In mid-February, investment firm Janus Henderson published its usual quarterly global dividend review.
2020, judged the firm, looked set to deliver a fifth consecutive year of record dividends, with global payouts totalling of $1.48 trillion expected, some 3.9% higher than 2019.
But that was then; this is now.
Three months on, the more sober assessment of 2020 contained in the firm’s latest global dividend review is a great deal more downbeat. Its best case scenario sees a decline in global dividends of 15% this year to $1.21 trillion, a drop of $213bn. Its worst case scenario sees a decline of 35%, $933bn.
In hindsight, it’s easy to be critical. For a review published in mid-February to contain not a single mention of the words ‘coronavirus’, ‘Covid-19’, or ‘pandemic’ seems in retrospect a little shortsighted.
But hey, plenty of other people have also been wrong about Covid-19. Most of us, in fact, one way or another.
Global perspective
If you’re not familiar with the quarterly Janus Henderson reviews, they’re worth checking out.
Basically, they take a country-by-country, region-by-region bottom-up focus to dividend projection, looking at business conditions, trade, economic growth and other factors bearing on corporate earnings.
So while they’re similar in many ways to the familiar re-branded Capita UK-only forecasts that are now published under the name of Link Asset Services, they’re a little more forward-looking.
Usefully, they also contain the Janus Henderson Global Dividend Index. Standing at 196.3 at the end of March, this highlights that global dividends have almost doubled since 2009, when the index began.
Different outcomes
But let’s go back for a moment to those best-case and worse-case scenarios — and in particular, to that worse-case scenario projecting a 35% decline in global dividend income in 2020.
Obviously, it’s a figure that could be wrong: frankly, no one knows. But accepting it at face value for moment, it’s worth comparing with Link Asset Services’ own UK-specific forecast, which projects UK dividend income falling by more than half.
Obviously, Link Asset Services’ figures could be wrong, too, but the contrast between the two estimates is difficult to ignore.
Global equity income investors are going to see a worst-case fall in income of around 35%; UK equity income-investors are going to see a fall of 55% or so. That’s quite a gap.
Footsie fallout
A lot of UK equity income investors have portfolios heavily biased to the upper reaches of the FTSE 100.
That’s not surprising, of course, and apart from anything else reflects the prominent role of big dividend payers such as Royal Dutch Shell, HSBC, GlaxoSmithKline, and British American Tobacco.
The trouble is that a number of these dividend stalwarts have abruptly fallen — or been pushed, in HSBC’s case — off their pedestals.
Overall, last time I looked, some 45% of the FTSE 100 had cancelled, reduced, or delayed their dividend payments. Including two of the four above: Shell, slashing by two-thirds; and HSBC, cutting completely.
Thankfully, my own investments have been buffered by some judicious holdings of industrial REITs and a number of investment trusts. Even so, I’ve not been immune.
Overseas earnings
There are good reasons for Janus Henderson to expect some other regions of the world to be less badly affected by the coronavirus crisis, from a dividend-paying perspective. Their sectoral and regional analysis, covering several pages, is persuasive. Time will tell if the firm’s reasoning was valid.
What’s beyond argument, though, is that global income investors are going to be a lot more diversified than UK-only income investors. Home-country bias may be comfortable, but at a time like this one begins to see its drawbacks.
Going global isn’t without its risks, of course. Currency risk. Taxation risk. Political risk. Volatility risk. So plunging headlong into foreign shares isn’t for the faint-hearted.
But going forward, I expect many more investors to start taking an interest in overseas shares — dabbling in them first, perhaps, by taking a look at global investment trusts such as Aberdeen Asian Income, JP Morgan European Income, Henderson Far East Income, Schroder Oriental Income, and Murray International.
‘You can be sure of Shell,’ was the saying, back when I was growing up. Not any more, you can’t.
