Global dividend payments fared better than expected due to strong fourth quarter
Global dividend payouts fared better than expected last year after a strong fourth quarter kept total cuts to $220bn.
Janus Henderson’s latest Global Dividend Index reveals that although payments fell 12.2 per cent over the year, it was better than the previously forecasted $1.2 trillion.
This was largely because fourth quarter cuts were less severe, declining just 9.4 per cent on a headline bass to $269.1bn. Janus Henderson pointed to Russia’s Sberbank and Germany’s Volkswagen restoring dividends at “full strength”.
The UK and Europe faced the most severe cuts over 2020, which together accounted for more than half the total cuts globally. It came after the Prudential Regulatory Authority effectively banned banks from paying dividends.
The regulator has shifted its approach slightly, stating dividends must now be paid out of earned profit rather than balance sheet reserves. But it means banks are still treading cautiously with Barclays announcing a tentative 1p per share dividend last year.
Payouts in Australia also took a hit because of its heavy reliance on banking dividends which were similarly constrained by regulators until the end of last year.
“Bank dividends may have been restricted by regulators in some parts of the world, but the banking system has continued to function, underpinned by robust capital levels, which is vital for the smooth operation of economies,” Jane Shomeake, client portfolio manager on Janus Henderson’s global equity income team said.
By contrast, dividends in North America remained resilient, rising 2.6 per cent on a headline basis to a new record. Janus Henderson said this was because companies were able to conserve cash and protect their dividends by suspending or reducing share buybacks instead.
China, Hong Kong, Switzerland and Canada were the world’s best performing countries for dividend payments.
Janus Henderson predicts the decline to continue into the first quarter, albeit smaller than the fall between the second and fourth quarter last year.
Even with the vaccine rollout looking promising, the outloo for the year remains uncertain. In a worst-case scenario Janus Henderson predicts a two per cent fall on a headline basis, with a best-case scenario of a five per cent increase.