Matt Gaden

Global dividends achieved an all-time high in the second quarter, according to the Janus Henderson Global Dividend Index. The latest report highlights a 23.0% increase in Australian dividends from the USD$7.3 billion recorded in the same quarter of 2022.

The global dividend landscape has experienced a striking uptick, with Q2 witnessing a record-breaking total of AUD$844.7bn (USD$568.1 billion), showcasing an impressive 4.9% growth on a headline basis. This surge is further underscored by underlying growth, which accelerated to a substantial 6.3% year-on-year, highlighting the resilience and vibrancy of the global economic recovery.

The 23.0% rise in Australian dividends was influenced by prominent contributions from two large companies, during a quarter which is seasonally the quietest for Australian dividends. A significant surge from Woodside Energy, along with a solid increase from Westpac more than offset a substantial reduction from mining giant Rio Tinto.

Global payouts rose to AUD$844.7bn (USD$568.1bn), up 4.9% on a headline basis. Underlying growth of 6.3%^[1] marked an acceleration compared to the first quarter and reflected Europe’s Q2 seasonal dominance – the period when most European companies make a single annual payment.

Japanese growth was strong, but US saw ongoing deceleration

Q2 is also seasonally important in Japan and dividends here rose 8.4% on an underlying basis, well ahead of the global average. Half the Japanese companies in our index delivered double-digit increases. The rate of growth in the US slowed for the sixth consecutive quarter however, decelerating to 4.6%, while in Asia-Pacific ex Japan, Hong Kong and South Korea were relative weak spots. Emerging market dividends fell.

Banks contributed half the world’s dividend growth in Q2

From a sector perspective bank dividends were strong all over the world with few exceptions. They accounted for half the global growth in Q2 as rising interest rates boosted margins and pandemic-related disruption to dividend payments finally worked its way out of the numbers. For example, in the UK total payouts were resilient in the face of lower mining dividends as HSBC returned to quarterly payments at a much higher level than seemed possible even a few months ago, while in Singapore, banks propelled the total paid to record levels.

Vehicle dividends also grew strongly, but mining payouts fell

Vehicle manufacturers accounted for one seventh of the year-on-year increase in Q2 payouts. Half of this came from German companies, but the sector was strong all over the world. Miners made the biggest negative contribution, owing to lower commodity prices, while oil payouts fell owing to cuts from Latin American producers.

Globally, 88% of companies either increased dividends or held them steady in Q2.​

2023 forecast unchanged owing to growing economic uncertainty

The second quarter was very positive, but with expectations for global economic growth slowing, Janus Henderson has made no change to its forecast for the full year. The global fund manager still expects payouts to rise 5.2% on a headline basis to a record $1.64 trillion, equivalent to underlying growth of 5.0%.

Matt Gaden, Head of Australia at Janus Henderson said: “Amidst the impressive surge in Australian dividends this past quarter, it’s essential for investors to remain mindful of the concentrated risks within our local mining and banking sectors. Diversification – not only across different industries but also across different countries – can act as a shield against the ups and downs of economic cycles, such as the volatility in commodity prices which are all too familiar for Australian investors. Given the slightly tempered economic growth outlook, Australians seeking to complement their domestic holdings with those based offshore may well enhance their ability to navigate uncertainties more effectively.”

Ben Lofthouse, Head of Global Equity income at Janus Henderson said: “Economic growth around the world is moderating as it responds to higher interest rates. Markets now expect global profits to be flat this year, after soaring to record highs in 2022, and when we speak to companies around the world, they are now more cautious about the outlook. While employment levels have remained very strong, parts of Europe have experienced technical recessions and policymakers everywhere are still intent on combatting inflation, even if it comes at the cost of output.

“We do expect dividend growth to continue, however. Most regions and sectors are delivering dividends in line with our expectations. The banking sector in particular will continue to deliver solid growth for the rest of the year, making record payments to shareholders. A weaker economic environment is typically negative for banks, but the positive effect on bank margins from the end of years of ultra-low interest rates is very powerful and is driving dividend payouts. The big banks are very tightly regulated and so enter the downturn in a strong capital position.

“One of the reassuring features of dividend income is that it is typically much less volatile than earnings. Payouts lagged behind profit growth last year and so can therefore exceed it this year.”​

​———

[1] Underlying figures adjust for lower special dividends, exchange rates and minor technical factors.

​

The post Global dividends hit new record in Q2 but cooling economy means no upgrade to forecast for 2023 appeared first on AdviserVoice.

Ben Lofthouse

Ben Lofthouse, Head of Global Equity Income, provides a summary of some of the key market drivers from the first quarter and key themes to watch going forward.

Key takeaways

• The extent to which inflation, rising interest rates and supply chain issues ultimately impact global growth will depend largely on how the Russia-Ukraine situation evolves.

• At the same time, investment in themes supportive of growth, such as decarbonization and digitization, may actually accelerate amid the conflict.

• Dividends have formed an important part of returns during past periods of uncertainty. We are seeing indications of a rotation toward income stocks and will watch to see if this theme gathers momentum.

What are the key takeaways as you see them from the first quarter?

The first three months of the year have seen much to unsettle markets and geopolitics. One important takeaway for investors is that supply chain issues appear set to continue. Shortages of parts and raw materials mean that investments in these areas and additional capacity are more necessary than ever. The COVID pandemic initially highlighted the vulnerability of supply chains, and the tragic events now unfolding with Russia’s invasion of Ukraine are placing further emphasis on the issue. From a company and a global trade perspective, this is likely to require meaningful investment aimed at diversifying sources of materials and supply, potentially with moves toward onshoring.

There has also been a reassessment of inflation levels. The bond market in particular is clearly set to reevaluate how long inflation will stay high and how central bankers will react. At the same time, the quarter saw a significant rotation within the market, with previous strong performers giving way to large areas such as the resources sector, which is benefiting from strength in prices, and that provided some stability to top-level numbers as we go through this transition period.

How do you see the risks of inflation and geopolitics evolving over the rest of the year?

Geopolitical risks are always extremely difficult to forecast. In our view, one of the best approaches investors can take in this type of environment is to be diversified and try to avoid making binary bets around what might or might not happen. As the situation develops, we are likely to find that most companies – particularly large blue chip listed companies – are more resilient than people might expect. Most of these companies have strong balance sheets, and in many cases, have well-diversified revenues from all over the world.

In terms of interest rates, it will likely depend primarily on the Russia/Ukraine conflict. The longer it continues, the longer supply chain issues will persist and natural resources prices such as oil and gas will remain elevated, all of which ultimately leads to a greater impact on global growth. Most people believe that if things were to de-escalate, some of the economic damage would reverse quite quickly. But the key thing for investors to watch is how long this will continue and what the end resolution will look like.

Are there reasons for optimism at a corporate level?

Looking outside the immediate impact of what’s going on in Eastern Europe, I would expect a continuation of what we were seeing two or three months ago, with growth and capital expenditures broadening out from areas that were quite narrow during the early stages of COVID, such as stay-at-home beneficiaries.

We are also seeing an increased drive toward decarbonization, something that has been reinforced by the Ukraine conflict. This is likely to lead to further investment in areas related to reducing fossil fuel consumption. However, at the same time we are seeing increased investment in some areas of fossil fuel extraction. With higher prices and the increased concerns around security of supply, in the next five or 10 years we will likely see increased investment in areas where this has been missing for some time.

Lastly, with inflation being high, companies will likely look for productivity gains, which will likely lead toward digitization and automation. Digitization has also been moving into different areas of supply chains and the industrial complex. This can drive more spending and may be beneficial for companies in terms of innovation and productivity gains.

The Russia-Ukraine conflict is unlikely to stop any of these trends, and in many cases, it may actually accelerate them. Furthermore, I think we may see government policies introduced that would continue to stimulate investment in some of these interesting areas.

Is the focus on dividends and income investing suitable to the conditions expected for the remainder of 2022?

In many cases, dividend investing is focused on sustainability of cash flows. Companies that can afford to pay dividends often have good profitability and strong balance sheets, something that provides support through periods of uncertainty.

During past periods of rising inflation and rising interest rates, equity valuations have often begun to stagnate or even decline in terms of P/E (price-to-earnings) ratios. During these periods, dividends have formed an important part of returns as investors are “paid to wait” for more supportive conditions for equities more broadly. With valuations of income stocks still relatively low versus the market, we are seeing some indications of a rotation toward these value companies. With current conditions making forecasts so difficult, we will watch with interest to see if this is a theme that gathers momentum.

The post Equity income investing: key market drivers appeared first on AdviserVoice.

Matt Gaden

Australian dividends have recovered from a challenging 2020, registering record payouts in Q3 according to the latest Janus Henderson Global Dividend Index. Australia’s concentration in banks and miners boosted its performance, as financials restored dividends towards pre-pandemic levels and miners capitalised on high commodity prices.

In its most important dividend quarter for the year, Australia’s payouts grew by 126% on a headline basis, reaching a record A$41.9bn, compared to growth of just 11.3% for the rest of the world. Altogether, Australian companies were responsible for more than a third of the year-on-year A$69bn global increase in payouts delivered in Q3. This highlights the major contribution Australian companies are making to the global dividend recovery. The result is in part because Australian companies were among the worst hit last year, and payouts are rebounding from a low base.

Every Australian company in the index either raised their dividends or held them steady in Q3. This is one of the strongest readings since the Index began and reflects the pace of Australia’s dividend recovery, which is expected to record growth of 60% in 2021, at a rate around four times faster than forecast for the rest of the world. Australia’s recovery helped drive global dividends up 22.0% in USD terms to an all-time high for the third quarter of US$403.5bn (A$550bn).

Local mining sector biggest contributor to Q3 payouts

Soaring commodity prices resulted in record profits for many companies and more than 60% of Australia’s Q3 payouts were contributed by miners, tripling their year-on-year dividends. Three quarters of mining companies in Janus Henderson’s index at least doubled their dividends compared to Q3 2020. Globally, the sector delivered an extraordinary A$74.5bn of dividends in Q3, more in a single quarter than the previous full-year record set in 2019. Australian mining giant BHP will be the world’s biggest dividend payer in 2021, contributing A$25.6bn from the combined payouts of its UK and Australian divisions.

The financial sector also made a significant contribution, mainly because prudential limits have been lifted, allowing Australia’s big banks to resume regular payouts, and thanks to lower-than-expected loan impairments. Australia’s biggest bank, Commonwealth Bank, lifted its final dividend to within one eighth of its pre-pandemic level, with ANZ not far behind. NAB and Westpac both increased their payouts, and full-year dividends across the sector are expected to be just 15% lower than their pre-pandemic level.

Steepest cuts lead to biggest rebounds

As one of the nations most exposed to the mining boom and the restoration of banking dividends, Australia is undergoing a rapid recovery, alongside similarly structured peers such as France and the UK. Europe, parts of Asia and emerging markets also saw large increases on an underlying basis.

Those parts of the world, like Japan and the US, where companies did not cut much in 2020 naturally showed less growth than the global average. Nevertheless, US company dividends rose by a tenth in USD to a new Q3 record. A strong Q3 means Chinese companies are also on track to deliver record payouts in 2021.

Jane Shoemake, Client Portfolio Manager on the Global Equity Income Team at Janus Henderson said: “A raft of important factors have led to Australia’s outstanding third quarter dividend performance. First and most importantly, mining companies all around the world have benefited from sky-high commodity prices. Many of them delivered record results and dividends followed suit.

“Secondly, banks took quick advantage of the relaxation of limits on dividends and restored payouts to a higher level than seemed possible even a few months ago. Additionally, Australia has been able to record outstanding results against the backdrop of a very difficult 2020, that saw it suffer from the COVID-19 pandemic.

Given Australia’s dividends are necessarily more concentrated in mining and financials than its global peers, high commodity prices and the removal of dividend limits from banking stocks have supercharged its Q3 performance.”

Matt Gaden, Head of Australia at Janus Henderson said: “These results will come as welcome news to Australian investors, particularly self-funded retirees. On the back of these results, we’re forecasting Australian dividend growth to reach around 60% this year, a significant increase on earlier expectations.

“While the relatively high concentration of Australia’s dividend payers in banks and miners still calls for seeking greater sectoral and geographical diversification, the Q3 result is undoubtedly a strong outcome for Australian investors.”

Ben Lofthouse, Head of Global Equity Income at Janus Henderson, added: “Dividends are recovering more quickly than expected, driven by improving corporate balance sheets, and increased optimism about the future. Two of the most impacted sectors last year were the commodity and financial sectors, and the report highlights that these sectors have been the most significant driver of dividend growth during the period covered.

We have added to these sectors over the last year, and it is great to see shareholders being rewarded by increased distributions.”

Upgraded forecast

The exceptional strength of Australia’s Q3 payout figures along with improved prospects for Q4, have led Janus Henderson to upgrade its forecast for the full year. Janus Henderson now expects global growth of 15.6% on a headline basis in USD terms, taking 2021 payouts to a new record of A$1.93 trillion. Janus Henderson anticipates that global dividends will have recovered in just nine months from their mid-pandemic low point in the year to the end of March 2021. Underlying growth is expected to be 13.6% in USD terms for 2021. Translated to AUD, headline growth will be 4.9% and underlying growth 2.9%. This is because the Australian dollar has been stronger against the USD in 2021 than it was in 2020.

The post Australian dividends growing four times faster than the rest of the world, as local banks, miners boost global payout growth  appeared first on AdviserVoice.

The deceleration in the world economy has begun to make an impact on dividends, according to the latest Janus Henderson Global Dividend Index. The total paid to shareholders broke a new record of $513.8bn in the second quarter, but the rate of increase was the slowest for more than two years. In headline terms, payouts were 1.1% higher, held back by the strength of the US dollar. Underlying growth of 4.6% was the slowest in two years but was only slightly below the long-run average. This slowdown was in line with Janus Henderson’s forecast, which had already factored in a lower rate of growth this year.

With slower growth come fewer records. Japan, Canada, France and Indonesia were the only countries to set records in the second quarter. Emerging markets saw the fastest growth, propelled higher by Russia and Colombia, while Japan registered the best performance among the developed regions. The rest of Asia Pacific, and Europe ex UK underperformed the global average, while the US came in a touch weaker than Janus Henderson anticipated. Dividends from financials and energy stocks saw the fastest increases, but technology and consumer basics lagged.

Asia Pacific ex Japan lagged slightly behind the rest of the world in the second quarter, with the total $43.2bn distributed 2.2% higher on an underlying basis.

In a seasonally quiet Australia, dividends only rose 5.7% on an underlying basis, continuing the five-year trend of stagnant dividend growth. The rise was down to just one company, QBE Insurance, whose rebounding profits enabled a big increase in its dividend, which is now almost back to levels last seen two years ago. Westpac held its dividend flat for the eighth consecutive quarter.

For seasonal reasons, Hong Kong dominates Q2. Underlying growth was just 2.5% and a quarter of Hong Kong companies in our index cut their dividends, including China Mobile. This is a larger proportion than in all the other large markets, reflecting a slowing Chinese economy.

Record dividends in Japan, up 6.8% on an underlying basis, reflected rising profitability and expanding payout ratios. Almost three quarters of companies raised their dividends. Japanese dividend growth has been outperforming the rest of the world for four years, reversing a long period of relative stagnation. Japanese dividends have now caught up with Asia Pacific and North America, the two fastest growing regions in the world, with all three having seen payouts rise close to 130% since the end of 2009.

Investors receive seven tenths of their annual European dividend income in Q2. Growth in Europe has lagged behind the rest of the world over the last few years, and the second quarter of 2019 was no exception. Payouts fell 5.3% year-on-year on a headline basis, thanks in large part to a weak euro, and took our index for Europe to 134.0, its lowest level in over a year. In underlying terms, European dividends were just 2.6% higher. A small number of big dividend cuts held back the total, but the proportion of companies raising payouts is also in decline. Spain, the Netherlands, Switzerland and France were ahead of the European average, but Germany and Belgium lagged behind.

US dividends rose at their slowest pace in two years, up 5.3% on an underlying basis to $121.7bn. The pace of dividend growth in the US slowed across a range of sectors with most seeing single-digit increases. More than four fifths of companies raised their payouts, however, keeping the US near the top of the international rankings. The banking sector continued to show strong dividend growth, but auto manufacturers all held their payouts flat, reflecting growing global structural challenges for the sector.

In the UK, underlying growth was 5.3%, similar to the global average, though very large specials boosted the headline total. The largest contribution to underlying growth came from the banking sector.

The Q2 figures were in line with Janus Henderson’s expectations, and therefore there is no change in the 2019 forecast for $1.43 trillion in dividends, equivalent to 4.2% growth on a headline basis, and 5.5% in underlying terms.

Ben Lofthouse, head of global equity income at Janus Henderson said: “At this stage in the economic cycle, we are seeing a moderation of dividend increases across a broad range of companies, and the number of cuts is on the rise too. Global dividends have been growing very quickly over the last two years, however, so the slowdown we are now seeing is not a cause for concern. The underlying growth rate we expect this year is simply in line with the long-run average, rather than well ahead of it. The impact of the global economic slowdown is greater in some parts of the world than others, with Europe seeing a particular impact. But this is why taking a global approach to income investing is so valuable – the regional and sector diversification brings significant benefits to investors.

“From an Australian perspective, the seasonality of payouts, over reliance on financials and resources and lack of dividend growth reiterates the benefits of a global approach to secure income.”

Key Points:

• Total dividends reached $513.8bn in Q2, up 1.1% compared to a year ago.
• This was a new Q2 record, although the rate of growth has slowed, impacted by a stronger dollar
• Underlying growth was a more encouraging 4.6% in line with our forecast
• Japan, Canada, France and Indonesia broke all-time records
• Australia was seasonally quiet, with payouts bolstered by QBE profit rebound
• Janus Henderson Global Dividend Index rose to a record 191.0
• Forecast for the year unchanged at $1.43 trillion, an increase of 4.2% on a headline basis, or 5.5% on an underlying basis

The post Global dividends break a new record appeared first on AdviserVoice.

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”

The post Global dividends rise strongly in Q1, while Australia continues to lag appeared first on AdviserVoice.

Ben Lofthouse

Q3 delivered another excellent quarter for global dividends as the continuing strength of the world economy boosted corporate profitability around the world, according to the latest Global Dividend Index from Janus Henderson. Globally, payouts rose 5.1% to a comfortable third-quarter record of US$354.2bn.

The United States, Canada, Taiwan, and India all saw all-time record quarterly payouts, while Chinese dividends returned to growth, after three years of contraction.

However, Australian dividends were the weakest in the developed world with payouts falling 2.2% to US$24.5bn. Historically, the third quarter is the most significant in Australia.

This was predominantly driven by Telstra, which paid US$700m less year-on-year, and the dominant banks, which pay almost half the domestic dividends each year, saw no growth. Since the banks already pay out a large share of profits, there is little room for growth – especially given profits are under pressure and the impacts of the Royal Commission.

Insurance payouts were also flat, however the oil and mining sectors boosted overall domestic performance. BHP Billiton raised its payout by US$1bn, an increase of two thirds, while Rio Tinto increased by a fifth. Woodside Petroleum also increased its per share dividend by a fifth, enjoying the higher oil prices.

Key global highlights

• Global dividends rose 5.1% in Q3 to a third-quarter record of US$354.2bn
• Underlying growth was 9.2%, continuing the strong growth reported in Q2
• All-time record payouts in Canada, Taiwan, India and the United States, but Australia lagged well behind
• Chinese dividends grew for the first time in four years
• Dividends forecast to be US$1.359 trillion in 2018 with underlying growth upgraded to 8.1%

A stronger US dollar and lower special dividends suppressed headline growth year-on-year. On an underlying basis, Janus Henderson’s chosen measure of core dividend growth, payouts were 9.2% higher, continuing the strong growth witnessed in Q2. Every region reported strong underlying increases. The Janus Henderson Global Dividend Index ended the quarter at a new record 184.4, indicating expansion of more than four-fifths in global dividends since its launch in 2009.

US payouts jumped 9.1% in headline terms to an all-time record US$120.0bn. Almost half of the increase was down to a $5.3bn special dividend paid by Dr Pepper Snapple when it was acquired by Keurig. Underlying growth in the US was 7.3%, in line with the rapid pace of the first and second quarters, with only one company in seventy cutting its dividend.

Hong Kong and Taiwan delivered 5.9% and 6.2% underlying growth respectively, but their Chinese neighbour performed even more strongly. In China’s most important dividend season, payouts surged 14.6% on an underlying basis, marking a welcome turnaround after three years of declines. A rebound in payouts from the banks delivered half the increase in the Chinese total. Insurers accounted for over a third of the increase, despite being a small sector, and there was also solid growth from energy companies too.

Very few European companies pay dividends in the third quarter, but those that did grew strongly, in line with the encouraging performance of the seasonally important second quarter. In the UK, payouts rose an impressive 11.1% once lower special dividends, a weaker pound, and calendar effects were taken into account.

Janus Henderson’s forecast for headline growth remains unchanged at 8.5%, taking the total dividends for 2018 to US$1.359 trillion. On an underlying basis, however, this means growth in 2018 will be 8.1%, up from 7.4% in forecast at the time of the last edition of the JHGDI.

Ben Lofthouse, head of global equity income at Janus Henderson said: “From a global perspective, the third quarter exceeded our expectations, but more importantly, the quality of growth was better than we expected. It came despite a negative impact from exchange rate moves and a lower level of special dividends. Importantly, our core underlying measure of growth was strong.

“2018 may be a volatile and more challenging year for stock markets, but steady profit growth means dividends should continue to make steady progress.

“Expectations for corporate earnings growth in 2019 are starting to come under some pressure, given the late stage of the economic cycle. That is not to say that profits themselves are set to fall, however, rather that the pace of expansion may now be slower than previously thought. Growing profits and strong cash flow mean that dividends should continue to be well supported and so investors seeking an income from their shares should feel confident about the year ahead.”

The post Global dividends surge, set third-quarter record – Australian dividend payouts lag global peers appeared first on AdviserVoice.

Ben Lofthouse

Global dividends jumped 12.9% year-on-year in the second quarter to $497.4bn, comfortably hitting a new record, according to the Janus Henderson Global Dividend Index. Payments rose in almost every region of the world in headline terms.

Records were broken in 12 countries, including France, Japan, and the United States, some of the largest contributors to global income. The Janus Henderson Global Dividend Index ended the quarter at a new record 182.0, meaning that global dividends have risen by more than four-fifths since 2009.

Key highlights

• Global dividends surged 12.9% in Q2 to a record $497.4bn
• 12 countries saw record payouts including France, Japan, and the United States
• Underlying growth was 9.5%, the fastest in three years
• Rising corporate profitability is driving higher dividend payments in all parts of the world
• Forecast for underlying growth upgraded from 6.0% to 7.4%

Exchange-rate effects exaggerated the headline performance. Even so, on an underlying basis, Janus Henderson’s measure of core trends, global payouts grew 9.5%, the fastest increase in three years.

The second quarter is dominated by Europe ex UK, as two-thirds of the region’s dividends are paid during the period. Underlying growth here was the strongest since the second quarter of 2015. European companies paid a record $176.5bn, an increase of 18.7% year-on-year, as higher corporate profits in 2017 flowed into dividends. Underlying growth was 7.5%, once the strength of European currencies compared to Q2 last year was accounted for, along with other lesser factors. France, Germany, Switzerland, the Netherlands, Belgium, Denmark and Ireland all broke new records. Only a handful of companies cut their payouts, among them Deutsche Bank, EDF and Credit Suisse.

The US saw payouts rise 4.5% to a record $117.1bn. Underlying growth was 7.8% after lower special dividends and index changes were taken into account, the fastest expansion in two years. Even though their expansion was a touch slower than average in Q2, US dividends have grown more steadily than anywhere else, declining in only four quarters over the last ten years. Only one company in 50 in the US cut its payout. The largest was GE, whose cut reduced the US dividend growth rate by one-tenth, as it commenced a restructuring programme and attempted to reduce its debts. Canadian dividends again outpaced those in the US.

Q2 marks a seasonal dividend high point in Japan, so the rapid 14.2% headline growth (12.3% underlying) made a significant impact on the global total. The $35.9bn marked a record for Japanese payouts, with big names such as NTT DoCoMo and Mitsubishi Corp posting increases near 25%.

Elsewhere in Asia, dramatic headline growth was boosted by large special dividends, but underlying growth was impressive too: in Hong Kong it was 13.5% and in Singapore 46.9%. Banking group DBS in Singapore took advantage of higher profits and surplus capital to make a very large increase in its dividend and accounted for half the growth in dividends from the country. In Hong Kong, China Mobile made the biggest contribution to growth. And in Emerging Markets, China’s Sinopec, the world’s largest oil refiner almost tripled its dividend thanks to improved refining margins and a better sales mix.

The strong growth around the world means Janus Henderson has increased its forecast for 2018 underlying dividend increases, upgrading from 6.0% to 7.4%. The resurgent dollar, however, is offsetting the improvement. Dividends in the second half will be translated at less favourable exchange rates, so Janus Henderson’s forecast of $1.358 trillion is unchanged, an increase of 8.6% in headline terms year-on-year.

Ben Lofthouse, head of global equity income at Janus Henderson said: “The second quarter exceeded our expectations in every region of the globe, and income investors will be cheering record payouts and strong growth, with the potential for more to come. Even in out-of-favour regions, such as Europe, dividends continue to increase, driven by ongoing economic and earnings growth.

Looking further ahead, the impact on global trade of escalating tariff battles with the US could have a negative impact on corporate profitability, though its magnitude is highly uncertain at present. Nevertheless, we are still optimistic that in aggregate corporate earnings can continue to grow next year, and payout ratios in key parts of the world like Japan have scope to rise further too. Dividends in any case are less volatile than profits, and we are confident that 2019 will see the global total continue to rise in underlying terms. The trajectory of the dollar may affect the headline growth rate next year, but exchange-rate fluctuations have little impact over the longer term.”

The post Global dividends soar to new record appeared first on AdviserVoice.

Ben Lofthouse

Ben Lofthouse, Portfolio Manager on the Global Equity Income Team, believes the biggest short-term impact on business will be the effect of currency movements. He explains that sterling weakness will improve the competitiveness of UK exports, and the profits of overseas earners will be revised upwards, while on the negative side input cost increases will affect some industries.

The UK General Election outcome is less conclusive than the polls suggested. As expected the Conservatives will be the largest party, but they have fallen short of an overall majority and will likely need to work closely with the Northern Irish Democratic Unionist Party. In Scotland the significant reduction in the number of Scottish National Party representatives in Parliament may lower the likelihood of a second Scottish referendum. The result is not a rerun of Brexit, but does highlight the divisions within the country regarding the approach to it.

Currency implications

The biggest short-term impact on business will be the effect of currency movements. Sterling has weakened, which should improve the competitiveness of UK exports, and the profits of overseas earners are likely to be revised upwards. On the negative side input cost increases will affect some industries. The best opportunities for investors may come from international businesses listed in the UK and Europe that are sold off with the market, but where trading will not be impacted by the decision and which may benefit from currency weakness. A significant proportion of the team’s Global Equity Income strategies are invested in these types of companies. There may be short-term volatility in these share prices but we expect them to recover.

Domestic UK stocks are being sold off in the immediate aftermath of the result. Many of these have rallied significantly since Brexit last year, and some profit taking is expected. While there may be pressure on these areas (retail, housebuilding and financials) as the result is digested, in the long term the fundamentals are likely to reassert, such as housing shortages in some regions of the country or restructuring activities by management teams.

On the Global Equity Income team we did not take a speculative view on the outcome of the election, therefore, we did not need to take any action in the portfolios we manage as a result.

Longer-term implications

The longer-term implications of the result are very hard to judge. There does not seem to be a suggestion that voters are rejecting the idea of Brexit; it is more that voters see the decision on Europe as having being made and they therefore voted based on domestic policies they favoured. The outcome may push negotiations on Brexit further out, but some commentators say that it could help avoid a ‘hard Brexit’. Either way, it highlights the unpredictable nature of political events and reconfirms the importance of diversified portfolios and caution around making assumptions on binary outcomes.

——–

Glossary:

Hard Brexit – a clean separation from the European Union, with the UK giving up full access to the European single market and customs union, in exchange for gaining full control over the right to make new trade deals, laws and regulations.

Volatility – the rate and extent at which the price of a portfolio, security or index, moves up and down. If the price swings up and down with large movements, it has high volatility. If the price moves more slowly and to a lesser extent, it has lower volatility. It is used as a measure of the riskiness of an investment.

The post UK election: a global equity income perspective appeared first on AdviserVoice.