Jane Shoemake
Australian investors reaped the benefit of record dividend payouts in 2022, according to the Janus Henderson Global Dividend Index.
Global dividends grew strongly in 2022, rising 8.4% to a record USD$1.56 trillion, matching Janus Henderson’s forecast. After adjusting for the US dollar’s rise against most currencies, as well as lower special dividends and other technical factors, underlying growth was even stronger at 13.9%.
The result highlights Australia’s ongoing reliance on both the banking and mining sectors, which accounted for more than three quarters of Australian dividends paid last year.
Australian dividends were led by the world’s largest payer, BHP, growing its total by payouts by 8% year-on-year despite the full demerger of its stake in Woodside Petroleum, which itself became a significant player in 2022.
Significantly, Australia’s large banks mirrored their US, UK and European counterparts in building on the strong dividend recovery of 2021, growing their payouts by 5.9% over the year.
Despite mining companies paying record dividends across the globe in 2021, the lower price of commodities led to declines in their payouts in 2022, with Australia’s miners no exception. Fortescue Metals became the first Australian miner to cut its payout, and although Rio Tinto’s dividend rose for the full year, it was in decline by the second half.
Oil & gas producers and financials accounted for half of global dividend growth in 2022
Globally, 2022’s dividend picture emerges most clearly when viewed through the lens of sector trends. Soaring energy prices meant oil & gas producers raised payouts by two thirds in a mixture of regular distributions and one-off special dividends1. They contributed almost one quarter of 2022’s increase in global dividends. Payouts were increased almost everywhere with emerging market companies showing the strongest growth.
Banks and other financials, especially in the US, UK and Europe, contributed another quarter of the year’s growth, building on the strong dividend recovery from the pandemic that the sector enjoyed in 2021. Elsewhere, sky-high freight costs boosted transport companies around the world, while soaring demand and higher prices for cars and luxury goods meant these sectors were the most important driver of dividend growth in Europe. Lower commodity prices, by contrast, meant mining payouts fell from their record 2021 high point.
Emerging markets, Asia-Pacific ex Japan and Europe all saw dividends rise by around a fifth on an underlying basis
From a geographical perspective, emerging markets, Asia-Pacific ex Japan and Europe all saw dividends rise by around a fifth on an underlying basis. Growth in the US was less than half the rest of the world, mainly because the US has lower exposure to some of 2022’s big sector trends, but also because US dividends were very resilient during the pandemic and so have had a less dramatic recovery. US growth was nevertheless above its long-run average. Headline growth in Japan was dramatically impacted by the weak yen, but dividends rose by a sixth on an underlying basis. UK dividends rose 12.1%.
Compared to a strong Q4 2021, fourth quarter growth was 7.8% higher on an underlying basis
By the fourth quarter, global dividend growth had slowed to 7.8% on an underlying basis. However, this was still a decent result given Q4 2021 was boosted by catch-up payments from cuts made during the pandemic, especially in Europe, making it a tough comparator. There were also signs that higher interest rates may have begun to impact on companies’ willingness to grow dividends – in the US, for example, growth in the fourth quarter slowed to 5.5%.
Janus Henderson forecasts slower growth in 2023, with payments of USD$1.60 trillion, up 2.3% on a headline basis, equivalent to an underlying increase of 3.4%.
Jane Shoemake, Client Portfolio Manager for global equity income said: “Despite rampant inflation, interest-rate hikes, war and asset price declines in 2022, global dividends continued to grow highlighting their importance to investors all round the world. Global dividends have completely caught up after the pandemic, with payouts back to their historic trend. This is an amazing achievement given the extent of economic disruption caused by COVID-19.
For the year ahead, there is more uncertainty over the prospects for dividends. Inflation, the extent of further rate hikes, and geopolitical risks all cloud the horizon. Corporate cash flow will come under pressure both from lower levels of demand and from the higher cost of servicing loans, limiting the scope for dividend growth. From a sector perspective, energy dividends are unlikely to repeat the sharp increases of 2022, while mining payouts will be dependent on underlying commodity process. That said, the re-opening of China is likely to boost economic growth once the current wave of COVID-19 infections passes. Among financials, banks may benefit from wider margins, thanks to the higher interest rate environment, so further dividend growth is certainly possible, subject to prudent planning for rising levels of bad loans as economic growth slows.
Crucially, dividends are much less volatile than profits, while global dividend cover, the relationship between profits and dividends is currently high. So, despite all the uncertainties we think further dividend growth is achievable in 2023.”