Seven key dividend forecasts for 2021
Dividends declared by firms in 2021 are predicted to approach $1.78tr, up 6.5% from the $1.67tr paid by the same firms in 2020. Our positive outlook reflects increasing business visibility, wider availability of a COVID-19 vaccine, and the strength of the Asia Pacific and emerging markets.
The pandemic caused unprecedented volatility in global dividends and led to suspensions from some of the largest payers especially in EMEA. However, we expect the Brexit deal, the conclusion of the US elections and the availability of the vaccine to reduce uncertainty and encourage more companies to resume payments or grow dividends in 2021.
In the Americas, we expect dividends to drop slightly compared to 2020, while in the Eurozone, we expect to see a recovery; however, Eurozone dividends will not reach the levels of 2019. Asia Pacific dividends are forecasted to flourish and surpass even their 2019 levels.
After losing its spot as the top dividend contributor in 2020, due to significant cuts and suspensions, the banking sector is expected to return to its number one spot, though we forecast it will not meet the level of dividends paid in 2019. In APAC, we forecast modest growth, while in EMEA we expect a strong growth of almost 80% to the sector.
The insurance sector will be the fastest growing sector in 2021 with a 20% growth rate. Notably, we expect large increases in dividends from French companies. This is mostly a result of the forecasted growth of AXA's dividends (expected to almost double), as well as, a resumption of all other insurance dividends in France.
Oil & gas is projected to remain one of the highest paying sectors, but it is also one of the most vulnerable. If oil prices stay above $40/barrel, the break-even price for most companies, many should be able to maintain dividends. However, we are expecting $8bn in cuts and suspensions from Russian oil & gas companies.
1. US dividends to drop slightly
We are forecasting a slight drop of -0.7% in US dividends for 2021, resulting in an aggregate payout decrease of $4.4bn. The drop is mostly a result of the decline in the banking and oil & gas sectors by $3.0bn and $4.1bn, respectively.
The drop in bank dividends is due almost exclusively to the Wells Fargo cut, which only took place in Q3 this year, and whose full effects are expected to be felt next year. Excluding this cut, we forecast the banking sector to remain stable in 2021. In the oil & gas sector, several companies cut their dividends by over 75% due to oil price volatility, and we do not expect growth to those dividends. However, the top 2 contributors, Chevron and Exxon Mobil Partners - making up almost half of the sector's dividends - are expected to remain stable in 2021.
Technology and healthcare are forecasted to be the top contributors to dividends in the US, contributing 13% and 12%, respectively. We are expecting growth from technology companies, albeit at a slightly more conservative pace. In healthcare, the 3 largest payers of the sector, AbbVie, Johnson & Johnson, and Pfizer, have all committed to maintaining a stable dividend. Further, the biotechnology and pharmaceutical segments of the sector have had well-functioning businesses which have offset the struggles of other segments, such as medical centres.
2. Dividends in the Eurozone & UK will strengthen, but not to 2019 levels
We expect dividends in the Eurozone and UK to reach $183.0bn and $102bn, respectively, representing a 22% increase in the Eurozone and 30% increase in the UK. While this is a vast improvement over 2020's level of dividends, it does not yet reach 2019's payout.
Dividends in most sectors of the Eurozone will experience some level of recovery, the exceptions to this are travel & leisure dividends, which have been impacted by prolonged travel restrictions, and automobiles, in which we do not expect French majors to resume dividend payments due to negative free cash flows and merger struggles.
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. Based on this, we do not expect any Q1 payments from the large banks, but expect they are likely to be included in later distributions. As such, we are forecasting an $8bn increase to the sector's dividends.
3. Asia Pacific dividends expected to surpass 2019 levels
We are forecasting Asia Pacific dividends to grow by 6.7% in 2021 to $580bn - greater even than 2019's $558bn payout - as most of the region's sectors are expected to grow during the year, the exceptions being travel & leisure and oil & gas.
The region's dividends will be boosted as bank dividends return to 2019 levels, mostly due to stable Chinese bank dividends and growth for Australian and Japanese banks.
In 2020, Mainland China passed Japan as the top contributor to the aggregate dividend payout region and is expected to keep this position in 2021. Mainland China has experienced broad recovery, especially in the back half of 2020, giving it stronger footing going into 2021. The market is expected to further grow its dividends by 9.2%.
4. Emerging markets' dividends proving to be resilient
Emerging market dividends proved resilient as they grew in 2020. We expect the trend to continue in 2021 with dividends growing by 6% to reach $437bn. Mainland China continues to be the top contributor, with almost double of Saudi Arabia's (2nd top contributor) distributions.
The unique ownership structure in many of these countries aids in the strength of the dividends. Some of the largest payers have a mix of state, family, and retail investors as opposed to the institutional ownership that is common in developed markets. For example, Saudi Aramco - whose majority stakeholder is the Saudi government - is maintaining dividend payments, despite adverse market conditions, to ostensibly preserve the national pride of the kingdom.
While the emerging markets are expected to grow, we forecast that automobiles, oil & gas, and travel & leisure will take longer to recover. Excluding Saudi Aramco, oil & gas is expected to suffer, particularly in Russia, we are forecasting an additional $8bn in cuts and suspensions (50% drop YoY) in 2021. We also expect automobile dividends to continue to struggle in India and Mainland China as consumer discretionary spending on big ticket items is unlikely to resume with oomph until a time when the global economic outlook significantly improves. Finally, despite the government aid for travel & leisure companies, we project it will be a slow pace to recover for airlines, and that they will not be in a financially sound enough position to resume dividend payments.
5. Banks to keep top spot, albeit at a much lower level than 2019
We forecast banking sector dividends will grow by 10.9% to $214.2bn in 2021, bringing the sector back to its leading position as a dividend payer. The drive-in dividend growth for the sector will come most significantly from the projected 80% dividend growth in EMEA, as well as the more modest 5% growth in APAC. In the Americas, we are forecasting a slight drop to the sector, almost exclusively as a result of the Wells Fargo dividend cut.
In the UK and Eurozone, both the PRA and ECB are content to let banks accrue dividends for the time being, with limitations. In the UK, the regulator is not yet allowing banks to pay the accrued dividend, and therefore, we forecast the accruals will be paid later in 2021. The ECB has lifted its restriction on payments, which will lead to the resumption of bank dividends in much of the Eurozone, where in 2020 the dividends were non-existent. However, because of the limitations put in place by the regulator, we do not expect to see the level of dividends we saw pre-COVID.
6. Insurance company dividends to experience the highest rate of growth
We project that the leading sector for dividend growth in 2021 will be insurance. The top 10 country contributors are expected to both grow dividends and surpass 2019 payouts. The one exception is the UK where we do forecast growth YoY, but not to the level of 2019.
Significantly, we expect French insurance companies will grow dividends by $5.3bn (271% YoY) to $7.3bn - compared to 2019's $4.7bn. This is a result of the AXA dividend cut in 2020 along with suspensions from all other insurance companies in the country. In 2021, each of these is forecasted to resume, and we expect AXA to pay almost double its 2019 dividend.
We also expect a notable growth of $2.6bn in Japan (53.9% YoY growth). This is largely due to Japan Post Holdings cut in 2020, which is expected to be significantly increased in 2021.
7. Oil & Gas vulnerable with significant downside risk
Despite being the 2nd largest dividend-paying sector, oil & gas is also the most vulnerable going into 2021. Excluding Saudi Aramco, the sector fell by 14% in 2020, and is expected to decline by another 16% in 2021.
Most significantly, Russia's aggregate dividend will be almost half of what it was in 2020. IHS Markit is forecasting cuts from Gazprom, Rosneft, Lukoil, and Tatneft in 2021. Most of these companies have announced 20-30% capital expenditure cuts, due to the falling global demand for crude oil. They incurred heavy losses such that big players like Tatneft decided not to pay the final dividend for FY'19; similarly, Rosneft suspended its half year dividend.
The US, which is the 2nd largest contributor to oil & gas dividends, is expected to have a slight drop in distributions; the top 2 contributors, which make up 40% of the country's aggregate dividends, are both forecasted to hold stable dividends in 2021. However, we do see significant downside risk, specifically to Exxon, which may be forced to do the unthinkable and re-evaluate the dividend. The company has already made a lot of cuts in other areas, and there is much less room for as deep cuts without jeopardizing the future of the company. It's also hard to see how the company would maintain the dividend if the macro situation doesn't improve without taking on more debt and putting the balance sheet at risk.
How accurate were our dividend forecasts for 2020?
We analysed the accuracy of our forecasts for the 12,500+ stocks that were within our forecasting coverage on January 1st, 2020 and are still in our coverage as of 22nd December 2020.
Across this global portfolio we were accurate within 84.2%: we forecast aggregate dividends of $1.9tr compared with an actual record figure of $1.6tr (converted at constant currency). Breaking the numbers down, we saw the highest accuracy in the US (95.1%), then Europe (92%), then Asia (77.5%), which reflects the relative dividend variability in each region.
These global dividend forecasts have been determined using a data-based approach that aggregates bottom-up, fundamental dividend amount and date forecasts provided by Dividend Forecasting from IHS Markit. Supplementary data, such as number of shares data and exchange rates, is provided by FactSet. Annual dividends are included based on the calendar year in which the individual dividend is paid so that it is entirely forward-looking for 2021. IHS Markit has dividend forecasts for 12,500+ global firms, including the constituents of all major equity indices. Historical dividend data is based on existing constituents in order to provide a consistent comparison.
Dividend Forecasting from IHS Markit is a comprehensive dividend dataset that enables customers to price derivatives and index products and provides valuable insight to enhance investment decision making. Forecasts are determined by a global team of 35+ specialists using a rigorous bottom-up methodology, considering a range of quantitative and qualitative factors including unique proprietary data and technology.
The data was calculated and is accurate as per our forecasts on Tuesday, December 22nd, 2020.
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