Ben Lofthouse
Q3 delivered another excellent quarter for global dividends as the continuing strength of the world economy boosted corporate profitability around the world, according to the latest Global Dividend Index from Janus Henderson. Globally, payouts rose 5.1% to a comfortable third-quarter record of US$354.2bn.
The United States, Canada, Taiwan, and India all saw all-time record quarterly payouts, while Chinese dividends returned to growth, after three years of contraction.
However, Australian dividends were the weakest in the developed world with payouts falling 2.2% to US$24.5bn. Historically, the third quarter is the most significant in Australia.
This was predominantly driven by Telstra, which paid US$700m less year-on-year, and the dominant banks, which pay almost half the domestic dividends each year, saw no growth. Since the banks already pay out a large share of profits, there is little room for growth – especially given profits are under pressure and the impacts of the Royal Commission.
Insurance payouts were also flat, however the oil and mining sectors boosted overall domestic performance. BHP Billiton raised its payout by US$1bn, an increase of two thirds, while Rio Tinto increased by a fifth. Woodside Petroleum also increased its per share dividend by a fifth, enjoying the higher oil prices.
Key global highlights
- Global dividends rose 5.1% in Q3 to a third-quarter record of US$354.2bn
- Underlying growth was 9.2%, continuing the strong growth reported in Q2
- All-time record payouts in Canada, Taiwan, India and the United States, but Australia lagged well behind
- Chinese dividends grew for the first time in four years
- Dividends forecast to be US$1.359 trillion in 2018 with underlying growth upgraded to 8.1%
A stronger US dollar and lower special dividends suppressed headline growth year-on-year. On an underlying basis, Janus Henderson’s chosen measure of core dividend growth, payouts were 9.2% higher, continuing the strong growth witnessed in Q2. Every region reported strong underlying increases. The Janus Henderson Global Dividend Index ended the quarter at a new record 184.4, indicating expansion of more than four-fifths in global dividends since its launch in 2009.
US payouts jumped 9.1% in headline terms to an all-time record US$120.0bn. Almost half of the increase was down to a $5.3bn special dividend paid by Dr Pepper Snapple when it was acquired by Keurig. Underlying growth in the US was 7.3%, in line with the rapid pace of the first and second quarters, with only one company in seventy cutting its dividend.
Hong Kong and Taiwan delivered 5.9% and 6.2% underlying growth respectively, but their Chinese neighbour performed even more strongly. In China’s most important dividend season, payouts surged 14.6% on an underlying basis, marking a welcome turnaround after three years of declines. A rebound in payouts from the banks delivered half the increase in the Chinese total. Insurers accounted for over a third of the increase, despite being a small sector, and there was also solid growth from energy companies too.
Very few European companies pay dividends in the third quarter, but those that did grew strongly, in line with the encouraging performance of the seasonally important second quarter. In the UK, payouts rose an impressive 11.1% once lower special dividends, a weaker pound, and calendar effects were taken into account.
Janus Henderson’s forecast for headline growth remains unchanged at 8.5%, taking the total dividends for 2018 to US$1.359 trillion. On an underlying basis, however, this means growth in 2018 will be 8.1%, up from 7.4% in forecast at the time of the last edition of the JHGDI.
Ben Lofthouse, head of global equity income at Janus Henderson said: “From a global perspective, the third quarter exceeded our expectations, but more importantly, the quality of growth was better than we expected. It came despite a negative impact from exchange rate moves and a lower level of special dividends. Importantly, our core underlying measure of growth was strong.
“2018 may be a volatile and more challenging year for stock markets, but steady profit growth means dividends should continue to make steady progress.
“Expectations for corporate earnings growth in 2019 are starting to come under some pressure, given the late stage of the economic cycle. That is not to say that profits themselves are set to fall, however, rather that the pace of expansion may now be slower than previously thought. Growing profits and strong cash flow mean that dividends should continue to be well supported and so investors seeking an income from their shares should feel confident about the year ahead.”