Global dividend growth at highest level since 2015

Marina Gerner
7 June 2017

Global dividends rose to $218.7bn in the first quarter of 2017, expanding at a rate of 5.4% year-on-year, according to the latest Global Dividend Index from Janus Henderson.

This is the fastest underlying increase in global dividend growth since late 2015, spurred on by an improved outlook for the global economy, which has in turn helped boost company profits and led to more generous dividend payments.

Each quarter Janus Henderson analyses dividends paid by the 1,200 largest firms by market capitalisation and it found that dividend growth was strong across most regions of the world, except for Europe.

In 2016, global dividends had flat-lined, driven by subdued profit growth across various markets. This led to one in four UK equity income funds cutting payouts

But in the first quarter of this year, companies have once again become more generous in terms of the amount of income they return to shareholders.

What are dividends?

Dividends are the amount of a company’s profits that are returned to shareholders in the form of a payment. The most common dividend frequencies are annually, biannually and quarterly. There are no uniform calendar dates for when dividends are paid; it depends on the individual company's ‘fiscal calendar’, the period used by the company for accounting and budget purposes.

For some investors, stable, high dividend payments are an essential reason for owning the shares they do – they use them to pay bills or, if they get enough back, to live on completely. Other people chose to reinvest dividends straight back into shares in order to take advantage of compounding.

Companies offer dividends as a reason to own their shares, and a big company cutting back on its pay-out is often big news. It’s usually interpreted as a bad sign – the company isn’t making a big enough profit, isn’t confident about the future, or is running out of capital.

However, sometimes a dividend is cut because the company would rather reinvest in itself– for example, to open a new site or fund an acquisition. In this case it’s short term pain for a hopefully rosier future, but what’s key is communicating this sufficiently well to investors.

US companies contributed a large share of global income

The Janus Henderson research also found that there was a fall in one-off special dividends, which was particularly pronounced in the US.

At the same time the US banking sector, which used to be the richest source of US dividends before the financial crisis, is once again increasing payouts sharply, and catching up with the oil sector that has battled lower oil prices over the last two years.

Dividend payments in the US are more evenly spread than other parts of the world, so US companies contributed a disproportionately large share of global equity income in the first quarter.

UK dividends dragged down by weak pound

UK dividends fell 5.3% year-on-year in headline US dollar terms, because they were dragged down by the weak pound.

But the research argues that adjusting for sterling’s devaluation, underlying growth was good at 7.1%.

Half of this increase was thanks to an unexpectedly strong increase from mining group BHP Billiton, which is now profiting from firmer commodity prices, after slashing its dividend in 2016.

‘Outlook for world economy is positive’

Alex Crooke, head of global equity Income at Janus Henderson, says: “2017 has started on a really encouraging note for income investors, at least if you look beyond one-off special dividends. Growth was broadly based across many sectors and countries too.”

He continues: “The outlook for the world economy looks better at present than at any time in the last few years. That means companies can grow profits and dividends at a faster pace. At the moment the uptick is taking place more quickly than we anticipated, and is stronger too, so we are slightly revising up our forecast for the year, despite the big drop in special dividends in Q1.

“What’s more, the slightly weaker dollar means encouraging underlying dividend growth around the world is not being so heavily disguised by exchange rate effects when dividends are converted back into US dollars.”

This is an edited version of an article that original appeared on our sister website Money Observer.

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