Page 13 - DIY Investor Magazine Issue 24

‘A NUMBER OF COMPANIES HAVE ALREADY ANNOUNCED THAT THEY WILL BE SUSPENDING DIVIDEND PAYMENTS THIS YEAR AND WE EXPECT MORE TO FOLLOW’
In Europe, annual general meeting (AGM) delays alongside regulatory, political and societal considerations, have resulted in unprecedented pressure on dividend payments.
SOCIAL AND POLITICAL CONSIDERATIONS
In recent days there have been several instances where companies have suspended dividends, even though they have strong balance sheets and sufficient cash to pay.
This highlights the social and political considerations that boards and senior management currently face.
It could be hard for companies in some parts of the world and some sectors to justify paying dividends to shareholders while also accessing government-backed business loans or employee payment schemes.
The key question will be how quickly these companies can return to paying dividends once the crisis has sub- sided. There has been an enormous amount of stimulus applied around the world at a much earlier stage in this crisis than in the GFC, and in some cases companies have cut their dividends out of prudence and political consideration rather than necessity.
It remains difficult to accurately forecast the likely scale of dividend cuts globally in 2020 given the highly fluid and developing situation. Looking further ahead, we could see dividend payments from a number of sectors resume in 2021 (albeit from a lower base level), provid- ed the growth in virus cases looks to be peaking, the current government-enforced lockdowns end and the global economy starts to function and recover.
Glossary
13 DIY Investor Magazine | Apr 2020
Given the current environment, we believe that it is more important than ever for income investors to be diversi- fied both geographically and by sector while remaining focused on assessing a company’s free cash flow and its ability to pay its dividend. Given recent stock price falls, there are now some high yields on offer, but in a number of cases these yields look unrealistic with the
‘THE KEY QUESTION WILL BE HOW QUICKLY THESE COMPANIES CAN RETURN TO PAYING DIVIDENDS ONCE THE CRISIS HAS SUBSIDED’
market already discounting a dividend cut. It will there- fore be critical for investors to avoid these value traps, and we think an active approach to stock selection will be key.
Source:
1 Janus Henderson Global Dividend Index, Edition 25, February 2020 2 Refinitiv Data stream, based on annualised MSCI World dividend growth data, 3 April 2020
3 Citi Research, 18 March 2020
Past performance is not a guide to future performance.
These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.
Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.
The information in this article does not qualify as an investment recommendation.
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