Fund manager Janus Henderson has upgraded its dividend forecast for 2021 following “signs of revival” in the first quarter of the year.
Dividend payments globally fell at their slowest pace in a year during Q1, to $275.8 billion (€225.9 billion), and “far fewer” companies cut dividends.
The increase in dividends is projected to be of 7.3% – and even higher if certain ‘special’ dividends are added into the estimate. This means dividends could hit $1.36 trillion
Janus Henderson Global Dividend Index, on which the estimates are based, shows that in Q1 dividends were just 1.7% lower than in the same period last year when specials and unusual payments are excluded. This was a “far more modest decline” than in any of the preceding three quarters, each of them seeing double-digit falls.
Nevertheless, Janus Henderson’s index ended the quarter at 171.3, its lowest level since 2017 – but the firm said growth is now likely.
The $1.36 trillion forecast compares to January’s best-case forecast of $1.32 trillion.
Dividend cuts over the four pandemic quarters to date amounted to $247 billion and were equivalent to a 14% year-on-year reduction, wiping out almost four years’ worth of growth. Yet this was still a milder fall than after the global financial crisis, the firm said.
Janus Henderson said pay-outs in Europe (ex-UK) rose year-on-year, up 10.8% on a headline basis to $42.5 billion in Q1, boosted by catch-up payments from Scandinavian banks. Equally Switzerland made a disproportionate contribution in Q1, the firm said, 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.
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 dividend cuts within the oil sector. However, less than half of British companies in the 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 pay-outs and special dividends.
Jane Shoemake, a portfolio manager on Janus Henderson’s global equity income team, said there was still a lot of uncertainty for company profits and dividends due to factors such as Covid-19, political sensitivities around shareholder payments, and the expected re-emergence of share buybacks as a use for surplus cash.
“Despite this uncertainty, we are more optimistic given that Q1 was undoubtedly better than expected and we are now more confident that companies are willing and able to pay dividends, especially those companies that have traded well. There is certainly much less downside risk to pay-outs this year than previously anticipated, though the timing and magnitude of individual company pay-outs is going to be unusually uneven and this will add volatility to the quarterly figures,” said Shoemake.
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