Page 12 - DIY Investor Magazine Issue 24

COVID-19: OUTLOOK FOR DIVIDENDS IN 2020
Ben Lofthouse, Head of Global Equity Income, and
Jane Shoemake, Investment Director at Janus Henderson Investors assess the outlook for global dividends given the wide-reaching implications from the COVID-19 pandemic.
Key Takeaways
• COVID-19 has resulted in a demand and supply shock to the global economy with dramatic implications for gross domestic product growth, corporate profits and dividends
• Approximately 60% of global dividend- paying companies are cyclically exposed and dividends paid by these types of companies will be under pressure; around 40% are likely to be more defensively positioned and their dividends should be more resilient
• Looking further ahead, we could see dividend payments from a number of sectors resume in 2021 (albeit from a lower base level) provided the growth in virus cases looks to be peaking, the current government enforced lockdowns end and the global economy starts to function and recover.
The COVID-19 pandemic is a humanitarian crisis with governments around the world struggling to slow the spread of the virus. It has resulted in both a demand and supply shock to the global economy with dramatic implications for gross domestic product growth, corporate profits and dividends.
The government lockdowns implemented around
the world have severely impacted among others, the leisure, tourism, airline, retail and construction sectors. Businesses of all sizes have had to quickly adapt to the fast-changing environment and a sudden loss of revenue.
DIVIDEND SUSPENSIONS
Given the pressures on revenues, cash flow and profits, a number of companies have already announced that they will be suspending dividend payments this year and we expect more to follow.
We have seen a significant number of cuts in the UK
and Europe ex-UK, two of the higher dividend yielding regions of the world, while lower yielding regions such as the US and Japan, alongside Asia, have been relatively unaffected so far.
The US accounts for approximately 40%1 of all dividends paid globally so the forthcoming US reporting season will be an important indicator of the impact of the crisis on the quarterly US dividend payment cycle.
Based on previous findings from the Janus Henderson Global Dividend Index (JHGDI) 1, a study into global dividend trends, around 60% of global dividend-paying companies are cyclically exposed to the strength of
the economy and dividends paid by these types of companies will be under pressure.
However, around 40% of companies globally are likely to be more defensively positioned and as a result
their dividends should be more resilient despite the challenging environment. This includes sectors such as utilities, consumer staples, communication services, technology and healthcare. During the Global Financial Crisis (GFC) global dividends fell by almost 30%2 from peak to trough with earnings down around 60%3.
This happened over a 15-18 month period, whereas
the current crisis has evolved in just three months from when the first case was reported in China at the end of 2019. We believe that consensus corporate earnings forecasts and dividend expectations globally remain too high and will be subject to significant downgrades in coming weeks. Dividend cuts or suspensions are likely to continue as companies look to conserve cash in an attempt to survive.
DIY Investor Magazine | Apr 2020 12