Janus Henderson: Global dividends make a strong start to 2018

Equity markets in 2018 have been characterised by the return of volatility. But while investors question the impact of rising interest rates and fate of this market cycle, dividends tell quite a different story – one of stable earnings, synchronised global growth and improving corporate confidence.

Record Q1 dividend growth

After a stellar showing in 2017, worldwide dividends continued to gain ground in early 2018. On a headline basis, which compares dividend growth in US dollar terms, payouts increased 10.2% (year-on-year) to nearly $245 billion for the first quarter, a record improvement since we launched the Janus Henderson Global Dividend Index in 2009.

Q1 global dividend payments (US$)

Source: Janus Henderson Global Dividend Index, edition 18, May 2018. Past performance is not a guide to future performance 

When earnings rise dividends typically follow

The results are not entirely surprising: When earnings rise, as they have across a broad number of sectors in most regions in the world, dividends follow. The index is based in US dollars, which meant that a weakening greenback further bolstered results. It is worth noting, however, that underlying growth – an adjusted rate that takes into account currency movements, special dividends, changes in the timing of payments and index changes – did not disappoint. On the contrary, it lined up perfectly with our forecast on the Global Equity Income Team of a 5.9% year-on-year improvement in Q1 2018.

Asia Pacific ex-Japan declines

All told, nearly every region in the world hit a high-water mark for dividends for the first quarter. The only exception was Asia Pacific ex Japan, which  saw a decline in dividends because of stock-specific issues in Australia and lower special dividends in Hong Kong, not because of deteriorating fundamentals overall.

However, dividend payouts by Japanese companies increased on a headline basis, boosted by special dividends and a stronger yen. It is worth noting that most Japanese companies pay dividends during Q2 and Q4.

US and Canada payouts rise

North American dividends, up 6.1% during the quarter, made a significant contribution to overall results. The $123 billion paid out over the quarter represents the region’s highest tally for the history of the index. While Canada represents just $10 billion of this figure, the country carried more than its weight last quarter, with payouts surging more than 16.6%, about twice that of the US.

In terms of individual companies, Exxon, Microsoft and Apple contributed one dollar for every nine in the US total. Shareholders enjoyed rising dividend payouts across the board with eight out of ten US companies we track having posted year-on-year improvements. While the full impact of tax reform has yet to funnel down to dividends, recent payout increases may reflect an early vote of confidence from US companies poised to benefit from tax cuts or distribute repatriated cash.

Further European dividend growth expected

A declining US dollar was a big factor in Europe’s 13.7% increase for the first quarter. After factoring for currency differences, that figure is a more modest 3.9%. Our outlook for Europe, however, in the second quarter and beyond is for continued growth. The economy is, by most measures, a few steps behind the US, suggesting that there may be more room for companies to increase dividends. The next quarter should be a better representation, as nearly two thirds of European dividend payments are made during that period.

A sharp 21.1% headline increase in UK dividends (in US dollar terms) to $18.7bn was significantly distorted by British American Tobacco, which paid its first ever quarterly dividend in February, switching from semi-annual payments following its acquisition of American Reynolds last year. A strong pound, the addition of UK companies to the index and a special dividend from Sky further boosted the headline figure. 

Sectors

At a sector level, oil and gas, technology and financials experienced the strongest dividend growth in Q1 2018, while telecoms lagged.

Outlook

Looking ahead, earnings surprises may come fewer and farther between as companies begin to face tough comparisons on last year’s performance. Nevertheless, we think dividends will continue to move higher in regions around the world. We are now expecting dividends to rise by around 8.5% in headline terms for the full year, to a total of almost $1.36 trillion*.

Global dividends (US$)

Source: Janus Henderson Global Dividend Index, edition 18, May 2018. Past performance is not a guide to future performance.

*2018 forecast is an estimate only, may vary and is not guaranteed.