Matt Gaden
Global dividends surged 11.3% on a headline basis to an all-time quarterly high of US$544.8bn (AUD$775.9bn) in Q2 2022, according to the latest Janus Henderson Global Dividend Index. Underlying growth was even stronger at 19.1% once the strength of the US dollar and other factors were taken into account. 94% of companies raised payouts or held them steady in the second quarter.
Despite the significant economic disruption caused by the pandemic, global dividends have surpassed pre-pandemic levels. Moreover, the recovery is so strong that dividends are now only 2.3% below the long-term trend, although this marginal shortfall can be attributed to the dollar’s recent strength. The strong Q2 figures follow a profitable 2021 when companies enjoyed rising sales and expanding profit margins on the back of soaring post-pandemic demand.
Upgraded forecast
Janus Henderson is making a modest upgrade to its annual forecast, now expecting 2022 payouts to reach US$1.56 trillion (AUD$2.22 trillion) – up from US$1.54 trillion (AUD$2.19 trillion) last quarter. This translates into headline growth of 5.8% year-on-year, equivalent to an 8.5% increase on an underlying basis.
Dramatic rebound in European and UK dividends; US payouts hit new record
The primary regional drivers for Q2 dividends were Europe and the UK, with each showing a significant recovery from the impact of the pandemic during their peak Q2 dividend season. Both regions were up by almost a third on an underlying basis.
With many European companies (ex UK) paying dividends just once a year, Q2 2022 was the first opportunity since 2019 where the majority paid normal dividends. The lifting of central bank restrictions on bank dividends was especially important in the two regions.
Very large increases from German car manufacturers also made a major contribution. Meanwhile, Swiss and Dutch payouts reached new heights.
Dividend growth in the US lagged the wider world at 8.3% but the increase still led to a new US dividend record. Canadian dividends also reached a new high.
Oil, financials and car manufacturers were key drivers
Key sector trends played out internationally. Surging cash flows from high oil prices meant oil producers contributed two fifths to second quarter growth; those in Brazil and Colombia in particular contributed significantly.
Banks and other financials accounted for another two fifths, while consumer discretionary sectors, especially car manufacturers, also delivered strong dividend growth. Lower special dividends and a steep cut from AT&T held back technology and telecoms respectively.
Jane Shoemake, Client Portfolio Manager on the Global Equity Income Team at Janus Henderson said: The second quarter marks a seasonally quieter period for Australian dividends, with local payouts growing by 13.2% in US dollar terms. Our index of Australian dividends is now 14.7% above its pre-pandemic level in December 2019.
The main driver of Australia’s surging payouts continues to be the mining industry, which has benefitted from surging commodity prices.
This quarter’s underlying increase was lower than in recent comparative periods owing to the disproportionately large impact of a cut from major supermarket Woolworths – which had overdistributed in prior quarters – and a slowdown in the post-pandemic rebound in payouts, which had been driving the year-on-year improvement in Australian dividends. The Woolworths cut partially offset a large USD 22.5% (AUD 28.8%) dividend increase from mining company Rio Tinto.
Looking forward, we expect Australian dividend growth to steady with the post-Covid catch-up almost complete, a slowing global economy, and the likelihood that mining dividends are now close to peaking. However, it is important not to let this outlook cloud investor judgement. From a global perspective there is nothing to suggest that global dividends cannot achieve the 5-6% annual growth rate that we have become accustomed to over the long-term and we continue to encourage investors to diversify their income exposure by investing globally for exposure to this dividend growth.”
Matt Gaden, Head of Australia, said: “Although it was cyclically quiet, Australia’s second quarter has underlined the continued importance of dividend income to Australian investors.
“For the thousands of self-funded retirees who rely on dividend payouts, strong performances from the likes of Rio Tinto were a welcome boost to their income.
“However, we would caution investors that local payouts are unlikely to maintain their post-COVID strength. This is particularly important given the relatively high concentration of Australian dividend payers being banks and miners, calling for greater sectoral and geographical diversification from income investors holding the stocks of only a small number Australian companies.”