The second quarter of 2020 was one of the worst yet for investors as companies slashed dividends considerably. According to the research data analyzed and published by ForexSchoolOnline.com, payouts for domestic common stocks in the US saw a $42.5 billion drop compared to a year earlier.
This marked the biggest decline since 2009 when there was a drop of $43.8 billion as a result of the Great Recession. During the first quarter of 2020, the decline was comparatively smaller at $5.5 billion.
The figure defines the net change, taking into account the difference between dividend increases and decreases. Total increases for the quarter amounted to $6.7 billion, marking a drop of 45.7% from the increases recorded during Q2 2019. Decreases, on the other hand, amounted to $49.2 billion, a mind-blowing 1,156% increase compared to Q2 2019.
For the 12-month period ending June 2020, net dividend payouts dropped $22.7 billion. A similar period in 2019 saw gains amounting to $46.8 billion.
Global Dividend Payouts Decreased By $108.1B
Global dividends also recorded the highest quarterly decline since 2009, decreasing 22% during Q2 2020. Over the three-month period, there was a decline of $108.1 billion according to the Janus Henderson Index, bringing the payout to $382.2 billion. This was the lowest performance of any second quarter since 2012.
Janus Henderson goes on to predict that dividends will record a 19% drop in the best case scenario, yielding a total of $1.18 trillion. However, in the worst case scenario, the drop could be as high as 25%, resulting in a total global payout of $1.10 trillion.
S&P 500 Companies Increase Cash Holdings By $250B, Reduce Payouts 6.2%
A majority of companies in the US suspended or cancelled dividends altogether and went on to issue bonds. As a result of this trend, cash holdings for S&P 500 companies, with the exception of the financial sector, registered an increase of $250 billion during the quarter. In turn, this raised total cash holdings to a record $1.8 trillion.
Based on the data from S&P Global Market Intelligence, these companies also raised their average cash ratio to 17.1% at the end of Q1 2020 from 13.8% at the end of Q4 2019. During Q2 2020, their total dividend payouts were $119 billion, a 6.2% drop from Q1 2020. However, this was a 0.3% increase from the Q2 2019 figure of $118.7 billion.
Of all 500 companies making up the index, 380 paid out dividends, a drop from 413 in Q1. On average, the payment per share declined 6.4% from a record of $15.32 in Q1 to $14.35 in Q2. At the same time, 50 issues from the index suspended or decreased their forward rate by $29 billion during the quarter. As such, Q3 2020 could have even lower payments.
Notably, earnings for S&P 500 companies also reduced considerably during Q2. According to a FactSet report published on August 7, earnings plummeted by -33.8% during the three-month period. The data covers 89% of the companies in the S&P 500. The drop marks the largest year-on-year earnings’ decline that the index has reported since the first quarter of 2009, which saw a -35.4% drop.
UK Dividend Payouts Declined By 57.2%
On a regional basis, Europe and the UK were the worst hit in terms of dividend payouts. According to a UK Dividend Monitor report published on Link Asset Services, UK dividends plummeted 57.2% in Q2 2020 to £16.1 billion.
The report reveals that 176 companies listed in the UK cancelled dividends while 30 others cut them. These account for 75% of the usual dividend payers in the second quarter. On the other hand, only 61 increased payouts. This was the largest yearly decline on record as well as the lowest Q2 since 2010.
Payouts fell a massive 45% within the FTSE 100 and 76% within the mid-cap FTSE 250. These were worse falls than the ones resulting from the global financial crisis which saw 40% of companies cancel or cut dividend payouts. For 2020 as a whole, Link predicts a 39% drop in dividends from £98.5 billion in 2019 to £60.5 billion.
For the first time in a decade, energy giant BP cut dividend payouts by 50% to 5.25 cents. The last time such a thing happened was back in 2010. At the time, the company slashed dividends following the Deepwater Horizon incident marine oil spill. The incident was the largest of its kind in history.
During Q2, BP recorded a loss of $16.8 billion, a figure that includes a $10.9 billion impairment charge in relation to the coronavirus pandemic. At the start of August 2020, its shares were down over 40% YTD.
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