Outlook for Dividends: Positive

 In Market and Investment Insights

Although global dividend growth could moderate in 2019, it is still expected to be positive. In the fourth of a series of videos providing updated views on financial markets, Ben Lofthouse, Head of Global Equity Income, explains where he sees risks and opportunities.

Key Takeaways

  • Overall, global dividend growth looks likely to be positive in 2019, continuing a pattern of rising payouts in recent years.
  • However, a slowing global economy could weigh on the ability of select industries such as automakers and financials to lift dividends. In some cases, dividend cuts may even be possible.
  • On the other hand, semiconductors and providers of cloud computing are among the industries that could deliver strong dividend growth, fueled by secular tailwinds.

Ben Lofthouse: The outlook for dividend growth over the next year is good. I would say we are not expecting as much growth as we have seen over the last few years, partially because economic growth is a bit slow, but also partially because we have seen a normalization in the dividend yields of a number of sectors, post the crisis. Around the edges this year, we have started to see some of the impact of the trade issues and some of the slowdown. So we have seen some areas where companies have reduced dividends; so particularly, say, large automakers, the German automakers, we have seen some dividend cuts there. They are still paying very significant yields, but what they have made clear is that they see their dividends as being more variable. So when they see profits going down, they will reduce dividends; when they see profits go back up, they have increased them. Other sectors, strangely like commodities and, say, mining, we are seeing special dividends. And that is because of higher commodity prices, balance sheets are much stronger than a few years ago. So the overall impact will still be positive for dividend growth. But that will be, we should be aware there will be some cuts, some quite high-profile ones.

In terms of looking for dividends and dividend growth, I think there are some companies that just pay an attractive dividend as part of their total return and they may not grow very much, but it is very consistent. So quite often those are the less economically cyclical companies. And those still provide good opportunities at the moment. In terms of the growth areas, I would say we are seeing more structural growth around some of the technological developments that are going on; we are seeing the hardware base, people providing cloud facilities and we are seeing good dividend growth from those areas. Some of the semiconductor companies that have got very strong balance sheets. Whilst they may have a period of weakness, they still feel that there is long-term structural growth within their areas as we adapt to self-driving cars, AI, big data. So I think those areas will be definitely where we see more dividend growth.

Traditionally what we see is when you have interest rate expectations moderating, which we have seen recently, you see more defensive sectors can perform better. So again, areas like utilities have been a strong performer this year, to-date. On the flipside, for some areas of the financial system, such as banks, you know, it is going to be more of a drag on earnings. So again, not disastrous and good in terms of not having massive credit losses because of some sort of monetary policy induced recession. But at the same time, they do make money off of lending around interest rates, so you are seeing some of the expectations for those areas falling in some of those sectors that are performing less well.

The opinions and views expressed are as of 03/19/19 and are subject to change without notice. They are for information purposes only and should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation to buy, sell or hold any security, investment strategy or market sector. No forecasts can be guaranteed. Opinions and examples are meant as an illustration of broader themes and are not an indication of trading intent. It is not intended to indicate or imply that any illustration/example mentioned is now or was ever held in any portfolio. Janus Henderson Group plc through its subsidiaries may manage investment products with a financial interest in securities mentioned herein and any comments should not be construed as a reflection on the past or future profitability. There is no guarantee that the information supplied is accurate, complete, or timely, nor are there any warranties with regards to the results obtained from its use. Past performance is no guarantee of future results. Investing involves risk, including the possible loss of principal and fluctuation of value.
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The opinions and views expressed are as of the date published and are subject to change without notice. They are for information purposes only and should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation to buy, sell or hold any security, investment strategy or market sector. No forecasts can be guaranteed. Opinions and examples are meant as an illustration of broader themes and are not an indication of trading intent. It is not intended to indicate or imply that any illustration/example mentioned is now or was ever held in any portfolio. Janus Henderson Group plc through its subsidiaries may manage investment products with a financial interest in securities mentioned herein and any comments should not be construed as a reflection on the past or future profitability. There is no guarantee that the information supplied is accurate, complete, or timely, nor are there any warranties with regards to the results obtained from its use. Past performance is no guarantee of future results. Investing involves risk, including the possible loss of principal and fluctuation of value.

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