The Janus Henderson Global Dividend Index recorded a 22 per cent decline in Q2 dividends as payouts fell by $108.1 billion to $382.2 billion – the worst quarterly drop since the index started in 2009. Australian dividends accounted for more than three-fifths of the entire APAC Q2 decline, with Westpac’s move to cut its interim dividend having a massive impact on the region.
“Despite it being a quiet period for Australian dividends, our most recent report shows the lower payouts in Australia made a significant impact,” said Jane Shoemake, investment director for global equity income at Janus Henderson.
“This is where the benefits of taking a globally diversified approach to income investing [become] clearest. Some payments were just deferred, and we have already seen some returning, albeit with a wide margin of uncertainty. Some of those that have been deferred will be paid in full, some will be paid but at a reduced level, and others will be cancelled outright.”
In Australia, the top three dividend payers were Rio Tinto, which distributed $2.31 billion, Fortescue, ($2.04 billion), and Woolworths ($.52 billion). However, the impact of the COVID-19 means more dividend damage is expected for Australia in the third and fourth quarters, while other parts of the region have been “relatively insulated”.
“The big question is what will happen in the US and Canada in Q4, when companies reset their dividend payments for the following four quarters,” Ms Shoemake said.
“The evidence so far suggests cuts in North America will be less severe than in Europe, the UK and Australia, thanks to lower payout ratios and the ability for companies to absorb some of the impact by reducing or cancelling share buybacks. We still expect Japan, Asia and some emerging markets to be less severely affected, but they are also likely to see a more delayed reaction, dragging on growth into 2021.”
More than a quarter (27 per cent) of Q2 payers cut their dividends, while more than half of that group cancelled them outright. Healthcare and communications dividends proved resistant to cuts, while financials and consumer discretionary payouts were more vulnerable, and Janus Henderson now expects global dividends to fall by 17 per cent.
“Despite the cuts witnessed so far, we still expect global dividends to exceed $1 trillion this year and next,” Ms Shoemake said. “A temporary halt in dividends does not change the fundamental value of a company, though it can affect short-term sentiment, and it remains important for income investors to be diversified both by geography and sector”.
