Aggressive or Conservative?

August 31, 2020

Brief summary of our approach to forecasting in the Covid era

Unprecedented’ is a cliché and still it’s the best word to describe the past six months.

Speaking with our clients, we hear different views on our forecasts on a weekly basis – one team’s “conservative” is another team's “aggressive” - and we're seeing a mixed bag in terms of declarations.

Our current approach to our forecast dividends is based on 3 factors:

1)     Country (Government response to Covid; Length and severity of lockdown)

2)     Sector

3)     Balance sheet strength

Since March we have seen all manner of different treatments due:

  • Issuing shares in lieu of dividends
  • Declared dividends cancelled
  • Cancelled dividends reinstated
  • Suspended dividends
  • Reduced dividends
  • Many dividends held at previous years level or very limited increases
  • Some good increases
  • A small number of very large increases
  • Companies reinstating dividends at levels lower than they were previously

The global picture is very mixed with US companies showing strong resilience. 

The UK has been badly affected largely due to the timing of the Covid pandemic arriving just after the reporting season. This has been mitigated to some degree by reinstatements of previously cancelled dividends, and by suspended dividends being declared later than usual.

Both Asia and Europe have been resilient, with BRICS a little less so, and Australia quite badly affected.

We are now seeing the picture emerge with companies in the most affected sectors extending their dividend cuts:

·       Airlines

·       Aviation / aerospace

·       Travel and Leisure

·       Hospitality

·       Banks

Beyond these we see extended cuts to some degree in the following:

·       Insurance

·       Automobiles and parts 

·       Oil and associated sectors (not necessarily due to Covid)

·       Financial services 

·       Recruitment services 

·       Media

·       Retail

Going forward, we continue to monitor the Covid situation daily and are looking to see the effects upon general economic activity i.e. GDP numbers.