Dividend payments around the world are expected to fall at least 15% this year, even in the best-case scenario of the coronavirus crisis.
This would see the worldwide level of dividends drop US$213bn to US$1.21trn, according to Janus Henderson, which compiles the global dividend index.
In a worst-case scenario, where all those dividends currently seen as vulnerable are cut, would see payouts collapse 35% to US$933bn.
Impact so far
The first quarter of 2020 saw only a small impact from the pandemic, with underlying dividend growth of 0.8% for the UK and Europe, Asia Pacific down 0.8% but North America, where most dividends are paid quarterly, saw growth up 5.6%.
So, despite the emerging threat from the virus in the quarter, payments rose to a quarterly record to US$275.4bn, with the index of global payouts at a record 196.3 and almost doubled from when the index started in 2009.
Apart from in the US, one-off special dividends were lower year-on-year in most parts of the world, the report found, which held back headline growth rates in the UK, Europe, Asia and elsewhere but were sharply higher in the US.
The impact of coronavirus has seen 36% of UK dividends cut, compared to 31% in the rest of Europe, 16% in Asia Pacific, 8% in Japan, 6% in North America and 5% in emerging markets.
Another 9% of UK dividends are seen as vulnerable to a coronavirus cut, the research found, compares to 14% in North America, 18% in Asia Pacific, 19% in Europe, 32% in Japan and 42% in emerging markets.
North America has the higher proportion of dividends seen as safe, according to Henderson Janus, at 79%, followed by 66% for Asia Pacific, 60% for Japan, 54% for the UK, 52% for emerging markets and 50% for Europe.
“Though the US has experienced a severe coronavirus outbreak and its lockdown is stringent, there has been strong policy stimulus, and as yet no regulatory demands have been made on companies not to pay dividends,” the report said.
“There is a favourable sector mix (high exposure to technology). In addition, quarterly dividends spread the risk of cancellations, and payout ratios are relatively low (buybacks are popular in the US). All this means that [North American] dividends are likely to be more resilient.
“In Europe, by contrast, though the policy response has been strong, the outbreak and lockdown are severe.”
Bank impact biggest in UK and Europe
With banks having contributed one in every six dollars of the world’s dividends in 2019, the research noted that this important sector and had been forced to cease payments by European regulators and once-per-year dividend payments mean a decision to cut has a big one-off impact.
“Payout ratios are also relatively high so Europe is likely to be one of the most affected regions as a result.”
From a sector perspective, the report said that as well as banks, consumer discretionary and sectors such as aerospace were most at risk, as well as oil and mining sectors, wider financials and construction.
“We see 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).
“Sectors more reliant on government support may also find it expedient to reduce or cancel dividends for a time.”
UK dividend ban?
A ban on dividends for companies that have taken sizeable loans from the government could contribute to the fall in UK dividends.
Over the weekend, it was reported that the government is mulling new regulations for companies that have received state-backed loans of up to £200mln to prevent them paying dividends or buying back shares.
Changes to the Coronavirus Large Business Interruption Loan Scheme (CLBILS) to lift the loan ceiling from £50mln to £200mln will include the ban on distributions of capital to investors until the loan is repaid.
So far, 59 companies have taken out loans, according to the latest government figures, but this is expected to rise when the ceiling is lifted.
Some companies have already announced that they will not pay any dividends until at least 2022, though Janus Henderson expects 2021 is likely to see dividend payments resume from a number of sectors, provided the growth in virus cases has peaked, lockdowns end and the global economy starts to function and recover.
Biggest dividend payers
Stateside, Microsoft Corporation’s (NASDAQ:MSFT) quarterly dividend was US$350mln higher this year than in 2019 and put it on track to become the world’s largest payer this year for the first time. A decade ago, Microsoft was only the world’s 25th largest payer, the report noted.
Other London-listed names in top 20 last year were BHP Group (LON:BH) at six, Rio Tinto PL (LON:RIO) at seven, HSBC PLC (LON:HSBA) at 10 but forced by the Bank of England to withhold its payment so far, but BP PLC (LON:BP.), which was number 16 in the list last year, has maintained its payment for now.
|Rank||Biggest dividend payers in 2019|
|8||China Construction Bank|
|9||JP Morgan Chase|
|12||Johnson & Johnson|
|20||Commonwealth Bank of Australia|