Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

After a record first quarter, the outlook for dividend payments over the rest of the year will be mixed, as the effects of the coronavirus crisis take their toll.

According to the latest Janus Henderson Global Dividend Index Report, 2020 got off to a good start with $275.4bn paid out globally in dividends, a 3.6% rise on the same period last year, with the US and Canada breaking all-time quarterly records.

Then came Covid-19.

How dividend payments will be affected and the impact this will have on the amount paid out by companies will vary widely. On a country by country basis, the extent of the epidemic, the severity of the lockdown, the nature of the industry sector and perhaps most importantly, the policy response from governments and central banks will all play a role.

In the UK, for example, the Bank of England has recommended that banks do not pay dividends for the whole of 2020, including those that relate to 2019, and advised insurers to be prudent on dividend payments. For those companies currently relying on furlough payments from the government, even if profits are made, it will be difficult to justify paying out large amounts in dividend.

On the contrary, while the US has been hit hard by the virus and initiated a strong policy stimulus, the country has made no regulatory demands on companies not to pay dividends.

On this side of the Atlantic, one of the attractions of the UK stock market has been the high income it has always offered investors. Throughout the last 11 years of low interest rates, the dividend yield from large, safe UK companies has more than compensated for the risks of investing in shares.

Two of the largest dividend payers in the UK have been BP and Shell. According to the Janus Henderson’s research, the global oil sector accounted for $1 in every $9 of dividends paid last year, with Shell the world’s biggest dividend payer for the last four years in a row. However, with Brent Crude around half the price it was in January, the profits of oil producers have been hit hard.

So much so, Shell has made its first dividend cut since World War Two, reducing its payout by two thirds. Even with some easing of the lockdown starting soon, it is unlikely that demand for oil will rise quickly over the short term, as people opt for a ‘staycation’ this summer and office workers reconsider whether a daily commute is necessary when they could easily work from home.

Of course, the picture will be different for other sectors not so affected by the lockdown. Healthcare, technology, utilities, telecoms and consumer basics are likely to be the safest sectors for retaining their dividends.

For those income investors relying on regular dividends, there are two important questions to ask yourself - are my investments diversified across different industry sectors? And are they diversified across different geographical regions too? If not, you could be too exposed to an underperforming sector or region.

One easy way to achieve more diversification is to choose an equity income fund that invests globally. This means you leave the choice of investments to an expert who can actively avoid those sectors and regions that are struggling and choose companies on their individual merits and their likelihood to maintain a reliable dividend.

The Select 50 offers a range of equity income funds, from those with a focus on the UK, like the Franklin UK Equity Income Fund and JO Hambro Equity Income Fund to those taking a global approach like the Fidelity Global Dividend Fund and Invesco Global Equity Income Fund.

In these times of increased uncertainty, with clear industry winners and losers, a more selective approach to picking dividend-paying companies could prove a smart move over the long term.

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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