Global dividends break Q2 record

Europe and the UK were the primary regional drivers of the quarterly increase, with a rise of about a third on an underlying basis.

Global dividends surged 11.3% on a headline basis to an all-time quarterly high of $544.8bn (£461.2bn) in Q2 2022, the latest Janus Henderson Global Dividend Index shows.

Underlying growth was even stronger at 19.1%, once the strength of the US dollar and other factors were taken into account. About 94% of companies raised payouts or held them steady over the period in question.

“Despite the enormous economic disruption the pandemic caused, global dividends are above their pre-pandemic high and now just 2.3% below their long-term trend level,” said the report.

“Moreover, without the exceptional strength of the US dollar, payouts would be entirely back to trend. This follows a very profitable 2021 when companies enjoyed rising sales and expanding profit margins on the back of soaring post-pandemic demand.”

As a result, Janus Henderson has made a small upgrade to its annual forecast. It is now predicting 2022 payouts will reach $1.56trn – up from $1.54trn last quarter. This translates into headline growth of 5.8% year-on-year, equivalent to an 8.5% increase on an underlying basis.

Europe and the UK were the primary regional drivers of the quarterly increase. In the former, dividends jumped 28.7% on an underlying basis, significantly higher than the 15.1% headline figure once exceptionally weak European exchange rates were taken into account. The $165.8bn total did not quite break the Q2 2018 record, thanks to the negative exchange-rate impact.

Source: Janus Henderson

The report said that with many European companies (ex UK) paying dividends just once a year, Q2 2022 was the first opportunity since 2019 for most businesses to pay normal dividends.

“The lifting of central bank restrictions on bank dividends was especially important in the two regions [UK and Europe],” it added.

“Very large increases from German car manufacturers also made a major contribution. Meanwhile, Swiss and Dutch payouts reached new heights.”

Surging oil, mining and banking payouts drove UK dividends up 29.3% on an underlying basis in the second quarter. More than a third of the increase came from mining dividends, and while oil dividends also recovered, many companies in this sector opted to use share buybacks to return some of their “exceptionally high profits” to shareholders.

The report noted that a large proportion of UK dividends are declared in US dollars, which limited the downside impact of the weak pound on headline levels.

At 8.3%, dividend growth in the US lagged the wider world, but it was still enough to set an overall record. Canadian dividends also reached a new high.

In terms of sectors, high oil prices meant this sector contributed two-fifths to second-quarter growth – producers in Brazil and Colombia were the key drivers.

Banks and other financials accounted for another two fifths, while consumer discretionary sectors, especially car manufacturers, also delivered strong dividend growth. Lower special dividends and a steep cut from AT&T held back technology and telecoms respectively.

Ben Lofthouse, head of global equity income at Janus Henderson, said that while second-quarter growth was a little ahead of expectations, it was unlikely to be as strong in the rest of the year.

Source: Janus Henderson

“Many of the easy gains have now been made as the post-Covid catch-up is almost complete,” he explained.

“We are also facing a significantly slower global economy and the headwind from the strength of the US dollar. As we move into 2023, there will be no more impetus from post-Covid catch-up payments.”

Lofthouse added that slower global economic growth and the likelihood that mining dividends are now close to peaking will add further headwinds. However, he said exchange rates are unlikely to act as a significant drag on headline growth next year, given the currency impact witnessed in recent months.

“Overall, dividend growth is likely to be slower next year,” he continued, before adding: “It’s important not to let short-term uncertainty cloud the long-term view. There is nothing to suggest that global dividends cannot sustain over the long term the 5 to 6% annual growth rate we have become used to.

“The economic cycle rises and falls, exchange rate fluctuations dissipate almost entirely over the long term, and even the impact of Covid-19 on global payouts has already been overcome.”

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