The finding from a new Janus Henderson report has shown Australian dividends fell by 47.8 per cent on a headline basis in 2020, down to $9.6 billion, the lowest third-quarter dividend total in three years.
CBA, NAB and ANZ had accounted for three-fifths of the $8.8 billion fall in dividends during the quarter.
APRA had issued guidance for the banks to only pay up to half their earnings out in dividends, warning them to hold on to capital through the COVID crisis.
“The heavy reliance on banking dividends in Australia has long been a source of major risk,” the report stated.
“Last year banks accounted for half the dividends in the Australian part of the index.”
Other casualties included Insurance Australia Group, which cancelled its dividend for the first time in order to boost its capital reserves, as well as Sydney Airport and Aristocrat Leisure.
The only two Australian companies in the Janus Henderson index to raise their dividends year-on-year were Coles and gold miner Newcrest, reaping benefits from increased grocery demand and a soaring price of gold.
Matt Gaden, head of Australia at Janus Henderson expects the first quarter of next year will still feel impacts from reductions, but dividends will later rebound.
“The big question mark is over the decisions the regulators in the UK, Europe and Australia will make around banking payouts,” Mr Gaden said.
“And of course, so much depends on the pandemic and the severity and duration of any further lockdowns. As a rough guide, we estimate a worst case for dividends to be flat next year on an underlying basis, but we believe they could rebound by 12 per cent in our best-case scenario.”
Jane Shoemake, investment director for global equity income at Janus Henderson said while there had been a $312.5 billion loss in global dividend income in 2020, the US and other markets in Asia had been resilient.
“The resilience is partly because companies seek to cushion investors from the disruption to their operations, but it’s also because payout ratios (the portion of profits distributed) have been more comfortable in many parts of the world,” Ms Shoemake said.
“The UK, Australia and parts of Europe have proved to be more vulnerable in part because payout ratios were already too high and a reset was overdue for some key companies. They now have a firmer basis for future growth.
“What’s more, two fifths of the world’s dividends have historically been paid by defensive sectors that are proving relatively insulated from the crisis and the big growth sectors like technology are breezing through 2020 almost entirely unscathed.”
The third quarter saw total payouts plummet by $76.7 billion to $460.1 billion, the lowest in four years.
Overall, more than two-thirds of companies had increased dividends or held them steady in the third quarter, compared to a little under one-third that cut or cancelled them.
China’s payouts for the three months were 3.3 per cent higher year-on-year, with three-quarters of its companies raising or holding steady.
Canada and Hong Kong had also seen rises.
Australia was among the weakest, alongside the UK (41.6 per cent lower) while the Netherlands was also hit by a cancellation in banking and brewing dividends.
The US saw a 3.9 per cent decline in the quarter, with eight in 10 companies holding or increasing their payouts.
Janus Henderson has estimated that dividends will fall by around 17.5 per cent to 20.2 per cent for the full year, to $1.67 trillion on an underlying basis, equivalent to a headline drop of 15.7 per cent to 18.5 per cent.
Sarah Simpkins
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].
