Dividends see ‘temporary peak’ in Q1 but declines expected ahead

18 May 2020

Dividends in the first quarter of 2020 were largely unaffected by the COVID-19 pandemic, according to Janus Henderson, as dividends reached a Q1 record of US $275.4 billion. 

First quarter dividends rose by 3.6% while underlying growth was 4.3%, in line with the firm’s forecast and likely a ‘temporary peak’ for 2020.  

Given the uncertainty, Janus Henderson declined to issue any quarterly forecasts but gave a best and worst-case scenario. 

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“The best case incorporates only those dividend cuts that have already been announced, or that are very likely to be. This suggests global payouts will fall 15% this year to $1.21 trillion, a decline of $213bn,” the firm said. 

“The worst case also includes all those that are vulnerable. This includes a consideration of the level of corporate indebtedness – some companies have too much debt to cope with such a sudden and unexpectedly sharp economic contraction. This scenario suggests global payouts could fall 35% this year, dropping to $933bn.” 

The most-affected sectors would be banks, consumer discretionary and industrials while technology, healthcare and consumer staples should be less affected. 

Ben Lofthouse, co-manager of global equity income at Janus Henderson, said: “Dividend suspensions are inevitable due to the sudden, unprecedented halt in economic activity in many countries. For 2020, Q1 dividends have been paid so the full peak-to-trough impact is likely to be seen over the next 12 months or so.  

“In many cases changes to dividend policies reflect the inability to predict when things return to ‘normal’, but a new factor is the consideration of the relationship between government support and company behaviour. In some cases, dividend changes, along with executive pay moderation, are an acknowledgement or even requirement that shareholders should be part of society’s COVID-19 response.” 

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