Dividends Don’t Lie

 In Market and Investment Insights

Key Takeaways

  • Unlike many economic indicators, which are open to market interpretation, dividends are a reliable gauge of company fundamentals
  • Global dividends jumped 7.7% in 2017, reaching a record of more than $1.25 trillion
  • Every region in the world saw a rise in dividends last year – and total payouts increased in all but one industry – suggesting that global economies grew broadly and synchronously

After a long and ominous absence, market volatility has returned. Yet, unlike market sentiment, company fundamentals don’t usually turn on a dime. To wit, investors interested in seeing beyond the haze of daily market swings should take a closer look at dividend payouts.

Source: Janus Henderson Global Dividend Index, Edition 17

Global dividends reached new highs in 2017, with total annual payouts increasing 7.7% year-over-year in the fourth quarter to more than $1.25 trillion, according to the most recent Janus Henderson Global Dividend Index. While that figure includes special dividends, a 6.8% increase in regular dividends suggests that company confidence isn’t fleeting.

When companies commit to increasing regular dividends, or opt to distribute free cash in the form of a special dividend, it’s a strong indicator of corporate confidence. When this phenomenon occurs across industries and regions – as it did in 2017 – it is typically a clear signal of improving fundamentals and synchronous global growth.

New Records Around the World

Perhaps more striking than the absolute results, however, was the fact that dividends increased across all major global economies and in all but one industry.

Source: Janus Henderson Global Dividend Index, Edition 17

Out of 41 countries tracked by Janus Henderson, moreover, 11 broke records on dividend payouts last year.

That said, dividend growth in the world’s largest economies played heavily in last year’s overall results: U.S. companies paid out a record $438 billion in total dividends, a 5.9% increase over the year prior. In Asia ex Japan, dividends shot up 18.8%, thanks in part to large special dividends in Hong Kong, while emerging markets companies boosted payouts 16.5%.

This helped offset a relatively weak showing in Europe, where questions about banking reform likely detracted from dividend increases along with some large utility companies’ dividend cuts; European companies increased dividends 1.9%, while U.K. companies gave shareholders a 3% raise.

Payouts Pick Up Across Industries

Regional trends are just one part of the story. In 2017, every industry but one – telecoms, which were flat – saw an increase in total dividends.

Source: Janus Henderson Global Dividend Index, Edition 17

The biggest pay raises went to investors in resource companies. Having cut costs as a result of the commodities crisis, mining companies managed to be profitable again – and boosted payouts 27% in 2017. Likewise, oil, gas and energy names contributed more than their share to overall dividend gains, with total payouts for 2017 increasing past $109 billion after two years of declines.

Royal Dutch Shell, a perennial leader in dividend payouts, was the largest dividend payer in 2017, followed by China Mobile Limited, which issued a special dividend last year, and ExxonMobil Corp. Assuming oil prices continue to hover at or above $60 a barrel, energy companies should be able to at least maintain dividends.

Financials, not surprisingly, continued on a positive path in 2017, raising annual dividends from $214 billion in the fourth quarter of 2016 to nearly $230 billion last quarter. European financials were an exception, and this likely contributed to lower numbers for Europe overall. With better clarity about new banking reforms, however, European financials are in a better position to bump up dividends in 2018.

There was a time when technology and dividends seemed mutually exclusive, but cash-rich tech companies, such as Apple and Microsoft, are among the biggest payers today. Now, with U.S. tax repatriation underway, we expect dividends to continue to trend higher, though not at the expense of capital investments.

All told, the pieces are in place for 2018 to be another strong year for dividends – and that bodes well for investors across the board.

It’s virtually impossible to predict when, why or how much markets will fluctuate on any given day. Over time, however, dividends not only provide a relatively predictable stream of income, they offer a clear window into company fundamentals, and the health of the global economy.

To learn more, download our latest Global Dividend Index.

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