Global dividends rise strongly in Q1, while Australia continues to lag

From

Ben Lofthouse

Global dividends shrugged off concerns about the world economy, rising 7.8% on a headline basis in the first quarter, and reaching a first-quarter record of US$263.3bn, according to the latest Janus Henderson Global Dividend Index. Underlying growth of 7.5% followed the same trend as large special dividends were offset by negative exchange-rate effects.

  • Global dividends shrugged off concerns over global economic growth, rising 7.8% to a first-quarter record of US$263.3bn
  • Underlying growth was 7.5% with the impact of large special dividend payments offset by exchange rate moves
  • Janus Henderson Global Dividend Index rose to a record 190.1
  • No change in 2019 forecast as higher special dividends are offset by the strength of the US dollar
  • Janus Henderson expects a record US$1.43 trillion in payments this year, up 4.2% in headline terms, or 5.2% on an underlying basis

 

 

The Janus Henderson Global Dividend Index rose to a record 190.1, meaning that dividends are now almost twice the level they were a decade ago when the index started at the end of 2009.

 

Asia Pacific ex Japan saw a total dividend payout of US$18.1bn in Q1, up 14.7% year-on-year on a headline basis, breaking the record for first-quarter payouts, though this was mainly due to one-offs in a seasonally quiet quarter for dividends. Underlying growth was a more modest 3.8% with Hong Kong leading the way, while Australia lagged behind.

While the Asia Pacific ex Japan region has seen the world’s strongest dividend growth since 2009, Australia itself has shown no growth in dividends over the last five years. Once BHP’s special dividend and franking credit is taken into account, Australia saw modest growth of 3.8% during Q1.

The biggest contribution to growth came from Woodside Petroleum, which is restoring its dividend after a couple of challenging years. Telstra cut its payout again, while the largest payer Commonwealth Bank held its dividend flat, in common with the recent trend in the wider banking sector in Australia.

Income investors in Japan have enjoyed growth far ahead of the global average over the last five years as more Japanese companies have embraced a dividend-paying culture. Dividends are 70% higher than in 2014, compared to 25% for the rest of the world. This strong performance continued in the first quarter with underlying growth of 8.7%.

All-time quarterly records were broken in the United States and Canada (which are less affected by seasonal payment changes). Growth in North America was the fastest in the world on an underlying basis, and its seasonally large weighting in the first quarter meant it made a significant contribution to overall global dividend growth. In the US dividends totalled a record US$122.5bn, up 8.3% on a headline basis, with underlying growth even better at 9.6%. US growth has exceeded the global average 70% of the time over the last five years, as company profits have benefitted from a robust economy and favourable tax changes. Almost nine tenths of US companies in our index raised their dividends, with the largest increases coming from the banking sector.

The first quarter sees relatively few dividends paid in Europe. Seasonal patterns mean Switzerland and Spain are overrepresented, while France and Germany make only a small contribution. Headline growth of 9.2% in Europe was boosted by special dividends; underlying growth of 5.3% was in line with 2018 performance. In the UK, underlying growth of 4.4% lagged the global average in Q1 but was in line with the UK’s long-run trend.

Emerging markets were weaker than their developed counterparts, as they were the first to feel the effects of tighter US monetary policy and global trade concerns, both in their exchange rates and in company profitability. Underlying growth was +2.2% due largely to strong performance from India.

At the sector level, pharmaceutical stocks were the largest-payers, contributing US$1 of every US$8 paid globally. The sector delivered an all-time record of US$30.1bn, though its underlying growth rate was lower than the global average. The much smaller leisure sector also delivered a record level of payments, boosted by a large special dividend from the UK’s Intercontinental Hotels. On an underlying basis, financial dividends grew fastest, thanks in particular to US banks and real estate companies, while oil dividends also bounced back, up by a tenth year-on-year thanks to higher oil prices.

For the full year, Janus Henderson expects global dividends to reach a record US$1.43 trillion, up 4.2% in headline terms, and 5.2% on an underlying basis. Higher special dividends than originally expected (Janus Henderson’s base case assumes each year that they revert to the longer-run average) are likely to be broadly offset by a more negative impact from exchange rates (based on the dollar’s current level).

 

 

Ben Lofthouse, head of global equity income at Janus Henderson said: “Dividend growth has made a strong start in 2019. This reflects a continuation of the robust growth witnessed in 2018, rather than necessarily setting the tone for another above trend year in 2019. Market expectations for corporate earnings have moderated in recent months as global economic momentum has slowed and forecasts may yet come down a bit further. Dividends are a lagging indicator of company health, so a reduction in their rate of increase is a normal consequence of slower earnings growth. Nevertheless, we do not yet feel the need to make changes to our dividend forecast for 2019. We have already allowed for a slowdown in growth this year, and would highlight that dividends are far less volatile than earnings. This is one of the major benefits for income investors – a diversified portfolio of equities provides a stable flow of dividends that will grow over the long term, even when earnings and financial markets are experiencing some volatility. Investors can therefore look forward to dividend growth of around 4-5% in 2019 and another record year for dividend payments”

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