Should You Expect Dividend Cuts?

Should You Expect Dividend Cuts?

The predictions for dividend cuts sounded dire for quite some time. Many were predicting cuts of between 20%-30% here in the U.S. The jury is still out for now, but it doesn’t seem as likely based on what the data has shown thus far from Janus Henderson in their Global Dividend Index report.

Here is their record of dividend cuts with regard to global dividends:

Global dividends fell $108.1bn to $382.2bn in the second quarter.

The headline 22.0% decline (19.3% underlying) was the worst since JHGDI was launched in 2009.

So, globally, dividends fell by 22%. But what about the U.S. which represents ~32% of global dividend payments?

North American dividends were almost unchanged year-on-year.

US payouts fell 0.1% to $123.0bn with only one-tenth of companies cutting or canceling dividends.

Only 10% of U.S. companies cut or eliminated their dividend. Some of these were federally mandated due to dividend coverage rules and others were in the sectors most impacted by the COVID economic shutdown in terms of travel and leisure.

Below is a visual of what has happened with dividends across multiple global regions since the start of this report in 2009. One thing worth noting is the relative stability of North American dividends compared to the rest of the globe.

From page 5 of the Janus Henderson report.

If you are a U.S. retiree relying on your dividend income stream, it seems that we have been spared thus far. Does this mean we are out of the woods already? Not quite.

Because most U.S. companies set their dividends once a year and pay them in four equal installments starting in the 4th quarter, it is possible that we could see some downturn in dividend payouts into 2021. But I think it is a good sign that fewer than 10% of U.S. companies cut their dividends through one of the fastest and worst economic contractions in our nation’s history. And since that time, the economy has been picking up the pace as the scariest part of the crisis (the initial unknowns with regard to the health scare) is hopefully behind us.

Time will tell.

Stay the Course,

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This post is not advice. Please see additional disclaimers.

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