Global Dividend Payments Plunged By 22% In Second Quarter, As Companies Preserved Cash Amid Pandemic

Dividend payments by global companies plunged by about 22% to $382 billion in the second quarter of this year as companies sought to preserve cash amid the COVID-19 pandemic.

London-based asset manager Janus Henderson said it was the largest quarterly decline since it started its Global Dividend Index in 2009.

For the full year, dividend payouts are expected to decline by between 17% and 23% – or by as much as $400 billion.

"2020 will be the worst year for dividends since at least the global financial crisis," Janus Henderson stated. "We should also caution that the peak-to-trough decline in dividends is only likely to be established at the end of [the first quarter of 2021].”

Companies in the U.K. and Europe – where central banks compelled corporations, especially those in the financial sector, to curtail dividends – saw such payments plunge by 54% and 45%, respectively, in the second quarter.

Almost one half of Europe’s dividend cuts came from its beleaguered banking sector.

In the U.K., more than one-half of companies – including such prominent names as of HSBC Holdings (HSBC), Royal Dutch Shell (RDS-A), Lloyds Banking Group (LYG) and Glencore – either reduced or cancelled their dividend payments.

However, Janus Henderson noted that some large British companies had been distributing an "excessively large portion of their profits as dividends for some time,” suggesting that this pause during the pandemic will afford them "an opportunity to reset investor expectations, which will make future payouts more sustainable.”

Japanese companies continued to pay out dividends – about 80% of these firms either maintained or even increased their payouts. Only four Japan-based corporations, including automaker Nissan Motor, cancelled dividends.

Overall, financial services, energy and the consumer discretionary sectors saw the biggest drops in dividend payouts, while healthcare, tech and telecom firms were generally able to maintain their dividends.

“Dividend trends are reflecting the trends in society and the stock market at the moment,” said Janus Henderson’s head of global equity income, Ben Lofthouse. “Probably we are going to see [dividend] increases from parts of the tech sector. There are a lot of very strong balance sheets in that area.”

While several major U.S. companies – including Marriott International (MAR), Delta Air Lines (DAL), Boeing (BA) and Ford Motor (F) – have paused or slashed their dividends, many others, including Johnson & Johnson (JNJ), Procter & Gamble (PG), Costco Wholesale (COST), have kept or raised their payouts.

Janus Henderson noted that while U.S. companies were largely able to pay out dividends, much will depend on what they decide to do in the fourth quarter when these firms establish their dividend policies for the following calendar year.

"The big question remains what will happen to U.S. and Canadian dividends in [the fourth quarter],” Janus Henderson said. “The evidence so far suggests cuts in North America will be less severe than in Europe, the U.K. and Australia, thanks to lower payout ratios and the ability of companies to absorb a lot of the crisis' impact by reducing or postponing share buybacks."

But Lofthouse cautioned that if many U.S. companies “make significant cuts to their dividends, payouts will be fixed at a lower level until towards the end of 2021.”