Energy companies drive global dividends to record high

Looking ahead, the dividend boom may not last due to headwinds from inflation and the strength of the US dollar.

Surging profits for energy companies from high oil and gas prices helped global dividends hit a record high in the second quarter of this year.

Fund manager Janus Henderson calculated that companies paid $544.8 billon (£461 billion) to investors in the three months to the end of June, which represents an 11.3% increase on last year.

Oil producers contributed two-fifths to second-quarter growth. Overall, for oil, gas and energy firms, dividend payouts were up 88.4% year-on-year – the highest growth by industry.

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Banks and other financials accounted for another two-fifths, while consumer discretionary sectors, especially car manufacturers, also delivered strong dividend growth.

For global dividends as a whole, 94% of companies raised payouts or held them steady in the second quarter.

Following payouts hitting a new record, Janus Henderson has made a modest upgrade to its annual forecast. It now expects 2022 payouts to reach $1.56 trillion – up from $1.54 trillion last quarter. This translates into headline growth of 5.8% year-on-year, equivalent to an 8.5% increase on an underlying basis (excluding special dividends).

In terms of regions, Europe and the UK were the main drivers, with each showing a significant recovery from the impact of the pandemic. Both regions were up by almost a third on an underlying basis.

The report notes that with many European companies paying dividends just once a year, the second quarter of this year was the first opportunity since 2019 where most firms had returned to paying normal dividends following the pandemic.

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Looking ahead, Janus Henderson’s report cautioned that global dividends face growth headwinds from inflation and the strength of the US dollar.

On inflation, the report warned that: “Many of the easy gains have now been made as the post-Covid 19 catch-up is almost complete. We are also facing a significantly slower global economy and this, along with the margin compression that many sectors are experiencing as a result of high inflation, is beginning to weigh on company profits, as well as the decisions companies make about how much cash to return to shareholders.”