Dividends paid by European companies on an underlying basis have sunk by more than 28% in 2020 to €141 billion, according to the Janus Henderson Global Dividend Index. This is the lowest figure since 2009.
European companies cancelled or reduced dividends totalling €58 billion between April and December, said Sander van der Ent, head of EMEA ex-UK at Janus Henderson. Half of the dividend-aying European companies made a reduction or cancellation, he added. Banks in particular made their mark on dividend payments in the region. They were responsible for half of total lost dividend revenues in Europe, according to Van der Ent.
Globally, dividend payments fell by much less: by only 12% to $1.26 trillion (€1.04 trillion). It is therefore mostly Europe and the UK that have suffered from dividend cuts, while cuts in North America and Japan were much more limited in size. The UK and Europe accounted for more than half of the reductions in distributions worldwide, according to Janus Henderson. This was mainly because of the restriction on bank dividends enforced by regulators.
Meanwhile, North America did well because companies were able to save cash and protect their dividends by suspending or reducing share buybacks, as regulators relaxed their stance on banks.
Not as bad as expected
The fall in the last quarter was not as bad as feared, according to Janus Henderson. The asset manager attributes the windfall to companies that paid suspended dividends, such as Russia’s Sberbank and Germany’s Volkswagen. A smaller boost came from companies such as France’s Essilor, which paid a discounted dividend.
In the end, one in eight companies worldwide paid no dividends at all in 2020 and one in five reduced their dividend. Interestingly, two thirds actually increased their dividend or kept it unchanged. Although cuts and cancellations totalled $220 billion between April and December 2020, companies nevertheless paid their shareholders $965 billion.
Outlook
Q1 2021 will see payouts fall, although the decline is likely to be smaller than between Q2 and Q4 2020, Janus Henderson expects. The outlook for the full year remains extremely uncertain. The pandemic has intensified in many parts of the world, even as vaccine rollouts provide hope. Importantly, banking dividends will resume in countries where they were curtailed, but they will not come close to 2019 levels in Europe and the UK, and this will limit the potential for growth. Those parts of the world that proved resilient in 2020 look likely to repeat this performance in 2021, but some sectors are likely to continue to struggle until economies can reopen fully.
A slow escape from the pandemic, and the drag caused by the first quarter, suggest that dividends may fall by 2% (headline) for the full year in a worst-case scenario (-3% underlying). A best-case at this stage suggests an increase of 2% on an underlying basis, equivalent to a headline rise of 5%, yielding a total of $1.32 trillion.
Jane Shoemake, Client Portfolio Manager on the Global Equity Income Team at Janus Henderson, commented: ‘Sectors that depend on discretionary spending have been more severely impacted, while defensive sectors have continued to make payments. At a country level, places like the UK, Australia and parts of Europe suffered a greater decline because some companies had arguably been overdistributing before the crisis and because of regulatory interventions in the banking sector. But at the global level, the underlying 15% year-on-year contraction in payouts between Q2 and Q4 has been less severe than in the aftermath of the global financial crisis.’