Wells Fargo, Boeing, Walt Disney, Occidental Petroleum and Marriott accounted for half of the US dividend cuts by value in Q1
- Dividends fell far less in US during COVID-19 lockdowns than in most other parts of the world. The median dividend increase among US companies was 4% in Q1
- US dividends expected to show growth this year amid economic rebound
- Globally, Janus Henderson forecasts a 7.3% increase in dividend payments in 2021.
One year after the anniversary of the start of global COVID-19 lockdowns, US dividend payments remained resilient, dropping just 0.4% to $127.4 billion in the first quarter of 2021. Globally, dividends were just 1.7% lower than the same period last year, a far more modest decline than in any of the preceding three quarters, all of which saw double-digit falls. Janus Henderson's index of dividends ended the quarter at 171.3, its lowest level since 2017, but growth is now likely.
For the full year 2021, the stronger first quarter along with a better outlook for the rest of the year have enabled Janus Henderson to upgrade its expectations for global dividends. The new central-case forecast is $1.36 trillion, up 8.4% year-on-year on a headline basis, equivalent to an underlying rise of 7.3%. This compares to January's best-case forecast of $1.32 trillion.
Over the four pandemic quarters to-date, companies cut dividends worth $247bn, equivalent to a 14% year-on-year reduction, wiping out almost four years' worth of growth. Even so, this was a milder fall than after the global financial crisis and the sector patterns were consistent with a conventional, if severe, recession.
Q1 2021 Dividend recovery mixed across markets
Globally, just one company in five (18%) cut its dividend year-on-year in the first quarter, well below the one third (34%) over the last year overall.
North America: The first quarter is seasonally skewed to North America, which has seen dividends fall far less than other parts of the world. US payouts of $139.3bn were 8.1% lower year-on-year on a headline basis, though the decline was due almost entirely to unusually large US special dividends last year not being repeated. On an underlying basis, the 0.3% fall in North American dividends was better than the global average of -1.7%. In the US, one company in ten cut its dividend, with the biggest negative impact coming from Wells Fargo, the only large bank in the US to succumb to a dividend cut. The mix of companies cutting against those increasing shows the clear influence of the pandemic. By value, Wells Fargo, Boeing, Walt Disney, Occidental Petroleum and Marriott accounted for half of the US cuts in Q1. Meanwhile, eight of the top twenty largest increases by value came from the US healthcare sector, many of them showing double-digit growth in percentage terms.
Europe (ex UK): Q1 is usually relatively quiet for European dividends but this year there are positive signs ahead of the seasonally important second quarter. Payouts in Europe (ex-UK) rose year-on-year, up 10.8% on a headline basis to $42.5bn, boosted by catch-up payments from Scandinavian banks. Equally Switzerland made a disproportionate contribution in Q1 and companies there have also proven resilient. One third of European companies that usually pay in the first quarter cut their dividends year-on-year, but this compares to just over half in the previous three quarters.
UK: The first quarter saw lower UK dividends than a year ago, down 26.7% on an underlying basis as the UK continued to feel the effects of the oil company cuts. However, less than half of British companies in our index cut dividends in Q1, much better than over the last year. There are also signs of a revival with the headline total for UK dividends rising 8.1% in Q1 thanks to a number of extra payouts and special dividends. Over the last twelve months, 57% of UK companies in our index made cuts.
Asia-Pacific ex-Japan and Emerging Markets: Dividends from Asia-Pacific ex-Japan were 6.0% lower on an underlying basis, with the 16.9% fall in Hong Kong making a significant impact. This meant our index of Asia-Pacific's dividends fell to 190.6. Emerging markets were boosted by dividend restorations in Brazil, India and Malaysia.
Mining companies lead recovery, but consumer discretionary and energy sectors suffer falls
Mining companies really stood out in the first quarter, as resurgent commodity prices have driven significant growth in payments boosted by large one-off special dividends. Mining companies raised their dividends 85% on a headline basis (58% in underlying terms) and have signalled more to come during the year. Utilities and healthcare also saw higher payouts.
Dividends from financial companies in particular were boosted by a number of companies restarting dividends, albeit generally at lower levels, that had been interrupted by the pandemic, in many cases owing to regulatory restrictions. This provided an unseasonal boost to the sector in Q1 that we expect to see continue in the months ahead.
Consumer discretionary sectors (encompassing general retail, consumer durables, vehicles, and travel) that are directly impacted by continuing lockdown restrictions saw the biggest drop down 36% on an underlying basis in Q1 with energy stocks close behind at -26%. Unusually, technology dividends fell, down 1.5% on an underlying basis.
Matt Peron, Director of Research at Janus Henderson said: "With a scarcity of yield across the world, the resilience of US dividend payments during COVID-19 lockdowns was a bright spot for income investors during the last twelve months. Looking ahead, dividend payments in the US are poised to accelerate through the end of 2021, as the re-opening of the economy is expected to lift cashflows and improve balance sheets. However, share buybacks, which are also returning at record levels, may influence how much capital is returned to shareholders via dividends as some companies may choose to restore buybacks before increasing dividends."
Unless otherwise stated all data is sourced by Janus Henderson Investors as of 31 March 2021.
Past performance is no guarantee of future results. International investing involves certain risks and increased volatility not associated with investing solely in the UK. These risks included currency fluctuations, economic or financial instability, lack of timely or reliable financial information or unfavourable political or legal developments.
Notes to editors
Janus Henderson Group (JHG) is a leading global active asset manager dedicated to helping investors achieve long-term financial goals through a broad range of investment solutions, including equities, fixed income, quantitative equities, multi-asset and alternative asset class strategies.
At 31 March 2021, Janus Henderson had approximately US$405 billion in assets under management, more than 2,000 employees, and offices in 25 cities worldwide. Headquartered in London, the company is listed on the New York Stock Exchange (NYSE) and the Australian Securities Exchange (ASX).
Methodology
Each year Janus Henderson analyse dividends paid by the 1,200 largest firms by market capitalisation (as at 31/12 before the start of each year). Dividends are included in the model on the date they are paid. Dividends are calculated gross, using the share count prevailing on the pay date (this is an approximation because companies in practice fix the exchange rate a little before the pay date), and converted to US$ using the prevailing exchange rate. Where a scrip dividend is offered, investors are assumed to opt 100% for cash. This will slightly overstate the cash paid out, but we believe this is the most proactive approach to treat scrip dividends. In most markets it makes no material difference, though in some, particularly European markets, the effect is greater. Spain is a particular case in point. The model takes no account of free floats since it is aiming to capture the dividend paying capacity of the world's largest listed companies, without regard for their shareholder base. We have estimated dividends for stocks outside the top 1,200 using the average value of these payments compared to the large cap dividends over the five-year period (sourced from quoted yield data). This means they are estimated at a fixed proportion of 12.7% of total global dividends from the top 1,200, and therefore in our model grow at the same rate. This means we do not need to make unsubstantiated assumptions about the rate of growth of these smaller company dividends. All raw data was provided by Exchange Data International with analysis conducted by Janus Henderson Investors.
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