In­come in­vestors suf­fer as div­i­dends halved

Pan­demic wiped a record 22pc off pay­outs world­wide with UK among coun­tries worst hit by the cri­sis

The Daily Telegraph - Business - - Business - By

Michael O’Dwyer

IN­COME in­vestors in the UK have been among the hard­est hit by the Covid cri­sis as div­i­dends fell by more than half in the sec­ond quar­ter.

The UK was one of the worst af­fected coun­tries as the pan­demic wiped $108.1bn, or a record 22pc, off div­i­dend pay­outs world­wide, ac­cord­ing to Janus Hen­der­son, an as­set man­ager. More than half of the UK-listed com­pa­nies on the in­dex cut their pay­outs or can­celled them en­tirely, drag­ging to­tal div­i­dends to $15.6bn, 54pc lower than the same pe­riod a year ago, the lat­est Janus Hen­der­son Global Div­i­dends In­dex shows.

Among the coun­tries with ma­jor stock mar­kets, only France and Spain suf­fered steeper de­clines. Cuts by HSBC, Shell, Lloyds Bank­ing Group and Glen­core had the big­gest ef­fect.

Janus Hen­der­son now pre­dicts a fall in global div­i­dends of 17pc to 25pc for the whole of 2020, which would be the worst per­for­mance since at least the be­gin­ning of the last fi­nan­cial cri­sis.

Slash­ing pay­outs was one of sev­eral steps taken by com­pa­nies to con­serve cash to weather the pan­demic. Fi­nan- cial reg­u­la­tors stepped in to en­sure bal­ance sheets at banks and in­sur­ers re­mained ro­bust so they could con­tinue to serve the econ­omy.

Bri­tish banks halted pay­ments of about £15bn to in­vestors af­ter an in­ter­ven­tion by the Bank of Eng­land.

The fi­nan­cial sec­tor was one of those where div­i­dends fell most, along with the con­sumer dis­cre­tionary sec­tor, which in­cludes leisure, re­tail and ve­hi­cles, as con­sumers stayed at home and tight­ened their belts amid job cuts, pay freezes and eco­nomic un­cer­tainty.

Health­care and phar­ma­ceu­ti­cals were among the most re­silient, along with com­mu­ni­ca­tions, me­dia and tele­coms, ac­cord­ing to the in­dex, which tracks pay­outs by the world’s 1,200 most valu­able listed com­pa­nies.

Div­i­dends in Europe fell 45pc but Jane Shoe­make, an in­vest­ment di­rec­tor at Janus Hen­der­son, pre­dicted a swift re­bound in div­i­dends from Euro­pean firms. She warned UK in­vestors’ in­come could be slower to re­turn af­ter some of the FTSE’s big­gest pay­ers re­based their div­i­dends.

She said: “For the UK, the re­bound will be smaller as sev­eral com­pa­nies, not least oil giants Shell and BP, have taken the op­por­tu­nity to re­set their pay­outs at a lower level.”

Many of the UK’s largest com­pa­nies had been pay­ing out an ex­ces­sive por­tion of their prof­its to share­hold­ers prior to the pan­demic, the re­port says.

“The pan­demic is giv­ing many of them an op­por­tu­nity to re­set in­vestor ex­pec­ta­tions, which will make fu­ture pay­outs more sus­tain­able,” it adds.

The deep cuts in the UK were in con­trast to North Amer­ica, where div­i­dends were al­most un­changed from a year ago. Pay­outs in the US fell only 0.1pc and less than one in 10 com­pa­nies cut or can­celled dis­tri­bu­tions. Pay­outs in Canada, where the pan­demic has been less se­vere, ac­tu­ally rose 4.1pc.

The fig­ures do not show the ef­fect on in­vestors of com­pa­nies halt­ing buy­backs, which Gold­man Sachs es­ti­mated were worth $700bn in 2019.

Big cut­ters in the US in­cluded Boe­ing, Gen­eral Mo­tors and Ford. Other firms could be forced to join them af­ter the Fed­eral Re­serve is­sued guid­ance on the amount firms must have avail­able to cover pay­ments to share­hold­ers.

Div­i­dends in Asia fell 11.8pc and were heav­ily af­fected by cuts in Aus­tralian firms’ pay­outs.

The Bank of Eng­land’s in­ter­ven­tion meant Bri­tish banks halted pay­outs of £15bn to in­vestors

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