Boost for income investors: global dividends staging strong recovery

Janus Henderson has upgraded its forecast for global dividends for the whole of 2021.

Global dividends staged a strong recovery in the second quarter of 2021, according to the latest edition of the Janus Henderson Global Dividend Index.

Companies around the world paid out a total of $471.7 billion (£344 billion), on a headline basis (which includes special dividends), in the second quarter. That represented a 26.3% increase from the second quarter of 2020. On an underlying basis, dividend growth was more modest, coming in at 11.2%.

Contributing to this increase in dividends was companies restarting their payments following steep cuts during the pandemic. In total, 84% of companies either increased their dividends or held them steady compared to the same period in 2020. Dividends from companies restarting payments totalled $33.3 billion. This contributed three-quarters of the underlying growth in the second quarter.

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Due to the growth of dividends in the second quarter, Janus Henderson has upgraded its forecast for global dividends for the whole of 2021 to $1.39 trillion, an increase of 2.2% since their May forecast. This would represent annual growth of 10.7% on a headline basis and 8.5% underlying. This would also bring 2021’s total payments to within 3% of 2019’s, the year before the pandemic hit.

In terms of regions, the US saw dividends rise by 5.2% on an underlying basis in the second quarter, resulting in $127.8 billion in payments. Nine in 10 companies either raised or held their dividends steady. Dividends were higher in every sector except for banks and energy, which still have some way to recovery.

Dividends in the US proved more resilient in 2020, meaning the year-on-year increase was lower than for other regions.

Europe, for instance, increased headline dividends by over 60%. Underlying dividends also saw strong growth, increasing by 20.1%. This was almost entirely the result of companies restoring cancelled dividends. Europe was hit hard by dividend cancellations in 2020, with payments halving in the second quarter of the year.

UK dividends also saw strong rebound in the second quarter, rising by 60.9% on a headline basis. Underlying growth was also strong, with growth at 42.2%, with 85% of UK companies raising dividends. Banks made the biggest contribution to growth, notably HSBC (LSE:HSBA). Banks were prohibited from paying dividends for much of 2020 by the regulator.

On a global basis, mining companies saw the fastest dividend growth, owning to booming commodity prices. Industrials and consumer discretionary also experienced strong growth.

Commenting on the report, Jane Shoemake, client portfolio manager on the global equity income team at Janus Henderson, said: “Just as the impact of the pandemic on company dividends has been consistent with a conventional but severe recession, so the recovery is also consistent with the rapid economic bounce-back now occurring in those parts of the world where vaccination programmes are enabling economies to reopen. Households have record savings and there is pent-up demand to spend which should be good for company profits.

“Across the world, the restart of cancelled dividends has driven the recovery so far, but we are also seeing stronger dividend growth than we expected. Despite the severity of the recession last year, global dividends in aggregate will likely regain their pre-pandemic levels within the next 12 months.”

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One fund manager, however, who is less optimistic about the dividend recovery is Bruce Stout, of Murray International (LSE:MYI), which is a member of interactive investor’s Super 60 list. Stout expressed concerns that “numerous companies remained very cautious when it came to returning improving cash flows to shareholders”.

He added: “Opting to reset dividends below pre-pandemic levels or to keep dividends unchanged until greater transparency emerges was commonplace against a backdrop of viral mutations and constantly changing directives from governments.”

As a result, Stout argues: “The path to income recovery may take much longer for certain economic sectors and businesses this time around.”