March1,2021 BARRON’S 19
INCOME INVESTING
Total global dividends paid out last year came in
at nearly $1.3 trillion.In the fourth quarter, the
total was269.4 billion,down 9.4% year over year.
Dividends Could Rise
5% in a Rebound Year,
Boosted by Specials
A
fter a difficult 2020
for dividends glob-
ally, there are reasons
for cautious opti-
mism this year, with
the possibility of a 5%
overall increase
in payouts, helped by more special
dividends.
That’s a key takeaway from Janus
Henderson Investors’ latest quarterly
dividend report.
“Just as in any normal recession,
dividends are falling less than profits
because they reflect assumptions
about a firm’s prospects rather than
short-term profit,” the report ob-
serves. “This is one reason why in-
come is such an important consider-
ation for investors.”
Last year was one to forget for
global dividends, which dropped 12%
from 2019 levels in dollar terms as
many companies cut or suspended
their payouts amid the uncertainty
wrought by the pandemic.
The U.S., however, was a relative
haven. Domestic dividend payments
climbed 2.4% year over year to a
record high of $503 billion, helped
by special dividends—including a
large one paid out late last year by
Costco Wholesale(ticker: COST).
In a release announcing the special
last December, the retailer of bulk
food and goods said the $10-a-share
special payout would cost about
$4.4 billion.
“Certainly, versus a lot of the
world, North America was a standout,
and the U.S. did quite well,” Matt Pe-
ron, director of research at Janus Hen-
derson Advisors, tellsBarron’s.
The asset manager bases its divi-
dend survey on the 1,200 largest
global companies by market capital-
ization going into the start of the sur-
vey year.
The latest dividend report shows
that 14% of the North American com-
panies, mainly in the U.S., included
in its survey cut or canceled their
dividends from the second through
the fourth quarters of 2020—not
good, but still a relatively low level
compared with other regions.
In the United Kingdom, 55% of
companies included in the survey
cut or canceled their dividends. That
figure was 50% in both Europe and
emerging markets, 37% in Japan, and
44% in the Asia-Pacific region.
A key reason for the U.S. dividend
strength, Peron says, is that big
American companies “can have signif-
icant buyback programs so they went
first to curtail theirbuybacksbefore
they went into cutting dividends,
which protected the dividends a bit
more.”
S&P 500 index stock buybacks
dropped by about 30% last year
versus 2019 levels.
The large U.S. banks, for example,
suspended their buyback programs
early in the pandemic last March but
in most cases have continued to pay
their dividends and even increase
them. Late last year, the Federal Re-
serve authorized the large banks to
resume buybacks with limits.
European companies, in contrast,
tend to return more capital via divi-
dends than buybacks,leaving them
with fewer options when it came to
preserving capital. In addition, many
European and U.K. financial firms, and
banks in particular, were forced by
regulators to suspend their dividends
last year as the pandemic ratcheted up.
Some of those banks are starting
to resume their dividends.HSBC
Holdings(HSBA.UK), which previ-
ously canceled its dividend, said on
Tuesday that it would pay an interim
dividend for 2020 of 15 cents per
ordinary share.
Besides banking, other hard-hit
sectors for dividends included oil,
mining, and consumer discretionary.
A
nother sign of the strength
of U.S. dividends is that eight
of the 10 largest global cor-
porate payers last year were
based in the U.S., led byMicrosoft
(MSFT) and followed byAT&T(T),
Exxon Mobil(XOM),Apple(AAPL),
andJPMorgan Chase(JPM).
In 2019, however, only half of the
top 10 global dividend payers were
based in the U.S.
Peron attributes the preponderance
of U.S. companies among the top 10
payers last year in part to the durabil-
ity of many firms during the pan-
demic. But he adds that “the technol-
ogy companies, as they’ve matured,
[have] dividends that are getting very
hefty.”
That includes Microsoft and Apple.
Even though their yields are pretty
low at 1% and 0.7%, respectively, what
they pay out in absolute dollars is
huge.
During its previous fiscal year,
which ended last September, Apple’s
common stock dividends totaled
about $14 billion. Microsoft, whose
previous fiscal year ended this past
June, paid out about $15 billion in
common dividends.
Still, dividends in many countries
came under a lot of pressure due to
Covid-19, thanks to big exposures to
banking and other hard-hit sectors. In
U.S. dollars and including special div-
idends and other adjustments, emerg-
ing markets dividends dropped 9.5%
year over year. Europe, excluding the
U.K., was down nearly 32%. The U.K.
plunged 41%. Japan was down 5.6%,
and the Asia-Pacific region fell 18.3%.
Total global dividends paid out last
year came in at nearly $1.3 trillion.
In the fourth quarter, the total was
$269.4 billion, down 9.4% year over
year.
Peron maintains that equity in-
come strategies still make sense, the
wave of dividend cuts and suspen-
sions during the heights of the pan-
demic notwithstanding.
Such U.S.-focused strategies were
out of favor last year partly because
“value underperformed and dividend
payers underperformed during the
heart of the pandemic,” he says. “De-
spite the fact that there were few [div-
idend] cuts, you saw the strategies lag
on a total-return basis. In the U.S., the
prospects are better because people
will see that the U.S. was quite resil-
ient in a very, very severely stressed
environment.”
Looking ahead, Janus Henderson
points out in the report that “the
outlook for the full year remains
extremely uncertain,” though there
are some encouraging signs that divi-
dends are stabilizing and reviving
their growth globally.
The firm’s worst-case scenario sees
global dividends falling by 2% in dol-
lar terms this year, considerably bet-
ter than the 12% drop in 2020. But
those dividends could grow by as
much as 5%. It also sees the potential
for more special dividends as compa-
nies use “strong cash positions to
make up some of the decline in distri-
butions in 2020.”
That would be a nice bonus for
equity income investors.B
By Lawrence C.
Strauss
Weathering the Storm
The pandemic caused many companies to cut or suspend their
dividends, but U.S. companies held up relatively well last year.
2020 Dividends % Change
Country Paid (bil) from 2019
U.S. $503.1 2.4%
Canada 46.0 4.
China 39.2 7.
Japan 80.7 -5.
United Kingdom 62.5 -40.
Germany 37.3 -14.
Australia 33.9 -42.
Note: Data are in U.S. dollars Source: Janus Henderson Investors