Stellar Year for Global Dividends in 2018

But for those investors seeking an income from stocks, 2018 was, in hindsight, pretty good. Global dividends rose to a record $1.37 trillion, according to Janus Henderson’s Global Dividend Index.

That was 8.5% higher than 2017 on an underlying basis, which strips out currency movements, special dividends and other factors that could distort the results. The growth was the fastest seen since 2015.

Factors that contributed to this were the normalisation of payments from miners, banks and oil majors after an extended period of low or no dividends and the increasing trend towards tech companies returning cash to shareholders. US President Donald Trump’s tax cuts helped, too.

For 2019, underlying growth is expected to return to trend, at 5.1%, and dividends are expected to hit $1.41 trillion.

“Corporate profit expectations have fallen as global economic forecasts have been revised down, although most observers still expect companies to deliver positive earnings growth in 2019,” says Ben Lofthouse, head of global equity income at Janus Henderson.

“Dividends in any case are much less volatile than earnings, so we remain optimistic on the prospects for income investors.”

North America

Underlying dividend growth in North America was just shy of the global average at 8.1%, with the US growing 7.8% thanks to strong contributions from banks, healthcare and technology. Canadian dividends were one of the fastest-growing major regions at 11.8% and reaching a new record.

US dividends smashed through the half a trillion dollar mark, with banks leading the way. JPMorgan Chase (JPM) overtook Wells Fargo (WFC) as the biggest payer in the sector, though Bank of America (BAC) saw the highest rate of growth. Healthcare and tech helped, too.

UK

As we’ve previously noted, UK dividends fell just shy of the £1 trillion mark. On an underlying basis, growth was strong at 8.8%.

Miners were the biggest contributor to that growth, but British American Tobacco (BATS) made the biggest single company contribution. The tobacco manufacturer paid an extra $1.2 billion in its first full year since its acquisition of Reynolds American. It’s a large reason why fund managers continue to back the high-yielder despite regulatory fears.

The banking sector did well, also, with Royal Bank of Scotland (RBS) paying its first dividend since the financial crisis and Standard Chartered (STAN) restoring its payment for the first time since 2015.

Europe ex-UK

While headline growth – at 13.8% - looked strong, it was very much helped by positive exchange rate effects. In fact, the underlying number came in at 5.4% - much lower than all other regions.

While Belgian payouts declined and Switzerland’s recorded only narrow growth, the largest components of the eurozone beat the European average.

Despite the economies in both France and Germany contracting significantly during the second half of the year, corporates performed well.

French dividends were up 7.5% despite a cut from EDF Energy (EDF). German payouts, meanwhile, were 9.1% higher, with carmakers Daimler (DAI), BMW (BMW) and Volkswagen (VOW) helping. Along with SAP (SAP) and E.ON (EOAN), they accounted for half of the growth in German dividends.

Elsewhere, Italy saw stellar growth, with dividends up by 13.2% in underlying terms thanks in large part to bank Unicredit (UCG) restoring its payout.

Asia Pacific ex Japan

Asian firms recorded growth in line with the global average at 8%. Both Singapore and South Korea contributed most, as did Hong Kong despite lower specials. Australia, by contrast, was just 0.9% higher and saw more dividend cuts than any other region.

Japan

Many investors point to Japan as the beneficiary of rapidly improving corporate governance, and last year continued to prove this point. Japanese companies returned more cash to shareholders than ever before, with underlying growth up an impressive 10.6% at $79.1 billion.

In the past three years, the dividends paid out by Japanese firms has been three times faster than the rest of the world and 2018’s growth was second only to Canada.

Mitsubishi Corp (8058) raised its payout by almost a third, while NTT Docomo (9437) was the largest contributor. Tokyo Electron (8035) and Nippon Telegraph (9432) made significant contributions, too.

Emerging Markets

While most regions struggled over the past 12 months or so, emerging markets have had a tougher run that most. Trade talk between China and the US intensified through the year, with tariffs hitting many sectors, particularly the smartphone supply chain.

The strong US dollar and rising interest rates across the pond didn’t help, either. Despite that, the region put in the strongest performance in dividend terms. Underlying growth was almost twice the global average at 15.9%.

While Chinese dividends rose strongly, it was Russia that contributed most, reaching a new record. This was, in part, thanks to the continued recovery in the oil price in the first half of the year.

Global Equity Income Funds

Morningstar analysts postively rate four funds in the Investment Association’s Global Equity Income sector, each with different levels of yield.

At the higher-yield end, the Kempen Global High Dividend fund, managed by Jorik van den Bos and Joris Franssen, has a Silver rating. The yield on the offering stands at 4.59%. Like most, the fund struggled last year, losing 5% of its value. It has returned almost 10% annualised over the past five years, though.

Domiciled in the Netherlands, Morningstar analyst Jeffrey Schumacher says its seasoned and stable investment team, proven and disciplined investment process and convincing long-term track record makes it a strong offering.

It is diversified with 99 holdings. Australian metals group Fortescue (FMG), US biotech Gilead Sciences (GILD) and American chemicals company LyondellBasell Industries (LYB) the top three holdings.

Veritas Global Equity Income, meanwhile, yields just shy of 4% and earns a Gold rating from Schumacher. The £600 million mandate, run by Charles Richardson and Andrew Headley, lost 3.35% in 2018, but again has a decent longer-term record at 10% annualised over the past decade.

Top holdings include US real estate firm Welltower (WELL) and Singapore duo Netlink (CJLU), a broadband provider, and Ascendas (A17U), a real estate investment trust.

Schumacher says the fund has a “seasoned and dedicated team, a proven process and an above-average long-term track record”. Richardson’s announcement he will step back as manager in 2020 is a slight worry, although the fund does have a clear succession plan in place.

Jacob de Tusch-Lec’s £3.7 billion Artemis Global Income fund comes in with a yield of 3.3% and a Bronze rating. The offering suffered more than most last year, losing almost 13%. However, that was its only full calendar year of losses since 2011 – its first full year. The fund has gained 9.6% per year in the past five years.

Schumacher likes the distinctive character of the mandate, which makes it “stand out from the crouwd. He notes that, unlike many peers, macro considerations play an important role in the process, while it also has a stronger tilt towards mid and small caps.

Top holdings include US carmaker General Motors (GM), Japanese carbon products provider Tokai Carbon (5301) and South Korean chemicals firm POSCO Chemtech (003670).

Finally, Daniel Roberts’ Fidelity Global Dividend has a lower yield at 2.7%. However, its focus on companies with a growing income helped it to a 2.2% gain in 2018. In fact, since inception in 2012, it has not gone a single full calendar year losing clients’ money.

Its top three holdings are big names, like Guinness maker Diageo (DGE), Dutch information services firm Wolters Kluwer (WKL) and Head & Shoulders manufacturer Procter & Gamble (PG).

Schumacher likes the fact that the fund’s risk profile looks favourable, with limited downside risks. Roberts is “a capable manager with a sensible approach and good execution”.