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The value of dividends in a difficult climate

November 2018

Stock markets may be bouncing around, but it looks like a good year ahead for income seekers as Janus Henderson forecasts record dividends in 2019.

  • In spite of fewer special dividends and a strengthening Dollar, underlying growth in global dividends was stronger at 9.2%.
  • Emerging markets were particularly strong, boosted by Chinese companies
  • The UK’s dividends looked lacklustre in comparison, but the weak pound was a problem

The latest Janus Henderson Global Dividend index shows dividends exceeding expectations, up by 5.1% to $354.2bn with many countries breaking records.

This strength came in spite of fewer special dividends and a strengthening Dollar. Underlying growth was stronger at 9.2%. Henderson is still expecting full year growth in dividends of 8.5% for 2018, with payouts of $1.359 trillion. 

Emerging markets were particularly strong, suggesting that the fundamental growth for companies is sound in spite of recent share price volatility. Chinese companies surged 14.6% following three years of declines, with banks, insurers and energy companies contributing most to growth. Russian and Indian companies also saw growth in dividends. 

Financial companies were strong across the board, but particularly in North America, where banks led higher payouts. Overall in the US, underlying growth of 7.6% was in line with the previous quarter, but a large special dividend from Dr Pepper Snapple boosted the total. Notably, only one US company in 70 cut its payout, a reflection of the recent corporate tax cuts and strong earnings.

The UK’s dividends looked lacklustre in comparison. A weakening pound, lower special dividends and calendar effects means that headline growth was just 3%. Stripping out these factors would have seen growth of 11.1%. Again, it was banking stocks leading the way, but mining shares were also supportive as BP made its first dividend increase since 2014. 

The Pacific ex Japan region was a notable weak spot. Headline dividend growth declined 8.8% due to lower special dividends in Hong Kong and lacklustre growth in Australia. Australian banks failed to raise their dividends, dragging down the total. Singapore and South Korea bucked the regional trend by reported strong increases. 

Ben Lofthouse, head of global equity income at Janus Henderson said third quarter growth had exceeded the group’s expectations. He added that the group’s core underlying measure of growth was strong. “2018 may be a volatile and more challenging year for stock markets, but steady profit growth means dividends should continue to make steady progress…investors seeking an income from their shares should feel confident about the year ahead.”

This is reassuring at a time when markets are unpredictable and is a reminder of the value of dividends in a difficult climate.

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