2020 company dividends fell 12% to $1.2 trillion

Global company stock dividends fell 12.2% to $1.255 trillion on a headline basis in 2020 after a relatively strong finish to the year, according to the Janus Henderson Global Dividend Index report.

The UK and Europe contributed more than half the world’s dividends cuts by value in 2020, with the prohibition on banking dividends making the biggest impact.

The impact in Spain and France was particularly harsh with 71% of companies making dividend reductions.

European dividends fell 28.4% on an underlying basis in 2020, dropping to $171.6 billion.

“This was the lowest total from Europe since at least 2009 and reflects both the slow growth from this region between 2009 and 2019 and the severe impact in 2020 of the pandemic,” said the report.

“Our Europe ex UK index sank to 92.2 with only Switzerland and Norway paying more in 2020 than they did in 2009.

“Cuts and cancellations totalled $70bn between April and December.

“50% the European companies in our index made reductions split equally between those making cuts and those cancelling altogether.

“The biggest impact came from the banks, accounting for half the total lost income.

“Cuts from car manufacturers and insurance companies were also very large …

“Belgium, Sweden, and Luxembourg saw the steepest declines between Q2 and Q4, with payouts falling 66%, 73% and 83% year-on-year respectively, putting them at the bottom of the world rankings.

“The size of the declines mainly reflects the impact of dividend changes from large companies that dominate these relatively small stock markets.

“In Belgium, the biggest impact came from AB-Inbev.

“The company’s sales were actually much stronger than expected, but it is overburdened with debt and is prioritising protecting its balance sheet during this crisis.

“Its cut was one of the twenty biggest in the world in 2020.

“Norwegian and Italian dividends halved, while those in France and the Netherlands fell by 44% and 45% respectively.

“The loss of banking dividends was the main contributor to Italy’s lower payouts, though there was a significant impact from transport infrastructure company Atlantia and oil group Eni too.

“The decline in France had the biggest influence on European dividends overall, down $25bn year-on- year between Q2 and Q4 (making up more than one third of the total European decline).

“Apart from the banks and other financial companies, the biggest cuts in France came from aerospace and car manufacturers, but the cuts were widespread – seven in ten French companies made reductions, one of the highest proportions in the world.

“In the Netherlands, ING’s cut was the largest; three fifths of Dutch companies reduced payouts.

“Spain’s dividends dropped by a third on an underlying basis over the full year, falling to $14.7bn, almost three fifths lower than in 2009.

“Between April and December they fell 38% as seven in ten companies either cut or cancelled payouts.

“Santander’s cancellation made the biggest impact, but there was good news from the Spanish utilities in our index, all of which made increases.

“German companies saw dividends fall only 14% year-on-year between April and December (-12.9% on an underlying basis for the full year).

“Just one company in three cut its payout.

“The lack of strong banks in Germany, even before 2020, partly explains the outperformance, but the refusal of Germany’s largest payer, Allianz (along with all the German insurers in our index), to submit to pressure from the EIOPA (the EU Insurance regulator) to suspend dividends also significantly limited the downside.

“Germany’s car makers made the biggest cuts, though Volkswagen restored its suspended $1.7bn dividend at the end of the year.

“Switzerland was the only major European country to escape the dividend fallout from the pandemic and became Europe’s largest payer as a result, totalling $42bn, more than double the 2009 level.

“Its dividends were unchanged between Q2 and Q4 year-on-year and rose slightly over the whole year.

“A steep cut from Richemont made the biggest negative impact, but most Swiss companies increased dividends or held them steady.”

UK dividends fell by a third (-32.8%) in 2020 on an underlying basis.

“Among the world’s large stock markets, this put the UK alongside France as the two most affected countries and puts UK payouts (like European ones) at their lowest level in dollar terms since at least 2009, with an index reading of 93.8,” said the report.

“The biggest impact came from the banks, followed by oil and then mining, though cuts and cancellations were widespread.

“A third of the British companies in our index cancelled their dividends and another 23% cut them.

“The cancellation of HSBC’s $10.3bn dividend was comfortably the biggest cut in the world.

“By the end of Q1 2021, Shell will have cut by $10bn too.

“To a large extent the UK picture reflects historic overdistribution by many companies.

“This left dividends vulnerable to the sudden economic deterioration witnessed in 2020, though the prohibition on banking payouts by the regulator was also a key factor.

“Banking dividends are set to resume, albeit at a lower level than before, but the UK’s big oil companies have permanently reset their payouts.

“UK dividends will take several years to regain former highs.”

North America actually saw dividends reach a new record, partly because share buybacks were curtailed ahead of dividends.

North American payouts rose 2.6% on a headline basis, reaching a new record of of $549 billion, with special dividends helping boost the figure.

For 2021, Janus Henderson’s best-case scenario sees dividends up 5% on a headline basis to a total of $1.32 trillion.

Its worst case sees a fall of around 2% on a headline basis.

“The relative resilience in 2020 demonstrates the value of diversifying globally for income,” said the report.

“The pandemic caused dramatic differences in dividend payments from one part of the world to another and across different sectors and industries.

“Investors never know where the next crisis might come from, so broad investment exposure can help mitigate the risks.

“A global approach helps smooth out the impact of seasonal patterns, captures the advantage of different sector dynamics from one country to another and reduces investor dependence on a few big companies for their income.

“The dividend cuts were most severe in the UK and Europe, which together accounted for more than half the total reduction in payouts globally, mainly owing to the forced curtailment on banking dividends by regulators.

“But even as payouts in Europe and the UK fell below the levels seen in 2009 when our index began, they rose 2.6% on a headline basis in North America to a new record.

“North America did so well mainly because companies protected their dividends by suspending or reducing share buybacks instead, and because regulators were more lenient with the banks.

“In Asia, Australia was worst affected, thanks to its heavy reliance on banking dividends, which were constrained by regulators until December.

“Elsewhere, China, Hong Kong and Switzerland joined Canada among the best performing nations.

“From a sector perspective, banks, oil, mining and consumer discretionary companies were worst hit, while classic defensives – food retail, pharmaceuticals and personal products – were well insulated.”