Global dividends show signs of revival in the first quarter as economic growth accelerates
There are clear signs of a forthcoming revival in global dividends following the first quarter of 2021, according to the latest Janus Henderson Global Dividend Index. Compared against pre-pandemic Q1 2020 levels, payouts were only 2.9 per cent lower year-on-year at USD275.8 billion.
On an underlying basis, dividends were just 1.7 per cent lower than the same period last year, a far more modest decline than in any of the preceding three quarters, all of which saw double-digit falls. Janus Henderson’s index of dividends ended the quarter at 171.3, its lowest level since 2017, but growth is now likely.
For the full year 2021, the stronger first quarter along with a better outlook for the rest of the year have enabled Janus Henderson to upgrade its expectations for global dividends. The new central-case forecast is USD1.36 trillion, up 8.4 per cent year-on-year on a headline basis, equivalent to an underlying rise of 7.3 per cent. This compares to January’s best-case forecast of USD1.32 trillion.
Over the four pandemic quarters to date, companies cut dividends worth USD247 billion, equivalent to a 14 per cent year-on-year reduction, wiping out almost four years’ worth of growth. Even so this was a milder fall than after the global financial crisis and the sector patterns were consistent with a conventional, if severe, recession.
Globally, just one company in five (18 per cent) cut its dividend year-on-year in the first quarter, well below the one-third (34 per cent) over the last year overall.
The first quarter is seasonally skewed to North America, which has seen dividends fall far less than other parts of the world. US payouts of USD139.3 billion were 8.1 per cent lower year-on-year on a headline basis, though the decline was due almost entirely to unusually large US special dividends last year not being repeated. On an underlying basis, the 0.3 per cent fall in North American dividends was better than the global average of -1.7 per cent.
Q1 is usually relatively quiet for European dividends but this year there are positive signs ahead of the seasonally important second quarter. Payouts in Europe (ex-UK) rose year-on-year, up 10.8 per cent on a headline basis to USD42.5 billion, boosted by catch-up payments from Scandinavian banks. Equally Switzerland made a disproportionate contribution in Q1 and companies there have also proven resilient. One-third of European companies that usually pay in the first quarter cut their dividends year-on-year, but this compares to just over half in the previous three quarters.
The first quarter saw lower UK dividends than a year ago, down 26.7 per cent on an underlying basis as the UK continued to feel the effects of the oil company cuts. However, less than half of British companies in our index cut dividends in Q1, much better than over the last year. There are also signs of a revival, with the headline total for UK dividends rising 8.1 per cent in Q1 thanks to a number of extra payouts and special dividends. Over the last twelve months, 57 per cent of UK companies in our index made cuts.
Dividends from Asia-Pacific ex-Japan were 6.0 per cent lower on an underlying basis, with the 16.9 per cent fall in Hong Kong making a significant impact. This meant our index of Asia-Pacific’s dividends fell to 190.6. Emerging markets were boosted by dividend restorations in Brazil, India and Malaysia.
Mining companies really stood out in the first quarter, as resurgent commodity prices have driven significant growth in payments boosted by large one-off special dividends. Mining companies raised their dividends 85 per cent on a headline basis (58 per cent in underlying terms) and have signalled more to come during the year. Utilities and healthcare also saw higher payouts.
Dividends from financial companies in particular were boosted by a number of companies restarting dividends, albeit generally at lower levels, that had been interrupted by the pandemic, in many cases owing to regulatory restrictions. This provided an unseasonal boost to the sector in Q1 that we expect to see continue in the months ahead.
Consumer discretionary sectors (encompassing general retail, consumer durables, vehicles, and travel) that are directly impacted by continuing lockdown restrictions saw the biggest drop – down 36 per cent on an underlying basis in Q1 – with energy stocks close behind at -26 per cent. Unusually, technology dividends fell, down 1.5 per cent on an underlying basis.
Jane Shoemake, Client Portfolio Manager on the Global Equity Income Team at Janus Henderson, says: “The successful vaccine rollout in the US and the UK in particular is enabling society and the economies here to begin to normalise to some extent and offers encouragement for other countries following closely behind with their own inoculation programmes. Even so with infection rates still out of control in Brazil and India, and the third wave in Europe still curtailing economic and social activity while the vaccines are administered, there is still a lot of uncertainty for company profits and, in turn, dividends. On top of this, there remain political sensitivities around shareholder payments, while the timing and extent of the removal of regulatory restrictions on banking dividends, especially in Europe and the UK is still unclear. We also expect share buybacks to return as a use for surplus cash and this too will influence how much is returned via dividends (especially in the US). All these factors are adding a layer of unpredictability to dividend payments.
“Despite this uncertainty, we are more optimistic given that Q1 was undoubtedly better than expected and we are now more confident that companies are willing and able to pay dividends, especially those companies that have traded well. There is certainly much less downside risk to payouts this year than previously anticipated, though the timing and magnitude of individual company payouts is going to be unusually uneven and this will add volatility to the quarterly figures. Special dividends will play a role too. Since late last year we have been adding to areas of the market that will benefit as economies reopen and where there is increased confidence in a business’s ability to generate cashflow and pay a dividend. As we move into the second quarter, the year-on-year comparisons will look very positive because it was the worst period for dividend cuts last year.”