Sign of the times
Companies around the world are tightening purse strings as they brace for a global recession in the wake of the Covid-19 pandemic. Some, like financial institutions in the UK, Europe and New Zealand, are acting on instructions from their regulators. Others are responding protectively to an actual or feared reduction in cashflows. And some others are delaying because social distancing means they’ve been unable to hold shareholder meetings to formally approve their payouts.
Still, not all companies are trimming dividends. Many firms are going ahead with payments as planned, while some have even announced increased payouts - a contrarian trend that’s notable in several global markets including China. In Europe, there are examples of stable businesses within sectors like pharmaceuticals, consumer staples and industrials where we expect dividends to be relatively safe. But the fact remains that dividends are under pressure globally. In the 2008 global financial crisis, dividends were cut by over 20 per cent on average, a figure likely to be more than doubled in this downturn.
This paper outlines the various forces weighing on dividends, and why some are cause for greater concern than others.
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