Global dividends are still expected to increase over the coming year – despite ongoing economic uncertainty and geopolitical risks. The latest Janus Henderson Global Dividend Index is forecasting payments will rise 2.3% on a headline basis to $1.60trn in 2023*. And even though this growth rate is less than last year’s 8.4% hike to a record $1.56trn*, the news will still come as a pleasant surprise to many investors.
Here we explain the importance of dividends, examine which sectors paid out the most last year, and reveal the areas likely to do well over the coming months.
Before we get started, let’s have a quick reminder about dividends. These are sums of money paid out to investors by companies from their profits. The amounts shared – and how often – will be decided by the company’s board of directors and agreed by shareholders at the annual meeting. Payments can be made at any time but are usually linked to a firm’s quarterly results. Special events, such as the sale of a division, may trigger special payments.
These dividends can be used by individual investors as an extra income stream – or reinvested to benefit from compounding. As an aside, headline growth is the amount paid out, while underlying growth takes into account currency movements, special dividends and index changes.
US dividends comfortably hit a new record of $574.2bn in 2022, up 7.6% on an underlying basis*, as oil producers recorded soaring cash flows on the back of high energy prices. While regular dividends rose steadily, they were supplemented by large special payments that recognised the exceptional strength of energy markets. The biggest of these came from Pioneer Natural Resources*, an Irving, Texas-based company that’s engaged in hydrocarbon exploration.
Elsewhere, the headline total for European ex-UK dividends reached a new record of $254.7bn*, helped in no small measure by the consumer discretionary sector.
Taiwan was the largest driver of 21.7% underlying growth across Asia-Pacific ex Japan during 2022, while Hong Kong, Singapore and South Korea all enjoyed double-digit increases*.
In the UK, dividends rose 12.1% on an underlying basis, once lower special dividends and the weak pound were considered*. “Resurgent banking dividends were the main driver of growth, but the rise in oil pay-outs was also a significant contributor, as did the restart of BT’s dividend,” stated the Janus Henderson report.
Meanwhile, Japanese dividends rose 16.3% on an underlying basis, though the weakness of the yen made a huge impact on the headline total*. The emerging markets saw pay-outs soar by a fifth on an underlying basis to a record $151.4bn, which was almost double their level as recently as 2016*.
Sector trends definitely dominated dividend pay-outs in 2022, with oil and gas producers accounting for a quarter of the global increase*. Financials chipped in with a quarter of the global growth figure, while there was also a good performance from transport, mainly from freight companies in Asia and Europe.
Elsewhere, consumer discretionary companies also did well over the course of the year, particularly in terms of European cars and luxury goods. Mining was the fourth largest sector for dividends*.
BHP Group Limited was the biggest dividend payer in 2022, followed by Petroleo Brasileiro S.A. Petrobras, Microsoft, Exxon Mobil, and Apple, according to the Janus Henderson data. The top 10 was completed by China Construction Bank Corp, Rio Tinto, China Mobile Limited, JP Morgan Chase, and Johnson & Johnson*.
Two of these names – Johnson & Johnson and Rio Tinto – are among the 10 largest holdings in the Ninety One Global Income Opportunities fund**. This portfolio, which is now run by John Stopford and Jason Borbora-Sheen, aims to provide income with the opportunity for capital growth.
Overall, the Janus Henderson data shows the 10 biggest payers contributed a combined $155.1bn – or 9.9% – to the overall total*. This compared to $149.1bn and a 10.4% share during 2021*. Meanwhile, the 20 biggest payers handed over a combined $254.3bn during 2022*. This was 17.7% of the overall total, which is a similar amount to the previous year*.
So, the big question is what will happen to dividends during 2023? Are we on course for another decent year of growth or are there potential headwinds to consider?
Jane Shoemake, client portfolio manager at Janus Henderson, says dividends are much less volatile than profits at the global level. Additionally, dividend cover, which is the relationship between profits and dividends, is currently high. This should give further cause for optimism among investors. “We do expect dividend growth to slow from the exceptionally high levels enjoyed in 2022 but we believe dividends are still likely to edge higher in 2023,” she said.
Some funds are specifically focused on dividend payers. Here are a selection covering global, regional and country-specific markets for consideration:
Troy Trojan Global Income is a concentrated, quality income fund, with an emphasis on capital preservation and growing its dividend over time. The fund has historically done an excellent job of preserving capital in difficult markets and it has also been much less volatile than its peers - yet it has still managed to deliver better long-term performance.
This fund uses the experience and depths of Schroder’s regional presence and research team to find companies that offer attractive yields and growing dividend payments. It will invest in the Asia Pacific region, including Australia and New Zealand, but excluding Japan. The manager has a flexible mandate and aims to maintain a well-diversified portfolio of income streams to generate a 3.5% to 4% yield.
The managers of BlackRock Continental European Income look to identify undervalued European companies (or companies with a predominant part of their business based on the Continent) that offer reliable, sustainable dividends; potential dividend growth; and protection against inflation, with a lower level of risk.
Baillie Gifford Japanese Income Growth aims to benefit from the improving corporate governance in Japan, as more and more businesses move towards a progressive dividend-paying policy. The managers apply a well-tested growth investing philosophy and process, combined with a focus on companies with the best dividend growth opportunities.
Despite the naturally lower yielding nature of the US market, it has a long history of dividend payments, an increasing number of companies now paying a dividend and a number of dividend aristocrats – companies that have increased their dividends for 25 consecutive years or more. JPM US Equity Income fund targets an above-average income by investing in a diverse range of established stocks.
This fund aims to combine fast and sustainable dividend growth with capital appreciation and offers something radically different from the majority of large-cap FTSE100 income funds. Its well-structured and highly experienced team takes advantage of small-cap opportunities, which other managers and brokers often ignore.
*Source: Janus Henderson Global Dividend Index, edition 37, March 2023
**Source: fund factsheet, 31 January 2023
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 do not constitute financial advice. The mention of specific securities and funds is for illustration purposes only and not a recommendation to buy or to sell.