The Janus Henderson Dividend Index reached an all-time high of 171.2 in 2017.
After a record year in 2017, global dividends are expected to continue pushing ahead through the course of 2018, with strong growth in all regions likely, according to the latest Dividend Index from Janus Henderson.
Last year’s record $1.25 trillion total will be eclipsed this year, with underlying growth of 6.1% set to take the 2018 total payouts to $1.35 trillion should the weak dollar stay at its current low levels. Donald Trump’s tax reforms may also help, putting more cash in companies’ pockets to return to shareholders.
Janus Henderson’s dividend index reached an all-time high of 171.2. According to the firm, this means dividends have risen by almost 75% since 2009.
A quarter of the countries in the index broke records, including the US and Japan, where corporate culture has changed dramatically under Prime Minister Shinzo Abe, leading to higher shareholder returns. This is one reason many asset allocators are becoming more bullish on the region.
Companies are seeing rising profits and healthy cash flows in what is an unprecedented synchronised global economic expansion. Ben Lofthouse, director of global equity income at Janus Henderson, says this has enabled them to fund generous dividends. He expects this to continue at a time when volatility in global equity markets is likely to pick up markedly.
UK
After a strong 2016 due to the devaluation of sterling, the currency bounced back in 2017, muting headline growth at 3%. However, the resumption of dividend payments by mining companies, which were forced to cut payouts after the oil price crisis, helped underlying dividends surge by 10%.
Clearly, that’s not going to happen again. However, there is one sector set to ramp up dividend payments. Financials – banks in particular – will become a fertile hunting ground for UK equity income fund managers in the near future.
Lloyds (LLOY) and HSBC (HSBA) have found their way into most of these portfolios, with others likely to follow. The BlackRock UK Income Fund has recently bought into Standard Chartered (STAN), which is set to return to the dividend list this year with a modest forecast yield of 1.4% according to broker UBS.
While it’s not a big dividend, David Goldman, co-manager of the BlackRock fund, says it’s a sign of the company’s balance sheet and loan book repair. Currently trading at a discount to book value, he says Standard Chartered typifies what he looks for in the turnaround part of the portfolio.
“It’s exposed to US rates improving and, to us, it almost feels like there’s free optionality on whether or not this business can improve its returns from currently subdued levels.”
US
US companies paid out a total of $438 billion, with headline growth of 5.8% year-on-year. And those dividends come from a much wider base than in the UK, with no sector accounting for more than $1 in every $11 paid.
Banks have tripled their dividends since 2011, delivering growth in every year as they continue to repair their businesses post the financial crisis. Healthcare is the largest sector for dividends in the States and saw its fourth consecutive year of growth.
Tax reforms are set to boost revenues both in the short and the longer term. This will give firms more money to invest in their businesses, as well as returning to shareholders. Ben Peters, manager of the Evenlode Global Income Fund, uses the example of Cisco (CSCO).
The firm recently said it would spend around a third of its cash on R&D, a third on acquisitions and return the rest to shareholders. “We’ve got to see how that pans out in practise but I would say most businesses will take that approach,” Peters says.
Asia
As mentioned, income investors in Japan have profited from better corporate governance, as well as a weaker yen, which has boosted profits. Japanese dividend payments have risen by 40% since 2014. While its largest dividend payer, Toyota Motor (7203), held its payout, the likes of Mitsubishi (7211) and KDDI (9433) saw double-digit increases.
China avoided three successive years of negative growth thanks to a special dividend from Petrochina (601857). But the wider Asia Pacific sector saw an 18.8% jump in total dividends. Hong Kong, South Korea and Taiwan all broke annual records.
Hong Kong’s China Mobile (00941) is now the second largest dividend payer in the world, nearly unseating Shell as number one, which the UK-listed oil major has held for four of the past six years. In the latter two regions, it was blue chips Samsung Electronics (005930) and Taiwan Semiconductor (2330) leading the way.
Europe
Despite a rapidly improving economic backdrop – Europe is one of the most-favoured regions currently – European companies lagged on the dividend front, with underlying growth of just 2.7%.
The was due to cuts from a handful of large companies in France and Spain, a weak euro during the key second quarter and lower special dividends. France in particular disappointed, with a flat total, and Spain went backwards.
But Germany rebounded and the Netherlands and Switzerland reached record highs.
