Global dividends up 5.4% year-on-year

21 August 2017 – According to the latest Janus Henderson Global Dividend Index, global dividends hit an all-time quarterly record in June, with total payouts increasing 5.4% year-on-year to reach $447.5 billion. This is the fastest rate of growth since 2015 and good news for income-seeking investors, especially as the forecast for 2017 has now been upgraded to $1.208 trillion.

Europe dominates

Europe dominated the second quarter (most European companies make a single annual payment) making up two-fifths of the global total. Distributions were up 5.8% on an underlying basis, reflecting the improving economic conditions across the continent.

86% of European companies raised or held their dividends year-on-year. The largest increases were in smaller countries, but even among the larger ones, there were new records. Swiss dividends jumped 8.6% on an underlying basis, German dividends achieved a similar increase, while French payouts grew at a slightly slower underlying pace of 6.1%. Spain and Italy meanwhile disappointed, with dividends falling year-on-year.

US growth continued to strengthen too, after a sharp slowdown during 2016. US payouts reached a new record with underlying growth of 5.9% once Costco’s very large one-off special dividend was taken into account. US banks made the largest contribution to growth, followed by software companies, pharmaceuticals and utilities, with no US sectors registering declines.

The good news continued in Japan, where the second quarter is also seasonally crucial. Payouts rose to a new record, with underlying growth up an impressive 11.8% - although a weaker yen meant headline growth was slower at 4.2%. Nintendo and Mitsubishi Corporation produced the largest annual increases while Japan Airlines was a notable dividend cutter, on the back of falling profits. Overall however, more than three quarters of Japanese companies raised their payouts in yen terms.

In a quiet quarter for Asia, South Korea posted a new payout record, while in emerging markets, Indonesia, Brazil, Russia, and Mexico were among the best performers. Growth varied widely from country to country, but the overall total was up 29.7% year-on-year (27.1% on an underlying basis).

Sterling hits UK dividends

Of the major regions, only the UK bucked the trend, with dividends falling 3.5% on a headline basis to $32.5bn. This was mainly due to a much weaker pound, however, and growth on an underlying basis was also strong at 6.1%.

Dividend growth was also evident across almost all industries and sectors. Financials, in particular banks, accounted for half the global headline increase, but technology, industrials, and basic materials were also strong. Only telecoms saw a marginal fall in payouts.

Alex Crooke, Head of Global Equity Income at Janus Henderson said: “The global economy is very supportive for company profits and dividends at present, and helped drive record payouts in many countries around the world. The improvement reflects a normalisation in dividend growth, following two years during which it has been rather subdued. The first half of 2017 has been stronger than we expected, and the second half is looking promising too.

“Taking a global approach to dividend investing means a slowdown in any one part of the world has less impact on your overall income level, but investors will be pleased they are enjoying one of those periods when there is synchronised underlying dividend growth across all regions of the world.”

Past performance is no guarantee of future results. International investing involves certain risks and increased volatility not associated with investing solely in the UK. These risks included currency fluctuations, economic or financial instability, lack of timely or reliable financial information or unfavourable political or legal developments.

Each year Janus Henderson analyses dividends paid by the 1,200 largest firms by market capitalisation (as at 31/12 before the start of each year). Dividends are included in the model on the date they are paid. Dividends are calculated gross, using the share count prevailing on the pay-date (this is an approximation because companies in practice fix the exchange rate a little before the pay date), and converted to USD using the prevailing exchange rate. Where a scrip dividend is offered, investors are assumed to opt 100% for cash. This will slightly overstate the cash paid out, but Janus Henderson believes this is the most proactive approach to treat scrip dividends. In most markets it makes no material difference, though in some the effect is greater. The model takes no account of free floats since it is aiming to capture the dividend paying capacity of the world’s largest listed companies, without regard for their shareholder base. Janus Henderson have estimated dividends for stocks outside the top 1,200 using the average value of these payments compared to the large cap dividends over the five year period (sourced from quoted yield data). This means they are estimated at a fixed proportion of 12.7% of total global dividends from the top 1,200, and therefore in their model grow at the same rate. This means Janus Henderson does not need to make unsubstantiated assumptions about the rate of growth of these smaller company dividends. All raw data was provided by Exchange Data International with analysis conducted by Janus Henderson Investors.

Published on 23/08/2017