Global dividends hit three year high – where to invest for income

The UK was the sole region to see a year-on-year headline decline in dividend payments, according to a survey that shows global payouts hit a quarterly record in the second three months of 2017.

Companies around the world paid out $447.5 billion (£347 billion) in dividends in the second quarter of the year, a headline increase of 5.4 per cent compared to the same period a year earlier. That’s according to the Janus Henderson Global Dividend Index, which hit a three-year high level of 161.9.

The UK was the worst-performing region on a headline basis, seeing dividend payments slide by 3.5 per cent; both emerging markets and North America saw double-digit growth, at 29.7 per cent and 10.1 per cent respectively.

Globally, Janus Henderson has upgraded its forecast for total dividends paid in the full year to $1.2 trillion. That would be a headline year-on-year increase of 3.9 per cent and an underlying increase of 5.5 per cent.

‘The global economy is very supportive for company profits and dividends at present,’ says Alex Crooke, head of global equity Income at Janus Henderson.

‘Taking a global approach means a slowdown in any one part of the world has less impact on your overall income level, but investors will be pleased they are enjoying one of those periods when there is synchronised underlying dividend growth across all regions of the world.’

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Where to find UK dividend payers

Despite the UK’s lacklustre headline performance, after stripping out four factors including exchange rate movements and special dividends, underlying dividend growth was a robust 6.1 per cent, though still behind the global figure of 7.2 per cent.

As the survey points out, sterling’s devaluation since last June’s Brexit vote ‘has masked solid progress in dividends paid by UK companies’, though this should be the last quarter impacted.

The underlying growth was better than expected, according to Janus Henderson, with a significant improvement in the mining sector’s payouts contributing most, with Glencore (GLEN) having restored its dividend in the quarter and Rio Tinto (RIO) making a bumper return to shareholders.

Eric Moore, manager of the Miton Income fund, recently pinpointed mining as an ‘under-appreciated’ sector for income investors. ‘These companies all cut their dividends in 2015-16, so there’s still some scar tissue with investors. But this provides opportunity,’ he says.

Another area Moore favours for income is life assurance, which provides the combination of a good starting yield and good dividend growth.

He adds: ‘People need to save more for their old age. The Retail Distribution Review has created an ‘advice gap’, and pension freedoms have pushed a lot of people into that gap. Therefore, there are great opportunities for the companies that can help people navigate these problems.’

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One firm Moore favours in this space is Legal & General (LGEN), which has grown its payout by more than 15 per cent per annum for the last three years. It is the fund’s sixth largest holding, accounting of 3.1 per cent of the portfolio.

Europe ex-UK contributed two-fifths of the global amount of dividends paid in Q2 due in the main to most European companies making a single annual payment in the second quarter. The fastest increases on the continent came in Austria, Portugal, Belgium and Finland, while Switzerland, Belgium and the Netherlands reached new records. Spain and Italy, in contrast, disappointed.

Other countries that posted new quarterly records were the US, Japan, Indonesia and South Korea.
Dividends from North American companies counted for a third of the total in the quarter and its headline growth was boosted by higher one-off specials in the US as well as the addition of several Canadian firms to the index.


interactive-investor-logo-small-sizeThis article was originally published on our sister website Interactive Investor.

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