Income investors suffer as dividends halved
Pandemic wiped a record 22pc off payouts worldwide with UK among countries worst hit by the crisis
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