Jane Shoemake

Global dividends rose 3.1%^[1] to US$431.1 billion in Q3 according to the latest Janus Henderson Global Dividend Index, a record for the third quarter and in line with the asset manager’s expectations.

Globally nine companies in ten (88%) increased their dividends or held them flat, with a median increase of 6.0%. Large cuts from just five companies obscured what would have otherwise been a rise in global dividends of 6.5%.

Matt Gaden, Head of Australia at Janus Henderson Investors, said: “A stronger Australian dollar boosted the country’s headline growth rate of 6.8% along with a one-off special dividend from Woolworths. Otherwise, the underlying picture was down 0.8%.

“In fact, one in seven Australian companies in our index made cuts to their dividends, the largest of which was Macquarie, whose profits are sharply lower owing to the impact of more stable energy markets on its commodity trading business and less income from selling green energy assets.

“The Commonwealth Bank’s 4.1% increase made the largest positive contribution.”

Mr Gaden added: “Globally, banks accounted for a fifth of the total dividends paid in the quarter, rising 6.6% on an underlying global basis and ahead of the average.

China, India and Singapore all saw record dividends paid during the quarter. Most of the growth in China came from Alibaba, which is distributing cash to shareholders for the first time this year, whereas in India it reflected strong growth across a very broad range of companies.

Elsewhere, the first year of dividends from internet media companies Meta and Alphabet added a significant boost to already strong growth in the US where 96% of companies raised payouts or held them steady year-on-year. Growth here was 10.0% on an underlying basis.

In a seasonally important quarter for the region, payouts from Asia-Pacific ex Japan were markedly lower, dragged down by weakness in Australia, Hong Kong and Taiwan. Singapore bucked the trend thanks to large increases from its banks.

Given the lower level of Q3’s one-off special dividends, Janus Henderson has trimmed its forecast for 2024 slightly to US$1.73 trillion, a headline increase of 4.2% compared to 2023 (down from its previous estimate of 4.7% headline growth). There is no change in expectations for underlying growth of 6.4%.

Jane Shoemake, Client Portfolio Manager on the Global Equity Income team at Janus Henderson Investors said: “Concerns that higher interest rates might cause significant strain on the global economy have so far been misplaced.

“Companies report that it is getting easier to refinance debts and the banks are well capitalised and generating good returns, even as interest rates fall, with bad debts remaining under control.

“Company profitability in most parts of the world looks robust and implies that dividend growth can continue into 2025. Dividends in any case show more steady growth than profits over time as companies seek to manage payout ratios over the business cycle.

“It is in this context that apparently slower Q3 growth should be seen. We remain confident that underlying growth this year will be in line with the strong showing in the first half.

“More than one sixth of the underlying growth this year is coming from companies like Alibaba and Meta paying their first ever dividends, demonstrating how these relatively new sectors are maturing and beginning to return some of the very large amounts of cash they are accumulating to shareholders. Alphabet, for example, has US$80.9bn* of net cash on its balance sheet, despite having spent roughly US$46.7bn* on share buybacks and another almost US$5bn on dividends in the first nine months of this year alone, suggesting there is still room for dividends to increase significantly in future.”

———

Notes:
[1] Both headline and underlying growth were 3.1% yoy in Q3

The post Global dividends hit third quarter record – US$431.1bn appeared first on AdviserVoice.

Jane Shoemake

Global income investors enjoyed a very strong second quarter of 2024, according to the latest Janus Henderson Global Dividend Index. Payouts rose 5.8% on a headline basis to an all-time record of $606.1bn. Underlying growth was even stronger at 8.2% once the drag caused by exchange rates, especially the weak Japanese yen, was taken into account.

The initiation of dividend payments by large US companies that included Meta and Alphabet boosted the global Q2 growth rate by 1.1 percentage points, but the picture was nevertheless one of broad-based growth – globally 92% of companies raised dividends or held them steady. Moreover, one third of sectors saw double-digit underlying growth and only three sectors saw dividends fall.

Q2 marks Europe’s seasonal high point. The $204.6bn total marked an all-time record for the region as payouts jumped 7.7% year-on-year. France, Italy, Switzerland and Spain all saw record dividends. More than half the growth in European dividends came from banks which have benefitted from the higher interest rate environment. Germany stood out as payouts fell 1.2% year-on-year, with a large cut by Bayer having the largest negative impact.

​In the US, dividends rose 8.6% – two fifths of this growth was due to Meta and Alphabet paying their first dividend.

​Q2 is also seasonally important in Japan – payouts here soared by one seventh on an underlying basis to a new yen record, but the weak exchange rate meant Q2 did not surpass previous dollar highs. The largest contribution to growth came from Toyota Motor which is Japan’s largest dividend payer and made one of the largest increases, following record profits in its latest financial year. Elsewhere in Asia-Pacific payouts were flat in Hong Kong and significantly lower in Australia owing to a cut from Woodside Energy. Singapore, Taiwan and South Korea all saw double-digit growth.

Banks once again were the most important driver of higher payouts, accounting for one third of the underlying increase year-on-year. European banks were the main contributors, but the trend was evident globally. Insurers, vehicle manufacturers (especially in Japan) and telecoms were also important contributors to growth in Q2.

After a strong second quarter, and to allow for the strong contribution dividend newcomers could make this year, Janus Henderson is upgrading its forecast for 2024’s dividends. The global fund manager now expects companies around the world to distribute a record $1.74 trillion, up 6.4% compared to 2023 on an underlying basis (up from 5.0% at the time of its Q1 report) and equivalent to a headline increase of 4.7% (up from 3.9%).

Jane Shoemake, Client Portfolio Manager on the Global Equity Income team at Janus Henderson, said: “We had optimistic expectations for the second quarter and the picture was even brighter than we predicted thanks to strength in Europe, the US, Canada and Japan. Around the world, economies have generally borne the burden of higher interest rates well. Inflation has slowed while economic growth has been better-than-expected. Companies have also proved resilient and in most industries continue to invest for future growth. This benign backdrop has been especially positive for the banking sector, which is enjoying strong margins and limited credit impairments, which has bolstered profits and generated a lot of cash for dividends.

“The initiation of dividends from big US media-technology companies Meta and Alphabet, along with China’s Alibaba among others, is a really positive signal that will boost global dividend growth by 1.1 percentage points this year. These companies are following a path well-trodden by growth industries over the last couple of centuries, reaching a point of maturity where dividends are a natural route for returning surplus cash to shareholders. In so doing they have confounded sceptics who said this group of companies was different. The stock market simply evolves over time as industries rise and fall as they meet the changing needs of society. Paying dividends will also broaden their appeal to investors for whom dividends are a vital part of their investment strategy and it may also encourage more companies to follow suit.”

The post Global dividends surge to new record in Q2 appeared first on AdviserVoice.

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.”

The post Australian dividends rise to new records in 2022 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.

Jane Shoemake

Key points

• In Q1 2021, Australian companies were among better performing dividend payers compared to rest of the world
• Mining drives strong start to 2021 for Australian dividends, up 60% year-on-year as commodity prices soar
• Australian banks are likely to restore dividends to around 70% of their 2019 level with the easing of Reserve Bank limits
• Australian dividends set to grow by 40% in 2021, with payouts to reach 85% of 2019 level
• Janus Henderson’s index of dividends ended the quarter at 171.3, its lowest level since 2017, but growth is now likely
• Janus Henderson upgrades its 2021 global dividend forecast to A$1.78 trillion (USD$1.36 trillion), a headline increase of 8.4% and equivalent to an underlying rebound of 7.3%

There are clear signs of a forthcoming revival in Australian dividends following the first quarter of 2021, according to the latest Janus Henderson Global Dividend Index. On the back of strong growth, Australian dividends are set to reach 85% of their pre-pandemic 2019 levels by the end of the year.

The latest report noted that as a result of its heavy dependence on mining and financial services companies, Australia shares characteristics with emerging markets, despite socially and economically resembling its developed, Western peers.

As such, its hybrid economy is well placed to take advantage of the recent surge in commodity prices, and strong industrial production in China.

While on an underlying basis, Australian dividends were flat year-on-year at -0.2%, the result actually ensured Australia was among the better performing comparable countries, thanks in part to the commodities boom driving increased mining dividends. Globally, dividends were 1.7% lower than the same period last year, a far more modest decline than in any of the preceding three quarters, all of which saw double-digit falls. Dividends from Asia-Pacific ex-Japan were 6.0% lower on an underlying basis, with the 16.9% fall in Hong Kong making a significant impact. This meant the index of Asia-Pacific’s dividends fell to 190.6.

Concentration risk hits Australian income investors hard

The report noted that sector concentration characterised by heavy dependence on a few large banks and mining companies, with a long tail of smaller payers is common in individual countries, even developed markets, but it is particularly extreme in Australia.

In 2019 and 2020, the top ten payers in Janus Henderson’s index contributed almost four fifths (78%) of Australian dividends – and the pandemic did nothing to disrupt that pattern. Comparatively, Canada which has a similar dependence on banking and energy dividends accounted for three fifths (62%) and the UK likewise saw 67% of its dividends paid by the top 10 in 2020. By contrast, at the global level the 10 biggest payers made up just a tenth of world dividends in each of the last two years.

This concentration proved costly to local income investors when dividends fell 40% in 2020 in Australian dollar terms, placing Australia among the hardest hit nations in the world off the back of the COVID-19 pandemic.

In Q1 2021, just one company in five (18%) globally made year-on-year cuts to dividends, far fewer than a third (34%) that have cut over the last year. This compared to over half the Australian companies in Janus Henderson’s index cutting year-on-year dividends in the first quarter, highlighting the need for Australian investors to think globally for income.

Mining companies lead recovery, but banks catching up

Mining companies really stood out in the first quarter, as resurgent commodity prices drove significant growth in payments boosted by large one-off special dividends. Fortescue Metals almost doubled its distribution and became Australia’s largest payer in the first quarter. Including BHP’s special dividend, mining payouts jumped 60% year-on-year in Australian dollars, with further increases signalled to arrive later in the year rounding off the 60% growth for mining dividends in calendar year 2021. Rio Tinto upped its payout by half in April, for example.

Dividends from financial companies in particular were boosted by a number of companies restarting dividends, albeit generally at lower levels, that had been interrupted by the pandemic, in many cases owing to regulatory restrictions. The biggest negative impact came from Commonwealth Bank of Australia, which nevertheless made a much smaller cut in the first quarter than it did in the third quarter of 2020. This provided an unseasonal boost to the sector in Q1, with banks expected to likely to restore dividends to around 70% of their 2019 level.

Janus Henderson expects healthy increases from defensive retailers like Coles and Woolworths too, but a number of other companies will find it harder to grow their dividends substantially and some may pay nothing.

Consequently, dividend growth of around 40% is certainly achievable in Australia this year. This would take payouts to A$70.9bn, around 85% of their 2019 level, though with caution that there is still a high degree of uncertainty around the near future, both in Australia and around the world.

Matt Gaden Head of Australia at Janus Henderson said: “Our outlook clearly points to a dividend revival in Australia after a dividend drought last year. A key factor for the dividend drought is the heavy concentration towards banks and mining stocks in Australia compared with other global markets which are much more diversified. As the economic recovery continues, we’re anticipating further dividend increases, with payouts reaching 85% of their 2019 levels. The dividend bounce back should be a big relief to Australian investors, particularly self-funded retirees.”

Jane Shoemake Client Portfolio Manager on the Global Equity Income Team at Janus Henderson said: “The successful vaccine rollout in the US and the UK in particular is enabling society and the economies here to begin to normalise to some extent and offers encouragement for other countries following closely behind with their own inoculation programmes. Even so with infection rates still out of control in Brazil and India, and the third wave in Europe still curtailing economic and social activity while the vaccines are administered, there is still a lot of uncertainty for company profits and, in turn, dividends. On top of this, there remain political sensitivities around shareholder payments, while the timing and extent of the removal of regulatory restrictions on banking dividends, especially in Europe and the UK is still unclear. We also expect share buybacks to return as a use for surplus cash and this too will influence how much is returned via dividends (especially in the US). All these factors are adding a layer of unpredictability to dividend payments.

“Despite this uncertainty, we are more optimistic given that Q1 was undoubtedly better than expected and we are now more confident that companies are willing and able to pay dividends, especially those companies that have traded well. There is certainly much less downside risk to payouts this year than previously anticipated, though the timing and magnitude of individual company payouts is going to be unusually uneven and this will add volatility to the quarterly figures. Special dividends will play a role too. Since late last year we have been adding to areas of the market that will benefit as economies reopen and where there is increased confidence in a business’s ability to generate cashflow and pay a dividend. As we move into the second quarter, the year-on-year comparisons will look very positive because it was the worst period for dividend cuts last year.”

The post Australians will cheer a good year for dividends in 2021, after being among the hardest hit in the world due to COVID-19   appeared first on AdviserVoice.

Jane Shoemake

During the worst crisis since World War II global dividends fell to US$1.26 trillion (AUD$1.63 trillion) in 2020, down 12.2% on a headline basis, according to the latest Global Dividend Index from Janus Henderson.

This was better than Janus Henderson’s best-case forecast of US$1.21 trillion (AUD$1.56 trillion) thanks to a less severe fall in Q4 payouts than anticipated. On an underlying basis, dividends were 10.5% lower in 2020, a smaller decline than after the global financial crisis. Janus Henderson’s index of global dividends fell to 172.4, a level last seen in 2017.

The dividend cuts were most severe in Australia, the UK and Europe, which together accounted for more than half the total reduction in payouts globally, mainly owing to the forced curtailment on banking dividends by regulators. But even as payouts in Europe and the UK fell below the levels seen in 2009 when our index began, they rose 2.6% on a headline basis in North America to a new record. North America did so well mainly because companies were able to conserve cash and protect their dividends by suspending or reducing share buybacks instead, and because regulators were more lenient with the banks. In Asia, Australia was worst affected, thanks to its heavy reliance on banking dividends, which were constrained by regulators until December. Elsewhere, China, Hong Kong and Switzerland joined Canada among the best performing nations.

Q4 ended the year with a smaller fall than feared

Q4 payouts fell 14.0% on an underlying basis to a total of US$269.1bn (AUD$348.7bn) while the headline decline was just 9.4%. This was less severe than expected as companies like Sberbank in Russia and Volkswagen in Germany restored suspended dividends at full strength, while others like Essilor in France brought them back at a reduced level. Special dividends were also larger than expected, while in the US the dividends announced for the next four quarterly payments were better than expected.

How did Covid-19 affect global and Australian dividends?

Although the cuts and cancellations totalled US$220bn (AUD$285bn) between April and December 2020, companies nevertheless paid their shareholders US$965bn (AUD$1,250bn), still far outweighing the reductions. One company in eight cancelled its payout altogether and one in five made a cut, but two thirds increased their dividends or held them steady. Banks accounted for one third of global dividend reductions by value, more than three times as much as oil producers – the next most severely affected sector. Six in ten consumer discretionary companies cut or cancelled payouts, but the classic defensives – food retail, pharmaceuticals and personal products – were well insulated.

Dividends from Asia Pacific fell 11.9% in 2020 on an underlying basis, roughly in line with the global average. The total dropped to a level last seen in mid-2016^[1] . From Q2 onwards, the decline was 15%. Australia contributed most to the cuts, while Hong Kong’s payout held steady. Further, Commonwealth Bank’s first dividend distribution of the year came before regulators curtailed banking dividends, helping prevent a much bigger annual decline.

Outlook

Q1 2021 will see payouts fall, although the decline is likely to be smaller than between Q2 and Q4 2020. The outlook for the full year remains extremely uncertain. The pandemic has intensified in many parts of the world, even as vaccine rollouts provide hope. Importantly, banking dividends will resume in countries where they were curtailed, but they will not come close to 2019 levels in Europe and the UK, and this will limit the potential for growth. Those parts of the world that proved resilient in 2020 look likely to repeat this performance in 2021, but some sectors are likely to continue to struggle until economies can reopen fully.

A slow escape from the pandemic, and the drag caused by the first quarter, suggest that dividends may fall by 2% (headline) for the full year in a worst-case scenario (-3% underlying). A best-case at this stage suggests an increase of 2% on an underlying basis, equivalent to a headline rise of 5%, yielding a total of US$1.32 trillion (AUD$1.63 trillion).

Jane Shoemake, Client Portfolio Manager on the Global Equity Income Team at Janus Henderson said: “Although the pandemic has changed the lives of billions in previously unimaginable ways, its impact on dividends has been consistent with a conventional, if severe, recession. Sectors that depend on discretionary spending have been more severely impacted, while defensive sectors have continued to make payments. At a country level, places like the UK, Australia and parts of Europe suffered a greater decline because some companies had arguably been overdistributing before the crisis and because of regulatory interventions in the banking sector. But at the global level, the underlying 15% year-on-year contraction in payouts between Q2 and Q4 has been less severe than in the aftermath of the global financial crisis.

Matt Gaden, Head of Australia at Janus Henderson said: “The disruption in some countries and sectors has been extreme, but a global approach to income investing meant the benefits of diversification have helped mitigate some of these effects. Crucially, the world’s banks (which usually pay the largest share of the world’s dividends) mostly entered the crisis with healthy balance sheets. Bank dividends may have been restricted by regulators in some parts of the world, but the banking system has continued to function, underpinned by robust capital levels, which is vital for the smooth operation of economies. There is still another challenging quarter to come. Q1 will see payouts fall, although the decline is likely to be smaller than between Q2 and Q4 2020.

“Finally, as is usual in challenging economic environments, dividends are exhibiting stability relative to profits. This is one reason why dividends are such an important consideration for investors.”

Key points

• Between April and December 2020, Australian payouts fell by 38% as more than three in five companies cut or cancelled payments
• Global payouts fell 12.2% in 2020 to US$1.26 trillion (AUD$1.63 trillion), equivalent to an underlying fall of 10.5%
• North American dividends were very resilient, rising to a new record
• China, Hong Kong and Switzerland joined Canada among the best performing nations
• Banks, oil, mining and consumer discretionary companies were worst hit, while classic defensives – food retail, pharmaceuticals and personal products – were well insulated
• Janus Henderson’s best-case scenario sees 2021 dividends up 5% on a headline basis to a total of US$1.32 trillion (AUD$1.71 trillion), an underlying increase of 2%. This includes Q1 2021, in which payouts will continue to fall
• The worst-case could see payouts fall 2% on a headline basis, or 3% in underlying terms

——–

1 On an annualised basis

The post Pandemic caused US$220bn (AUD$285bn) of global dividends cuts in 2020, but the decline was less severe than feared appeared first on AdviserVoice.

Jane Shoemake

Growing corporate profits pushed global dividends 10.2% higher on headline basis to $244.7bn in the first quarter, according to the Janus Henderson Global Dividend Index. The total was a record for the first quarter. All-time quarterly records were broken in Canada and the US, while first-quarter records were broken in one in four of the countries in the index.

Asia Pacific ex Japan was the only region not to see an increase, owing to sharply lower special dividends in Hong Kong, and dividend cuts in Australia. The Janus Henderson Global Dividend Index ended the quarter at a record 174.2, meaning that global payouts last year were almost three-quarters higher than in 2009.

Key highlights

• Global dividends jump 10.2% on a headline basis to $244.7bn in Q1, a record for first-quarter payouts
• Q1 exceeded expectations thanks to the weaker dollar; underlying growth of 5.9% met Janus Henderson’s forecast
• All-time quarterly records broken in Canada and the US; first-quarter records broken in one in four countries
• Asia Pacific ex Japan was the only region to see falling dividends due to lower special dividends in Hong Kong, and cuts in Australia
• 2018 set to see global dividend growth of 6.0% in underlying terms
• Headline growth upgraded to 8.5%, helped by a weaker dollar, with payments expected to reach a record $1.358 trillion

Q1 headline growth was ahead of Janus Henderson’s forecast, mainly because the US dollar weakened steadily over the course of the quarter, meaning that payments denominated in other currencies were translated at more favourable exchange rates.

On an underlying basis, growth was exactly in line with Janus Henderson’s expectations, up 5.9% year-on-year and continuing the pace set in 2017.

Seasonal patterns in dividend payments give North America a greater share of global payouts in Q1, as almost every company makes regular quarterly distributions to investors.
US underlying growth was 7.6%, with the total paid reaching an all-time quarterly record of $113.0bn. Overall, almost eight in ten US companies paid out more in dividends year-on-year, with technology, financials and healthcare doing best. Canada saw underlying growth of 13.8%, the fastest in the developed world. The $10.1bn total there was also an all-time record, and every company in the dividend index raised or held payouts.

Elsewhere, there are relatively few European dividend payments in Q1, and these were held back by a seasonal skew towards slower growing Swiss pharmaceutical stocks and oil companies. Underlying growth was 3.9%, though stronger European exchange rates pushed headline growth up 13.7%. Japanese payouts jumped 8.2% in underlying terms, the total reaching a first quarter record, while emerging market payouts were boosted by special dividends.

Asia Pacific ex Japan was the laggard during Q1. Payouts dropped 3.1% in underlying terms, though the dip is likely to prove temporary. Most companies in Hong Kong held or raised payouts modestly, though the headline total was hit by sharply lower special dividends, while Singaporean payouts were flat in underlying terms.

Australian dividends fell 1.2% on a headline basis to $7.7bn, but were 6.6% lower in underlying terms, mainly owing to Telstra. Telstra has been one of Australia’s dividend stalwarts, consistently ranking in the top six payers until now. Slow profit growth and a need to preserve cash for investment led to the telco’s first dividend cut in 20 years. Its new dividend policy targets a much less generous, but more realistic, payout ratio range of 70-90%. QBE Insurance Group cut its dividend by 90% after warning in January that it had made a loss. Excluding the impact of QBE and Telstra, Australian dividends rose encouragingly year-on-year, with a particular boost from mining group BHP Billiton.

Janus Henderson has maintained its forecast for underlying dividend growth of 6.0% this year, with expansion expected to come from every region of the world. The dollar decline in recent months has added to the headline growth forecast and Janus Henderson now expect dividends to rise 8.5% in headline terms for the full year, reaching a total of $1.358 trillion, $10bn more than its initial expectations in January.

Jane Shoemake, Client Portfolio Manager – Global Equity Income at Janus Henderson said: “2018 has started well for dividends. Economic growth is strong, and corporate profitability is rising, generating cash that companies can return to their shareholders.

The Q1 acceleration in US dividend growth may be an early sign that companies are feeling confident about returning some of the cash they have accumulated to shareholders. Recent US corporate tax reforms could encourage this trend.

The second quarter is seasonally important for European dividend payments and we will see a much broader range of industries and countries contributing than in Q1. Europe’s economic recovery is likely to yield healthy growth from across the region. Stock-specific problems in Australia made a greater impact on Q1 than they will on the full year, and we are optimistic for emerging markets and Asia too.

We’re confident investors will get to celebrate a new record for global dividends in 2018.”

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