A strengthening world economy and rising corporate confidence pushed global dividends to a new high in 2017, according to the Janus Henderson Global Dividend Index. They rose 7.7 per cent on a headline basis, the fastest rate of growth since 2014, and reached a total of USD1.252 trillion.
Every region of the world and almost every industry saw an increase. Moreover, records were broken in 11 of the index’s 41 countries, among them the United States, Japan, Switzerland, Hong Kong, Taiwan, and the Netherlands.
Underlying growth, which adjusts for movements in exchange rates, one-off special dividends and other factors, was an impressive 6.8 per cent, and showed less divergence than in previous years across the different regions of the world, reflecting the broadly based global economic recovery.
The United States has been the key driver of global dividend growth in recent years. After a sluggish 2016, growth picked up markedly in 2017, reaching 5.9 per cent on a headline basis, and 6.3 per cent at the underlying level. US companies paid their shareholders a record USD438.1 billion. Even so, its performance was a touch below the world average, as other regions accelerated rapidly.
2017 was also a record year for Asia Pacific ex Japan. The total paid jumped 18.8 per cent to USD139.9 billion, boosted by exceptionally large special dividends in Hong Kong, the largest from China Mobile. Hong Kong, Taiwan, and South Korea all individually broke annual records too. Underlying growth for the region was impressive at 8.6 per cent, led by Taiwan and South Korea which both saw double-digit increases.
In Australia, dividends rose to USD53.3 billion, an increase of 9.7 per cent on an underlying basis. The big story was the return of the mining companies, following rapid improvements in their profits and balance sheet. Between them, BHP and Rio Tinto added USD2.9 billion, accounting for two-thirds of all Australia’s dividend growth. Among the banks, which pay more than half of all Australian dividends, and which have very high payout ratios, only Commonwealth Bank increased slightly year-on-year. Even so, no Australian company in our index cut its dividend, though QBE Insurance further reduced the tax credit it was able to provide, meaning that investors received less year-on-year after tax.
Japan joined the record breakers, with growth of 11.8 per cent on an underlying basis, after accounting for the weaker yen. Every Japanese sector, and most companies, showed growth in yen terms. Dividends in emerging markets also grew strongly, though they remain a long way below their 2013 peak. Russia saw dramatic growth, while China, which had seen lower payouts two years in a row, avoided a third consecutive disappointment in 2017.
Europe lagged behind other regions, with underlying growth of only 2.7 per cent. In total European companies distributed USD227.4 billion, a disappointing increase of 1.9 per cent in headline terms. A poor fourth quarter, influenced by cuts from a handful of large companies in France and Spain, a weak euro during the crucial second quarter when most European dividends are paid, and lower special dividends explain why Europe lagged behind its global peers. For the year overall, France barely grew at all in underlying terms, after an excellent 2016. Germany, by contrast rebounded in 2017, and numbered among the faster growing nations, along with Austria, Portugal, Belgium, the Netherlands, and Switzerland. The Netherlands and Switzerland even reached new record highs. Spain, by contrast, saw the third consecutive year of declines.
In the UK, headline growth was held back by the weak pound, but underlying growth was 10.0 per cent as UK-listed multinational mining companies rapidly restored dividends that had been cut or cancelled in the lean years for commodity prices.
Janus Henderson forecasts underlying growth for 2018 of 6.1 per cent, with expansion continuing from every region of the world. If the dollar maintains its lower level against other currencies, the 2018 total benefit from payments translating to dollars at more favourable exchange rates. That will help push headline growth to 7.7 per cent again, yielding a new record total of USD1.348 trillion.
Ben Lofthouse (pictured), Director of Global Equity Income at Janus Henderson, says: “2017 was a great year for income investors with dividend growth broadly spread across countries and industries. All three of the largest economies in the world, the US, the EU, and China, are now expanding at the same time. As a result, companies are seeing rising profits, and healthy cash flows, and that’s enabling them to fund generous dividends. The record payout last year was almost three-quarters higher than in 2009, and there is more to come. The next few months are set fair, and we expect global dividends to break new records in 2018.”
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