Savers hit as global dividends could fall by 35%, report warns, but it says US and Asia are where investors have been best protected
- The best-case scenario for global dividends in 2020 is a 15 per cent drop, based on cuts and suspensions already confirmed, and which accounts for $213billion
- Banks, discretionary consumer sectors and some industrials have been worst hit
- North American dividends are likely to be less affected than the UK and Europe
Investors will be hit as dividends around the world could fall by as much as 35 per cent in 2020, according to the latest Global Dividend Index by Janus Henderson.
The new research has revealed a decline of 15 per cent is likely in a ‘best-case scenario’ triggered by the coronavirus pandemic hit to company profits
That is a drop of $213billion in dividends across the world to $1.21trillion, however, a worst-case scenario predicts a drop to $933billion. The report outlined the US and Asia asa the best places to invest to be protected from dividend cuts.
On a personal level, those figures translate to a cut of a third in income for pension investors, many of whom rely on dividends for their retirement.
Global dividends will fall by 15 per cent this year but could fall by as much as 35 per cent
It comes as several global companies have announced cuts or suspensions on their dividend payouts for the year, including tobacco business Imperial Brands which cut its dividend by a third today to ‘prioritise debt reduction’.
The hit to investors’ portfolios has been swift and brutal, as payouts were culled.
Dividends between January and March were almost entirely unaffected by the Covid-19 pandemic, reporting a growth of 3.6 per cent to a first-quarter record of $275.4billion.
The US and Canada each saw all-time quarterly records, while Japan, Hong Kong, and Russia broke their first-quarter records. The index of global payouts rose to a record 196.3.
However, the remainder of 2020 isn’t looking as bright given the recent announcements.
The research screened the value of companies that have cancelled or suspended payouts, those whose payouts appear vulnerable and those least likely to be affected were screened
The report said: ‘With so much uncertainty, any forecast for dividends would have little value, so we are withdrawing our 2020 estimate. Instead we introduce a range as a guide to how 2020 may look.
‘Our best case incorporates only those dividend cuts that have already been announced, or that we believe are very likely to be. This suggests global payouts will fall 15 per cent this year.
‘Our worst case also includes all those that are vulnerable. This suggests global payouts could fall 35 per cent this year.’
Where have dividends been hit hardest
On a country by country basis, the research said North America and Asia are likely to see the least impact, though their reasons differ.
North America has a favourable sector mix, for example a high exposure to technology, and the suspension of share buybacks rather than dividend cuts are how companies are likely to preserve cash.
In China and the rest of Asia, however, companies have already fixed their 2020 payouts based on 2019 profits, so the impact is likely to be greater in 2021.
Europe and the UK have been the most severely affected with regulators forcing banks to suspend dividends and big oil companies such as Shell already cutting payouts.
| Region | 2017 | %* | 2018 | %* | 2019 | %* | 2019 Q1 |
%* | 2020 Q1 |
%* | ||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Emerging Markets | $105.1 | 18.6 | $126.9 | 20.7 | $140.0 | 10.4 | $16.3 | -5.5 | $15.2 | -6.6 | ||
| Europe ex UK | $225.1 | 0.8 | $256.6 | 14.0 | $251.4 | -2.0 | $40.4 | 9.1 | $36.2 | -10.3 | ||
| Japan | $70.0 | 8.1 | $79.1 | 13.0 | $85.7 | 8.4 | $5.5 | 5.7 | $5.8 | 4.8 | ||
| North America | $475.7 | 6.9 | $509.7 | 7.2 | $534.7 | 4.9 | $133.2 | 8.2 | $151.4 | 13.7 | ||
| Asia Pacific ex Japan | $141.6 | 20.2 | $150.4 | 6.3 | $147.7 | -1.8 | $19.8 | 23.2 | $17.1 | -13.4 | ||
| Uk | $95.7 | 2.9 | $99.6 | 4.1 | $105.8 | 6.2 | $20.7 | 10.8 | $18.6 | -10.4 | ||
| TOTAL | $1,113.2 | 7.8 | $1,222.4 | 9.8 | $1,265.3 | 3.5 | $235.9 | 8.5 | $244.4 | 3.6 | ||
| Divs outside top 1200 | $141.2 | 7.8 | $155.1 | 9.8 | $160.5 | 3.5% | $29.9 | 8.5 | $31.0 | 3.6 | ||
| GRAND TOTAL | $1,254.4 | 7.8 | $1,377.4 | 9.8 | $1,425.8 | 3.5 | $265.9 | 8.5 | $275.4 | 3.6 | ||
| %* = percentage change Source: Janus Henderson Global Dividend Index: May 2020 |
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European dividends have been worst hit while North America looks to be the least affected
In terms of sectors, banks, consumer discretionary, and specific industrial sectors, such as aerospace, are most at risk.
The report added: ‘There is also widespread vulnerability in the oil and mining sectors, the wider financials sector, and construction.
‘But there is relative safety among technology companies, and defensive sectors like healthcare, food, and most consumer basics (with the exception of drinks producers who depend strongly on the bar and restaurant trade).’
The worst-case scenario, which predicts a fall in global dividends of 35 per cent, includes companies that haven’t yet announced the fate of their payouts, but are deemed vulnerable.
The research considers the level of corporate debt as it believes some companies have too much to cope with such a sudden and unexpectedly sharp economic contraction.
It added: ‘The breadth of the range reflects the rapidly developing crisis and the likelihood that some companies will simply reduce their payouts, rather than cancel them altogether, as they look to conserve cash and bolster their balance sheets.’