FMB Technical Briefing - Good news on Global Dividends

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For those of you who like to know about the nuts and bolts our technical briefing looks at economic conditions driving investment decisions for fund managers...

Global dividends paid to shareholders rose by 12.9% in the second quarter of the year to reach a record $497.4bn.

The growth in global dividends means payments to shareholders comfortably exceeded analyst expectations in the second quarter, with strongly rising profits and companies flush with cash they were able to distribute.

The latest edition of a long-term study into global dividend trends found that global dividend payments rose in every part of the world in headline terms, with one notable exception.

In the UK, divided growth was held back by technical factors.

Despite the UK letting the side down for headline growth purposes, dividend records were broken during the second quarter in 12 different countries, including France, Japan and the United States.

The latest edition of the Janus Henderson Global Dividend Index reached a new record of 182.0 at the end of the second quarter. It means that global dividends have risen by more than four-fifths since 2009, which is a base year for the index, when the index value was 100.

When measured on an underlying basis, global dividends paid out to shareholders in the second quarter rose by 9.5%. This was the fastest increase recorded in three years.

Contributing to this rise in underlying divided growth were emerging markets, Asia-Pacific ex Japan, and the UK. Whilst these were the regions contributing the strongest underlying growth, Janus Henderson reported that no region disappointed dividend investors.

The second quarter is especially important for the Europe ex UK investment sector, as around two-thirds of European company dividends are distributed during the second quarter. Janus Henderson reported that growth here was at its strongest since the second quarter of 2015, when measured on an underlying basis.

The Janus Henderson Global Dividend Index is calculated in US dollars and is broken down into the various regions, industries and sectors, allowing for easy comparison.

Janus Henderson reported that, even though the US dollar has been climbing steadily in value recently, it was still weaker in the second quarter than most currencies when compared to the same period last year.

This means that dividend payments made in other currencies were translated in the study at more favourable exchange rates, boosting the headline rate of global dividend growth by 3.5%.

The biggest impact of this currency flattering was seen in Europe and the UK, but current trends suggest the effect is likely to be reversed in the third quarter of the year.

They also reported that special dividends made a large impact in the UK and Asia-Pacific ex Japan regions. However, at a global level these special dividends only boosted headline dividend growth by 0.4%.

Index and timing effects netted each other off at the global level, though they made a greater impact in individual countries.

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.”

In North America, dividends rose by 5.1% to reach a record $127.3bn, with underlying growth reported at 8% in the second quarter. US companies have demonstrated steadier growth than any other country in the index, falling back during only four quarters in the last decade.

In the Asia-Pacific region, dividends rose by 29.2% in the second quarter, to reach a total of $42.8bn. This impressive quarterly was boosted by the payment of very large special dividends in Hong Kong and Singapore.

Despite this, underlying dividend growth in the Asia-Pacific region was still an impressive 13.5% in the second quarter.

Whilst the second quarter is significant for dividend payments in Europe, it’s also an important quarter for Japan.

In headline terms, Japanese payouts jumped 14.2% to a record $35.9bn.

Underlying growth was a similar 12.3% in Japan during the second quarter, with more than nine in ten Japanese companies raising their payments in per-share terms, and larger firms tending to make bigger increases.

The study reported that dividends in Japan are coming from a relatively low base, and there is room for companies to increase payout ratios over the longer term.

Janus Henderson said that the current healthy state of Japanese profits, combined with higher payout ratios could create a powerful contributor to global dividend growth in future.

Concluding its report, Janus Henderson upped its forecast for total underlying dividend growth this year from 6% to 7.4%, making it potentially a very good year for dividend investors.

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