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Fund manager Janus Henderson paints a reasonably optimistic picture of the global dividend outlook in its latest report, which shows record payout levels in the first quarter of the year. It has also upgraded its full-year forecast for 2023.
“The exceptionally large tally of one-off special dividends in the first quarter, along with the strong picture for the second quarter in Europe, are the main reasons behind our forecast upgrade for 2023. We now expect headline dividend growth of 5.2%, delivering record payouts of US$1.64 trillion. Underlying growth is upgraded to 5% from 3.4% three months ago,” the company said in the report.
Its Global Dividend Index for May reveals that 95% of companies worldwide either held or increased their dividends in Q1, a period that saw a 12% hike in payouts to US$326.7 billion. But this total was supported by special dividends and currency movements, so the underlying growth figure is closer to 3% year on year. Stock buybacks are also expected to almost match dividend payouts this year, the report says.
What’s Going on With Canadian Dividends?
Seasonal variations mean that some regions perform better than others depending on their payout schedules.
North America made up 40% of last year’s US$1.56 trillion worth of payouts. 97% of US companies in the index held or hiked, higher than the global average, with strong contributions from US real estate, technology, and healthcare sectors. The payout growth from Canadian companies was even stronger.
The report notes that U.S. dividend growth has been steadily slowing in recent quarters, a trend that continued in Q1 2023 with payouts rising by 4.8% on an underlying basis, their slowest pace since the post-pandemic recovery began.
“Headline payouts were boosted by exceptionally large one-off special dividends, however, pushing the total paid up 8.3% to a record $153.4bn. Over a third of the US$9.8bn in special dividends came from the booming oil sector, mainly second-tier producers,” the report noted, adding that Canada continued to outperform its larger neighbour. Q1 dividends grew 8.1% on an underlying basis, with oil and banking stocks making the largest contribution to growth.
Asia-Pacific, excluding Japan, paid out $23.3 million, around 7% lower than the same quarter last year. Emerging market companies distributed $17.3 million in Q1 2023, and specials helped increase this by 22.7%.
“The sharp decline in mining sector payouts reflects lower commodity prices since many groups have moved to variable dividend policies in recent years. The fall was in line with our expectations and was almost exactly offset in Q1 by the strong positive contribution to growth from banks and oil companies. Most sectors delivered single-digit growth and there were relatively few weak spots,” the report says.
A Golden Age?
Mark Peden, investment manager at Aegon Asset Management told my colleague James Gard that international income investors are entering a new golden age: “We have now gone from a dividend dilemma to a dividend deluge … the picture is clear – companies are returning record amounts of capital to shareholders. The volatility we saw last year served as a reminder that dividends are typically much less variable than earnings and can provide an important source of total return in challenging markets.”
Ben Lofthouse, head of global equity income at Janus Henderson, is more cautious: “The world economy is slowing as inflation, higher interest rates and tighter financial conditions increasingly impact demand. Profits are under pressure as a result and this will impact dividend growth in due course.
"We hasten to add that dividends are much less volatile than profits over the cycle so any slowdown or outright decline in earnings will have a more muted impact on payouts over the next year or so ... After a strong couple of years, almost all the easy gains from the post-pandemic bounceback have now been made too. This is why dividend growth in 2023 will be markedly slower than over the last two years.”
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