Matt Gaden
The latest Global Dividend Index by Janus Henderson Investors reveals global dividends experienced an uptick of 5.0% on an underlying basis, reaching a record of US$1.66 trillion in 2023. The year closed on a particularly positive note, with Q4 dividends increasing rising 7.2% on an underlying basis, thanks to strength in Europe, the UK and Japan.
Three-quarters of Australian companies grew their dividends or kept them steady, behind the 86% global average. However, these increases were not substantial enough to offset major cuts from mining groups, which contributed to a collective 10.7% fall in Australian payouts on an underlying basis.
Banks were the key driver of dividend growth
The global banking sector delivered record payouts in 2023 and contributed half the world’s dividend growth. Emerging market banks made a particularly large contribution to the increase, though those in China did not participate in the banking-sector’s dividend boom. Australian banks recorded double-digit dividend growth as the higher interest rate environment enabled many banks to increase their margins.
The contrast between banks and mining groups was evident globally as well as in Australia. Globally the positive impact from higher banking dividends was almost entirely offset by cuts from the mining sector, whose profits have fallen in tandem with lower commodity prices. Beyond these two sectors, whose impact was unusually large, Janus Henderson’s index identified encouraging growth from industries as varied as vehicles, utilities, software, food, and engineering, demonstrating the importance of having a diversified portfolio.
Matt Gaden, Head of Australia at Janus Henderson Investors said: “Beyond the normal cyclical swings of the mining sector, Australian dividends continued to record healthy underlying growth. Crucially our Global Dividend Index highlights just how important it is for income-oriented investors to have diversification across industries and across geographies. The changing global cost of capital and shifts in supply chains underscore the importance for investors to closely monitor their impact on high dividend-paying shares.”
86% of companies raised or held dividends; cuts from five big companies made a disproportionate impact
Globally, 86% of companies either increased dividends or held them steady but large cuts from just five companies – BHP, Petrobras, Rio Tinto, Intel and AT&T – reduced the global underlying growth rate for the year by two percentage points.
22 countries saw record payouts with Europe ex UK and Japan as key drivers of global dividend growth
From a geographical perspective, the US, France, Germany, Italy, Canada, Mexico and Indonesia were just a handful of the 22 countries to see record payouts in 2023. Europe ex UK was a key growth driver during the year, contributing two-fifths of the global increase. Payouts from the region rose 10.4% on an underlying basis to a record US$300.7bn total. Japan was also a major contributor, though the weak yen masked some of the strength shown across 91% of its companies. Although its large size meant the US made the most significant contribution to global dividend growth, its 5.1% underlying growth rate was in line with the global average.
UK dividend growth of 5.4% roughly matched the global average as significant increases among the banks and oil producers were largely offset by lower mining payouts. Elsewhere, most developed countries in Asia-Pacific ex Japan saw lower payouts year-on-year.
2024 Forecast
Janus Henderson expects 2024 to show similar underlying growth to 2023, even if a likely fall in oneoff special dividends reduces the headline growth rate. Janus Henderson forecasts dividends of US$1.72 trillion for 2024, up 3.9% on a headline basis, equivalent to underlying growth of 5.0%.
Ben Lofthouse, Head of Global Equity income at Janus Henderson, said: “Pessimism over the global economy proved ill-founded in 2023 and although the outlook is uncertain, dividends are well supported. Corporate cash flow in most sectors has remained strong and is providing plenty of firepower for dividends and share buybacks.”
“The lagged effect of higher interest rates will continue to have an impact, with slower global economic growth anticipated and higher funding costs for companies. We are nevertheless optimistic for dividends in the year ahead. The run-rate of US dividend growth in the fourth quarter bodes well for the full year, Japanese companies have embarked on a process of returning more capital to shareholders, Asia looks likely to pick up, and dividends in Europe are well covered.
“From a sector perspective, even though the rapid growth we have seen from banks around the world is going to slow this year, the rapid declines from the mining sector are also likely to make less of an impact. Energy prices remain firm so oil dividends are affordable and the big defensive sectors like healthcare, food and basic consumer goods should continue to make steady progress. What’s more, dividends are much less variable than profits over time.”