Dividends in the Time of COVID-19

Many investors view dividend payouts as a reliable source of income. However, those expecting to receive consistent dividend income may have been surprised to see lower-than-expected dividend payouts following the onset of the coronavirus pandemic, when both market volatility and market declines were extraordinary. In reality, recent and historical data show that changes in dividend policy are common, especially during times of higher uncertainty.

Aggregate dividend payouts fell meaningfully in the first three quarters of 2020 compared to the same period in 2019. Exhibit 1 shows the dividends earned from a hypothetical $1 million investment in US, developed ex US, and emerging markets in both periods. Developed ex US markets showed the most drastic change with a 41% decrease. Dividend payments in emerging markets decreased by 29% and in US markets by 22%.

Exhibit 1

Drop Zone

Dividends from a Hypothetical $1 Million Investment
Past performance, including hypothetical performance, is no guarantee of future results.

Globally, large firms have historically had the highest propensity to offer dividend payouts,1 but even successful, established firms were not immune to the economic consequences of a global pandemic. A few examples will help illustrate this point. Harley Davidson (HOG) has been paying out dividends to shareholders since the 1990s. In April 2020, the motorcycle manufacturer slashed its dividend from $0.38 USD per share to just $0.02 USD, a 95% decrease.2 Australia and New Zealand Banking Group (ANZ) has paid a dividend of at least $0.80 AUD for over five years but decreased their 2020 third quarter payout by 69% to $0.25 AUD.3

Harley Davidson and ANZ were not the only firms to change their dividend policies. As shown in Exhibit 2, 38% percent of firms in global markets (2,584 companies) that were expected, consistent with their payout history, to pay dividends instead decreased, omitted, or eliminated their dividend payment in the second quarter, more than doubling the 1,248 firms that made similar changes to their dividend policy in the first quarter of the year. The trend continued into the third quarter: 2,699 firms made such changes.

Exhibit 2

Changing Tune

Dividend Policy Changes in Global Markets (% of Dividend-Paying Firms), 2020

While these dividend cuts may come as a surprise to some investors, history buffs may recall that, in 2009, Harley Davidson announced it was cutting dividend payouts from $0.33 USD per share to $0.10 USD, a 70% decrease.4 In fact, during the Great Recession, significant changes to firms’ dividend policies spiked throughout global markets. Exhibit 3 displays Fama/French global market returns for 1991–2019 with a one-year lag and the proportion of dividend-paying firms that eliminated or decreased their dividend payouts. In 2008, for example, the global market was down more than 40%, and, the following year, many firms made changes to their dividend policies. The historical correlation between global market returns and dividends that are eliminated or decreased may suggest that firms are more likely to alter their dividend payouts during times of market instability.

Exhibit 3

In Step

Global Market Returns and Dividend Changes

The first three quarters of 2020 remind us that dividend payouts can be inconsistent, particularly in volatile markets. Hence, investment strategies that focus on income derived from dividends may not serve investors who need a steady income stream and, moreover, might not be the most effective way to pursue long-term wealth growth. A more reliable approach is to structure equity asset allocation around the characteristics that research demonstrates drive long-term higher expected returns, namely size, relative price, and profitability, while maintaining broad diversification across names, sectors, and countries.

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  1. 1Stanley Black, “Global Dividend-Paying Stocks: A Recent History” (white paper, Dimensional Fund Advisors, March 2013).

  2. 2Harley-Davidson, Inc., “Dividends & Stock Splits,” investor.harley-davidson.com/stock-info/dividends-and-stock-split.

  3. 3Australia and New Zealand Banking Group Limited, “Dividend information,” https://www.anz.com/shareholder/centre/your-shareholding/dividends/.

  4. 4Harley-Davidson, Inc., “Dividends & Stock Splits.”


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Index Descriptions

Fama/French Developed Markets Index: July 1990–present: Courtesy of Fama/French from Bloomberg securities data. Companies weighted by market cap; rebalanced annually in June.

Fama/French Emerging Markets Index: July 1989–present: Courtesy of Fama/French from Bloomberg and IFC securities data. Companies weighted by float-adjusted market cap; rebalanced annually in June.

Named securities may be held in accounts managed by Dimensional.

The following person listed as a reference is an employee of Dimensional Investment LLC, a subsidiary of Dimensional Fund Advisors LP: Stanley Black.

“Dimensional” refers to the Dimensional separate but affiliated entities generally, rather than to one particular entity. These entities are Dimensional Fund Advisors LP, Dimensional Fund Advisors Ltd., Dimensional Ireland Limited, DFA Australia Limited, Dimensional Fund Advisors Canada ULC, Dimensional Fund Advisors Pte. Ltd., Dimensional Japan Ltd., and Dimensional Hong Kong Limited. Dimensional Hong Kong Limited is licensed by the Securities and Futures Commission to conduct Type 1 (dealing in securities) regulated activities only and does not provide asset management services.

Diversification does not protect against loss in declining markets. There is no guarantee strategies will be successful.

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