By Lina Saigol
Global dividend payments plunged to their lowest level in more than a decade, as companies moved to protect their balance sheets amid the pandemic, dealing a massive blow to investors that rely on the payouts for growing their wealth.
Total shareholder payouts fell by $108 billion to $382 billion, the lowest second-quarter total since 2012, according to Janus Henderson’s index of global payouts, published on Monday.
The 22% decline was the worst since the asset manager launched the index in 2009.
In a best-case scenario, Janus Henderson now expects global dividends to fall 19% on an underlying basis this year, paying $1.18 trillion. The worst-case scenario could see payouts drop 25%, paying $1.10 trillion.
“Despite the cuts witnessed so far, we still expect global dividends to exceed $1 trillion this year and next,” said Jane Shoemake, investment director, global equity income at Janus Henderson.
Nestlé /zigman2/quotes/208115528/delayed CH:NESN +0.72% , Rio Tinto /zigman2/quotes/200083756/delayed AU:RIO +0.49% , and China Mobile /zigman2/quotes/200868736/delayed HK:941 +0.51% were the three biggest dividend payers, the report found, while Microsoft /zigman2/quotes/207732364/composite MSFT -1.46% was the sixth-biggest payer, followed by AT&T /zigman2/quotes/203165245/composite T +1.54% in seventh place.
Dividends fell in every region of the world, except in North America, thanks in particular to resilience among Canadian companies, where dividends grew 4.1%. This makes Canada one of only two major countries to see payments increase.
Only 10% of U.S. companies cut their payouts, with the “vast majority” choosing instead to suspend stock buybacks, which totaled $700 billion in 2019, according to estimates by Goldman Sachs.
Blue-chip names in the U.S. that cut payouts included Boeing /zigman2/quotes/208579720/composite BA -1.39% , General Motors /zigman2/quotes/205226835/composite GM -0.02% , Halliburton /zigman2/quotes/210488727/composite HAL +0.80% and Walt Disney /zigman2/quotes/203410047/composite DIS -2.16% .
The report noted that U.S. companies set their dividends once a year and pay them in four equal installments starting from the fourth quarter, meaning investors are more likely to see the impact of the pandemic on payouts near the end of the year.
The worst-affected regions were Europe and the U.K., which saw falls of 45% and 54% respectively on an underlying basis.
Shoemake said most European companies pay just once a year in the second quarter, so a dividend cancellation has a disproportionately large impact on the annual total, but it also means 2021 should show a rebound in Europe. “For the U.K., 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,” she said.
In April, Royal Dutch Shell /zigman2/quotes/206428183/delayed UK:RDSA +0.51% lost its crown as the world’s largest dividend payer as it slashed payout for the first time since World War II , while in August, BP /zigman2/quotes/202286639/delayed UK:BP +0.65% cut its dividend in half after the oil major posted a $16.8 billion loss for the second quarter.
However, several U.K. companies have in recent weeks announced plans to restore dividends. On Monday, Bunzl /zigman2/quotes/201880362/delayed UK:BNZL +0.65% , the FTSE 100-listed distribution group, said it would restate its previously suspended final dividend following a better than expected trading performance during the first half of the year.
France, Europe’s largest dividend payer, saw total dividends reach their lowest level in at least a decade, though some of the lost French income will be restored later in 2020, Janus Henderson said.
Almost half of Europe’s dividend cuts came from the banking sector, as regulatory pressure from the Bank of England to free up capital during the coronavirus crisis saw HSBC /zigman2/quotes/208272822/composite HSBC -1.28% , Standard Chartered /zigman2/quotes/200125072/delayed UK:STAN -1.70% , Barclays /zigman2/quotes/206581728/composite BCS -1.11% and Lloyds Banking Group /zigman2/quotes/202285510/delayed UK:LLOY -0.40% all canceling their payouts.
In July, the European Central Bank said lenders should refrain from paying dividends and buying back shares until January 2021, to help banks absorb losses during the pandemic.