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Global dividends in 2021 should grow by 6.5% year over year,
putting the overall payout in 2021 just under the pre-COVID-19
levels of 2019. This growth will be driven by continued lifting of
restrictions, accelerated growth as the vaccine becomes more widely
available, and clearer visibility for businesses as they make
capital allocation plans. The Asia Pacific (APAC) region will lead
the dividend growth and surpass the dividend levels of 2019 by
USD21 billion—an increase of 6.8% year over year. While
dividends in the Europe, Middle East, and Africa (EMEA) region
should grow in the upcoming year, the growth will fail to reach the
levels of 2019.
The travel and leisure, automobile and parts, and oil and gas
sectors are expected to continue lagging in 2021. A quick recovery
for travel and leisure in 2021 is unlikely, as both travel
restrictions and structural issues continue to weigh on the sector.
In automotive, the Americas (AMER) and APAC regions will decrease
their aggregate payouts only slightly over 2020; however, the
French and Italian majors should be unable to resume dividends in
2021, leading to an almost 30% drop for the EMEA region's dividends
in this sector. The majors in biotechnology, pharmaceuticals, and
medical technology have had well-performing businesses, which have
offset the lower-performing healthcare services and medical center
segments of the healthcare sector. Overall, the technology sector
has benefitted from the move to working from home (WFH) in 2020, as
well as, increased gaming and streaming— both of which have
highlighted the importance of improving digital infrastructure. The
sector should continue growing in 2021, albeit at a slightly more
modest pace than in 2020.
Top contributors to dividends in 2021
In a league of their own, US dividends have remained resilient
in 2020, but are expected to drop slightly in 2021. The decrease in
dividends is interesting, given that IHS Markit forecasts the US
GDP to increase in 2021; however, the decline is largely due to the
expected fall of two of the country's largest paying
sectors—banks and the oil and gas sector—in 2021. For the
banks, this contraction is overwhelmingly due to the
WellsFargo dividend cut; even if
the bank does increase its dividend in 2021, it will be unable to
return to previous levels owing to the Fed's dividend cap. The new
stimulus bill, having been passed, will help stabilize the economy,
indicated by the steady and growing GDP levels forecast for
2021.
IHS Markit has forecast the mainland China GDP to grow in the
majority of 2021 and 2022, which coincides with the expected growth
of dividends in 2021. Mainland China has experienced broad
recovery, especially in the second half of 2020, providing stronger
ground going into 2021. The government rushed to restore the
industrial sector and production, which, along with increased
demand, has boosted the economy. Additionally, the stimulus
measures in the western world increased the demand for mainland
Chinese products and have helped the recovery gain ground.
Furthermore, insurance companies, financial services, and the
megabanks all increased dividends in 2020 and should remain
resilient in 2021.
Banks
Banks are not only key players in the economy, and therefore
highly regulated, but also key dividend payers in their respective
regions. More than any other sector, dividends are linked to
regulatory approvals and the conditions of their respective
economies. In EMEA, The UK Prudential Regulation
Authority (PRA) has announced that "an extension of the exceptional
and precautionary action taken in March is not necessary and that
there is scope for banks to recommence some distributions should
their boards choose to do so." The appropriate level of any
distribution is a decision for the board of each bank, but the PRA
requests that FY 2020 distributions to shareholders do not exceed
the higher of: 20 basis points of risk-weighted assets as of the
year-end or 25% of cumulative eight-quarter profits covering 2019
and 2020 after deducting prior shareholder distributions over that
period.
Currently, the PRA is content for UK banks to
accrue, but not pay, prudent dividends for 2021. An update
regarding 2021 distributions will be provided in advance of the
half-year results from large UK banks. Consequently
HSBC or Lloyds are unlikely to
make payments to shareholders for the first quarter. Any first
quarter dividends accrued should be included in their FY 2021
second quarter distributions, subject to PRA approvals.
At its December policy meeting, the ECB expanded programs
offering support to banks and the real economy. The ECB said it was
maintaining the eurozone deposit rate at -0.50%, the refinancing
rate at 0%, and the marginal lending facility rate at 0.25%. It
also updated its recommendation stating that banks should "exercise
extreme prudence on dividends and share buy-backs. To this end, the
ECB asked all banks to consider not distributing any cash dividends
or conducting share buy-backs, or to limit such distributions,
until 30 September 2021." Given the persisting uncertainty over the
economic impact of the COVID-19 pandemic, the ECB expects dividends
and share buybacks to remain below 15% of the cumulated profit for
2019-20 and not higher than 20 basis points of the Common Equity
Tier 1 (CET1) ratio, whichever is lower. For banks that have
already distributed dividends or conducted share buybacks to
remunerate shareholders with regard to financial year 2019, the
basis for the definition is the profit attributable to owners of
the parent for the 2020 financial year based on the prudential
scope of consolidation; this is the case for
BBVA,Banco Santander, and
ING.
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