Dividend Cuts in Australia Could Top Financial Crisis Levels
Dividend Cuts in Australia Could Top Financial Crisis Levels
(Bloomberg) --
Australia’s biggest companies may reduce payouts to shareholders by about a third over the next year as they shield themselves from the impacts of the coronavirus pandemic.
Dividend cuts among firms on the S&P/ASX 200 index might be deeper than the 26% fall seen during the global financial crisis, according to AMP Capital Investors Ltd. Earnings pressure from the Australian government’s shutdown measures and travel bans is likely to force companies to lower or forgo payouts in the upcoming reporting season.
“Revenues in Australia’s locked-down economy are temporarily drying up and working capital is becoming an issue,” said Dermot Ryan, a portfolio manager at AMP. “The cuts will help companies survive the long period of lockdowns and set them up to thrive in the recovery.”
Consumer discretionary stocks face the largest payout cuts among the nation’s largest firms as they struggle with restrictions on the size of public gatherings and increased social distancing measures. Bank and real estate companies will also likely scale back payments as rent and mortgage abatements reduce the amount of cash coming into the business, Ryan said.
Several companies have already deferred payments announced during the February earnings period. Airline Qantas Airways Ltd., casino operator Star Entertainment Group Ltd. and miner Northern Star Resources Ltd. are among the firms delaying payouts to as late as October.
Super Retail Group Ltd. canceled its interim dividend amid uncertainty about the duration of the pandemic. Flight Centre Travel Group Ltd. also nixed its payment in light of travel restrictions.
Macquarie Group Ltd. analysts forecast that every large-cap consumer discretionary stock they cover will cancel August dividends.
“We remain confident in the medium-term outlook for the Australian consumer,” the analysts wrote in an April 1 note. “In the short term, balance sheet strength is likely to be the primary consideration when setting dividend policy.”
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Energy firms are also likely to crimp payouts because of the decline in crude prices, according to RBC Capital Markets. The sector relies heavily on the underlying oil price, which is expected to weigh on earnings and cash flow over rest of 2020, analysts wrote in a March 29 note.
The estimated dividend yield for the nation’s benchmark stock index has tumbled from the decade-high levels seen last week. The forward yield has dropped from its March 23 peak as analysts reset expectations, according to data compiled by Bloomberg.
Still, some payout forecasts are more optimistic. Australia’s largest companies that report earnings in July and August are expected to declare A$27.4 billion ($16.6 billion) in dividends, down 10% from a year earlier, according to data compiled by Bloomberg. About two-thirds of the firms on the S&P/ASX 100 index are scheduled to report in the period.
Worley Ltd. and Rio Tinto Group are seen posting the largest increase in payouts from a year earlier, even as the material and energy sectors are cutting dividends overall, according to Bloomberg data.
The size of the cut across corporate Australia will depend on how long the lockdown policies last, said Matthew Haupt, a portfolio manager at Wilson Asset Management. Payouts could return to normal levels toward the end of next year if the economy starts to recover after June.
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