Outlook for global dividends positive, despite slowing growth

Despite the economic crisis, 2022 has been pretty good for dividends so far, with companies around the world only too keen to reward shareholders.

According to the latest Janus Henderson Global Dividend Index, surging oil dividends drove global pay-outs up 7% to a record $415.9bn for the third quarter*.

There were also good performances from the transport, semiconductor, banking, and chemical industries, although miners struggled as commodity prices fell.

Global dividends

Headline dividends are now predicted to hit $1.56tn for the full year – 8% higher year-on-year, according to Jane Shoemake, a client portfolio manager at Janus Henderson.

Looking ahead, she said that “Slower global economic growth is likely to have an impact on the ability of some companies to grow pay-outs, but dividend cover, the relationship between a company’s earnings and its dividends, is near historic highs.”

She pointed out this has been helped by the fact profitability is currently strong while the pandemic resulted in many companies rebasing dividends to more sustainable levels. “This may provide some support even if profits come under pressure in 2023,” she added.

How different countries fared

In the third quarter, dividends rose to a new record in the US, boosted by banks and financial companies in particular.

In Asia, Taiwanese dividends also grew to a record, and made a major contribution to Q3 global growth. Hong Kong saw record payouts too, but Australia was hit by lower mining dividends and growth in China was held back by cuts from one third of the companies in the index*.

Closer to home in Europe, underlying growth slowed to 10.2% as the post-pandemic catch-up started coming to an end*.

UK dividends 

While global dividends rose, UK dividends dropped 8.4% to £31.4bn in the third quarter, according to the latest UK Dividend Monitor from the Link Group.

However, the figures were impacted heavily by the departure of BHP from the London Stock Exchange. Adjusting for this effect meant dividends were up 1%**. 

“Sharply lower special dividends and falling mining payouts were offset by strength among banks and other financials as well as oil companies,” the report stated. “The exceptional weakness of the pound also enormously flattered the figures as many dividends are declared in dollars.”

The report concluded that lower share prices and a stable outlook for dividends mean UK equities will yield 4.2% over the next twelve months**.

Using dividends in an uncertain world

With the outlook for markets in 2023 still uncertain, investing in companies that pay a dividend, and compounding both the income and any potential growth, could be a good strategy for investors in the year ahead.

Here are six Elite Rated equity income funds to consider:

Trojan Global Income

This is a concentrated, quality income fund, with an emphasis on growing its dividend over time. Manager James Harries is exceptionally experienced, and the fund has historically done an excellent job of preserving capital in difficult markets. It has also been much less volatile than its peers - yet it has still managed to deliver better long-term performance. This fund must be at, or close to, the top of the list for anyone looking for a global income fund.

Rathbone Income  

This is a solid core UK equity income fund run by an extremely experienced and long-standing manager. It has one of the best track records in the sector for raising dividends annually over a period of more than 20 years. The manager is unconstrained in terms of sector weightings and is able to fully express his market views with the portfolio positioning. The fund usually consists of between 40 and 50 holdings.

LF Montanaro European Income

We really like Montanaro’s well-defined philosophy and process, which this fund uses, and the fact that the manager has the support of a large team that thrives as small and mid-cap specialists. This fund offers something very different to its peers, as it looks to provide a stable and growing income stream from a broad range of European companies. Each holding in the fund will offer an attractive dividend yield, or the potential for dividend growth. 

Baillie Gifford Japanese Income Growth

This relatively new fund taps into the exciting change in dividend attitudes in Japan: a new corporate governance code, coupled with a large cash pile on Japanese balance sheets is a big opportunity for investors. While the headline yield figures may be low by Western standards, there is certainly plenty of room for growth. The managers apply a well-tested growth investing philosophy, combined with a focus on companies with the best dividend growth opportunities.

Matthews Asia ex Japan Dividend

This fund focuses on Asian stocks that exhibit dividend growth. It invests across the region and can have a significant amount in medium and smaller companies. China/Hong Kong currently accounts for 39.5% of the fund, followed by Taiwan with 17.5% and Vietnam with 13.2%***. A recent commentary acknowledged that China’s zero-Covid policy remained “a major impediment” to its economic recovery. However, it insisted that using dividends as a quality check helped to make the volatile market environment a great time to look for well-run Asian businesses.

JPM US Equity Income 

This is a core equity income holding investing in the world's largest stock market. Manager Clare Hart keeps an astute eye on risk management, with a diverse spread of names to ensure a stable, above-market yield. The strength and depth of the analyst resource, and experience of the managers, means this fund can achieve an income whilst also participating in long term capital growth.

*Source: Janus Henderson Global Dividend Index, issue 36, November 2022

**Source: Link Group UK Dividend Monitor, issue 51, Q3 2022

***Source: Matthews Asia, 31 October 2022

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views expressed are those of the author and fund managers and do not constitute financial advice.

Published on 06/12/2022