Global equities to deliver new dividend darlings in 2025
Daniel Pennell
A report released by Plato Investment Management has highlighted new dividend growth trends in international equities.
In the final quarter of 2024, global developed market companies paid out A$485 billion in dividends. This was an 8.3% increase vs Q4 2023 in local currency terms (or 8.5% in AUD).
“The final quarter of 2024 was the icing on the cake for a very positive year for many Australians who have global equities allocations in their income portfolios,” said Daniel Pennell, senior portfolio manager of the Plato Global Shares Income Fund.
“Looking forward, what’s very encouraging is our data shows the number of companies that cut to zero remained very low in Q4 at just 5%, while over half (57.1%) of dividend paying companies increased or initiated dividends when compared to the same quarter last year.
“This supports our ongoing house view of continued dividend strength from global equities and highlights the importance of the asset class in diversified income portfolios.”
The new Plato report shows a significant increase in large and mega-cap companies initiating or increasing dividend payouts.
“Notable regular dividend payers, including Microsoft and Exxon Mobil, increased their DPS in 2024, while businesses like Broadcom used strong earnings to pay substantial dividend increases,” said Pennell.
“2024 also saw technology giants including Meta Platforms and Alphabet pay dividends for the first time, while higher interest rates increased net interest margins leading to very strong dividend growth for financials, with large yields from JPM Chase, BoA and HSBC.
“Interestingly, although US bank yields are generally lower than those in Australia, the gap between the Commonwealth Bank and global banks is rapidly shrinking. In fact, for some banks like US Bancorp, investors can actually achieve a higher net yield by investing overseas compared to CBA.
“Looking to Europe, the yield story becomes even more compelling. Banks like Intesa Sanpaolo, Nordea Bank, Lloyds Banking Group and UniCredit offer significantly higher income, along with much some stronger recent dividend growth rates.
“So, with strong earnings and solid balance sheets likely to endure in the technology sector, and highly attractive valuations and earnings growth in international banks, we expect both the tech and financials sectors to deliver several global dividend darlings in 2025.”
Pennell added that while overall dividend risk is low, the risk in some sub industries moving into 2025 is ‘above average’.
“Our dividend cut modelling shows the chance of cuts in the diversified metals & mining sector remains elevated, reflecting negative dividend growth and challenges to commodity prices.
“Pockets of the REIT sector still signal elevated risk, for example, real estate development and operating companies. Additionally, some areas of transportation display elevated risk due to fuel prices, economic uncertainty and geopolitical tension.
“Much like in our domestic market, we are seeing a large divergence in dividend payouts within sectors globally. This highlights the continued importance of active portfolio management when it comes to income generation.”
As of 31 December 2024, the Plato Global Shares Income Fund has distributed income of 5.8% per annum since inception (1 March 2016) net of fees and taxes, with a total return of 9.8% per annum since inception.
