Global Dividend index.
Global dividends were $55bn lower in the third quarter, a fall of 11.4 per cent on an underlying basis and a headline decline – including special dividends – of 14.3 per cent.
The decline during the third quarter was less severe, the asset manager noted, because the seasonal patterns favour parts of the world where dividends were more resilient, such as China, Hong Kong and Canada.
According to the November edition, Q3 is China’s big dividend season and payouts there were 3.3 per cent higher year-on-year.
The weakest results came from UK, Australia and The Netherlands.
Payouts in the UK – traditionally one of the highest yielding markets – were down 41.6 per cent, while The Netherlands was badly impacted by the cancellation of banking and brewing dividends.
Australia’s dividends, meanwhile, fell by 40.3 per cent on an underlying basis, down to just $9.6bn.
Having previously anticipated that underlying dividends could fall by up to 19 per cent in Q2, the asset manager believes the final figure has been rounded down to a fall of 17.5 per cent to $1.2trn this year, in the best-case scenario. In its worst-case scenario, payouts could drop by 20.2 per cent to $1.16trn.
Global annual dividend outlook
Source: Janus Henderson Investors
“Our best case would eradicate more than three years of dividend growth – our worst case four years – costing investors $224bn in lost income this year,” the asset manager noted.
“For 2021, we must remember that Q1 will still be affected by reductions, but then things should pick up.”
“The loss of $224bn in dividend income from around the world in 2020 is nothing to celebrate,” said Jane Shoemake, investment director for global equity income at Janus Henderson. “But we have been encouraged by how resilient payouts have been in many parts of the world, especially in Asia, the US, Japan and emerging markets.”
The US accounts for a significant proportion of the global total, with US companies paying two-fifths of the world’s dividends.
Eight in 10 US companies held or increased their payouts in Q3, with lower share buy-backs reportedly bearing the brunt of companies’ efforts to preserve cash.
The report also shows that excluding Australia, dividends from Asia-Pacific ex Japan were exactly flat year-on-year. This can in part, be attributed to the swift response to cases of Covid-19 in the region and the subsequent recovery of its economies.
This is combined with stronger balance sheets, lower payout ratios and because many payouts this quarter relate to earnings from 2019 and were fixed months ago.
“This resilience is partly because companies seek to cushion investors from the disruption to their operations, but it’s also because payout ratios have been comfortable in many parts of the world,” said Shoemake.
She also explains that the UK, Australia and other parts of Europe were more vulnerable because the payout ratios there were too high and a “reset was overdue for some key companies.”
Hong Kong enjoyed the fastest dividend growth in the developed world in Q3, with payouts rising 9.9 per cent on an underlying basis to $21.7bn, the second highest quarterly total on record from the territory.
Some of the hardest-hit areas in terms of dividend declines in Q3 were in consumer discretionary companies, down 43 per cent in underlying terms.
Car manufacturers and leisure companies were the hardest hit, but media, aerospace and banks were also severely impacted. Conversely, pharmaceuticals, food producers and food retailers were the most resilient sectors, and all saw higher payouts on an underlying basis.