Dividends, here and overseas, rose in first quarter

Don Hamson

Don Hamson

Dividends across developed markets rose strongly in the first quarter of this calendar year, according to research by Plato Investment Management.

“Global dividends grew 19% to $A510 billion in the first quarter compared to Q1 2018,” said Dr Don Hamson, Managing Director of active income fund manager Plato Investment Management. “This was a slight acceleration on the Q4 growth of 17%.

“The value of dividends paid in Australia rose 37% in the quarter compared to the first quarter of last year.”

Dr Hamson noted that while dividends rose strongly here, growth was even stronger in Germany (+103%) and the Netherlands (+208%) compared to the previous corresponding quarter.

In contrast, dividends fell in Denmark (-3%), Finland (-4%) and Israel (-46%).

Dr Hamson said: “Here in Australia, several companies increased dividends to beat potential tax changes to franking credit refunds, although most of the big dividend gains came from resources stocks which are benefiting from higher commodity prices.

“This included rises in dividends paid by the likes of Alumina (+165%), BHP (paid an ordinary and a special), RIO (+158%) and Fortescue (+172%).”

He said it was not just Australian miners that are doing well, Labrador Iron Ore, a Canadian iron ore miner increased dividends by 200% in Q1.

Plato’s research noted dividend growth was consistently broad around the world with 56% of dividend paying companies increasing or initiating dividends compared to the same time last year.

Interestingly, it also identified that the percentage of companies completely cutting dividends increased sharply on Q4’s low 1.8% number, with 6% of companies omitting dividends in Q1 2019.  The number of companies initiating dividends also dipped slightly from 8% in Q4 2018 to 7% in Q1 2019.

Dr Hamson added the Australian equity market had been a good long-term investment, out-performing all other developed markets over the past 119 years (1900-2018)[1].

Australia beat the US equity market to take the top spot with a 6.5% return a year, in terms of real returns (returns in excess of inflation) in US Dollars over that period.

In local currency (Australian dollar) terms, the Australian market rose slightly more at around 6.7% a year over the same period.

While past performance is not a reliable indicator of future performance, if that 6.7% pa real inflation were to continue, this would imply total nominal returns of around 8.5% pa at current levels of inflation of 1.8% a year, he said.  The numbers exclude franking tax credits.

Dividend Methodology

Each quarter Plato Investment Management analyses the net dividend income paid by global companies to highlight trends for yield investor clients.  The universe used is the MSCI World IMI, which covers the developed global markets.  The underlying data is provided by Factset.  Dividend paid (US$) for each stock in each calendar quarter is calculated as the shares outstanding as of quarter end multiplied by the total DPS paid out in the calendar quarter. The DPS paid excludes spin offs but includes capital returns and special dividends. Conversion to AUD is done using the prevailing WM/Reuters London exchange rates at the time of dividend payment. Full year dividend paid (US$) is the summation of dividend paid (US$) from Q1 to Q4 using the methodology (1).  DPS movement is based on total DPS paid out (in LC) over each calendar quarter. DPS movement from quarter to quarter is then categorised as initiating, increasing, unchanged, decreasing and cut to zero.

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