Global dividends under pressure but companies remain resilient

Around 60% of global dividend-paying companies are likely to be under pressure from COVID-19, but defensive positioning by 40% of them should be able to protect their dividends, according to Janus Henderson.

In expectation of its next quarterly dividend report released in May, the firm said UK and Europe, two of the highest-paying regions, had already significantly cut dividend payments, including companies which had strong balance sheets and sufficient cash. So far, US, Asia and Japan were relatively unaffected.

“Around 60% of global dividend-paying companies are cyclically exposed and dividends paid by these types of companies will be under pressure,” it said.

“However, around 40% of companies globally are likely to be more defensively positioned and as a result their dividends should be more resilient despite the challenging environment. This includes sectors such as utilities, consumer staples, communication services, technology and healthcare.”

During the global financial crisis (GFC), dividends fell by around 30% from peak to trough, Janus Henderson said, with earnings down around 60% over a 15-18 month period, whereas the COVID-19 crisis had only been a few months so far and could have longer to go.

“We believe that consensus earnings and dividend expectations globally remain too high and will be subject to significant downgrades in coming weeks. Dividend cuts or suspensions are likely to continue as companies look to conserve cash in an attempt to survive,” the fund manager said.

“In Europe, annual general meeting delays, alongside regulatory, political and societal considerations, have resulted in unprecedented pressure on dividend payments.

“The key question will be how quickly these companies can return to paying dividends once the crisis has subsided. There has been an enormous amount of stimulus applied around the world at a much earlier stage in this crisis than in the GFC, and in some cases companies have cut their dividends out of prudence and political consideration rather than necessity.”