UK investors suffered some of the most severe dividend cuts in the world during the second quarter, according to Janus Henderson’s Global Dividend Index, which found that dividends from UK companies fell at a headline rate of 54% during the period, surpassed only by Spain and France.
- 50% of UK companies cut or cancelled dividend in Q2
- Canadian companies actually increased their payouts
- The pandemic could allow companies to shift to a more sustainable dividend policy
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UK investors suffered some of the most severe dividend cuts in the world during the second quarter, according to Janus Henderson’s Global Dividend Index, which found that dividends from UK companies fell at a headline rate of 54% during the period, surpassed only by Spain and France. On a global basis, payouts dropped 22% to US$382.2 billion, experiencing their sharpest fall since the financial crisis.
“Global payouts dropped to US$382.2 billion, experiencing their sharpest fall since the financial crisis”
Performance at global sector level was very diverse: companies in the health care and communications sectors tended to avoid having to reduce or cancel their payouts, whereas companies in the financials or discretionary consumer sectors found themselves having to make changes to their dividend policy. Performance at regional level was also mixed: dividends in North America remained almost unscathed as only one-tenth of US companies cut or cancelled their dividends, while Canadian companies increased their payouts overall.
Although over 50% of UK companies reduced or scrapped their dividends, Janus Henderson pointed out that several large UK companies have been paying an “excessively large” proportion of their profits as dividends, so the pandemic has provided them with the opportunity to “reset” investors’ expectations and implement a more sustainable dividend regime.
The FTSE 100 Index rose by 1.1% in August, while the FTSE 250 Index increased by 5.1%. Since the beginning of the year, the best-performing FTSE industry sectors were leisure goods, technology hardware & equipment, electronic & electrical equipment, and food & drug retailers. In contrast, the worst-performing sectors included automobiles & parts, oil & gas, banks, fixed-line telecoms, and travel and leisure.
BP announced a US$6.7 billion loss for the quarter and cut its dividend in half as Covid-19 curbed demand for oil. BP warned that the outlook remained “challenging and uncertain” as the pandemic continues to dampen economic activity and demand for energy for a “sustained period”. Insurer Direct Line reinstated its dividend alongside a special dividend that equalled its cancelled payout. Elsewhere, property company Hammerson announced a rights issue and expects to resume dividends in the second half of 2020.
The yield on the FTSE 100 Index dropped from 5.03% to 4.70% in August, while the FTSE 250 Index’s yield fell from 3.83% to 3.66% over the month. In comparison, the yield on the benchmark UK gilt rose from 0.11% at the end of July to 0.31% at the end of August.
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