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Investors brace for decline in dividends

Some 52% of those polled expect this for US equities. Investors are downbeat on dividend expectations despite the fact that many developed market companies are sitting on record cash piles.

Unsurprisingly, investors’ outlook for oil and gas companies is the most depressed. Almost eight in 10 respondents expect these companies will see the biggest fall in dividends, despite promises from oil executives such as Shell’s Ben van Beurden not to touch dividends. 

Rico Bosma, a fund analyst at Wealth Management Partners in the Netherlands, takes these comments with a pinch of salt. “Looking at where the oil price stands now, the dividends these companies are paying are far from sustainable. So they’ll probably have to cut them,” he says.

European investors have already started to reduce their holdings in dividend funds. According to Morningstar data, European equity income funds saw €985m of net outflows in January alone, the largest monthly redemptions ever recorded for the category.

















And there is more than just the decline of the oil industry, traditionally a big payer of dividends, to suggest dividends are going to be cut this year. As the chart above shows, dividend payments as a share of corporate earnings in the US are now higher than they ever were this century.

And investors should actually be happy for dividends to go down, says Richard Turnill, global chief investment strategist at Blackrock.

“For sustained earnings growth, companies need to increase capital expenditures at the expense of payouts, we believe.”



Part of the Mark Allen Group.