Dividend Payouts Defy Uncertainties
Global dividends rose consistently in the third quarter, and in many cases accelerated, even as stock markets diverged.
- Global dividends rose 5.1% on a headline basis in the third quarter versus the year prior, thanks in part to record-breaking quarters for the U.S., Canada, Taiwan and India.
- Chinese payouts surged 14.6% on an underlying basis, reversing three quarters of declines and driving strong results in emerging markets.
- The quality of this quarter’s results bodes well for the rest of 2018, which is on pace to see payouts reach $1.359 trillion.
The predominant theme for equity investors in the third quarter was the extreme divergence between U.S. stock performance and the rest of the world. While the Standard & Poor’s 500 Index posted its best quarter since 2013, the MSCI ACWI ex U.S. Index was essentially flat.
Stepping back, investors may glean a different perspective by focusing on trends in global dividends. As has been the case throughout 2018, rising payouts around the world implied continued economic growth and corporate confidence.
During the third quarter, the Janus Henderson Global Dividend Index increased 5.1% on a headline basis, which measures dividends in U.S. dollars in relation to the same period last year. This brings the index to a record 184.4 and marks an 84% rise in global dividends since we launched the index in 2009. Underlying dividend growth, which accounts for any currency changes and special dividends, surged 9.2% year-over-year.
Companies in America, Canada, Taiwan and India contributed more than their share to overall results. In fact, all four of these countries saw record payouts in the third quarter.
Nevertheless, as in the second quarter, dividend growth was widespread. Just one region – Asia Pacific ex Japan – did not improve over the same period last year. Europe extended its strong showing in the previous quarter with a 10.4% collective pay raise for shareholders. Even in the midst of Brexit uncertainty, UK dividends improved 3%, led by financials, such as Barclays, and commodity names; BP posted its first increase since 2014 is USD terms.
Following three quarters of declines, Chinese dividends increased 14.6% on an underlying basis versus a year ago. The country accounted for nearly half of all emerging market dividends, and China Construction Bank Corp. ranked as the largest dividend payer in the world.
Broadly speaking, banks and other financials paid out one-third of all dividends during the quarter. With the financial crisis a decade behind them, banks in most of the world are normalizing their dividends, and with no small effect given the size of this sector.
Although dividend growth tends to follow improvements in corporate earnings and cash flow, they are also an indicator of management’s outlook. Companies generally do not increase dividends if they think trouble lies ahead.
The quality of third quarter dividend results – which were strong despite a negative impact for exchange rates and a lower level of special dividends – brings us to a forecast of 8.5% headline growth for dividends in 2018, or $1.359 trillion for the full year.
Looking ahead to 2019, the pace of dividend increases could slow as companies come to terms with what is likely the later stages of an economic cycle. While we think growing profits and strong cash flow support ongoing improvements, we are keeping a close eye on credit markets. To be sure, any notable change to the availability or cost of credit could factor largely into companies’ decisions about whether to pay down debt, horde cash or raise their dividends.
Click here to review the full November 2018 Janus Henderson Global Dividend Index