Dividend payouts will rise around the world next year

Australian dividends have been dealt a 13% underlying decline in total payouts this quarter, as a result of global sector trends played out here in Australia’s dividend landscape. Australia’s headline total payouts fell by a fifth year-on-year (21.3%) in USD, reflecting lower special dividends and weakness in the Australian dollar.

Globally, mining dividends slumped by more than $30 billion in Q3 as the commodity cycle rolled over and this was a major contributor to the $11.5 billion decline in Australian payouts.

In this wire, I'll take you through some of the top-line statistics from our latest Global Dividend Index - and share our thoughts on why dividends could rise globally next year.

Fast Stats

• Australian dividends slumped to $42.8 billion in Q3 2022, down from $54.3 billion this time last year

• Australian banks accounted for a quarter of the total Q3 2022 dividends

• Seven out of ten Australian companies in JHGDI increased payouts or held steady

• Globally, soaring energy dividends precisely offset the $30.1 billion slump from the mining sector

• Janus Henderson now expects $2.33 trillion in global dividends, this year, up 8.9% on an underlying basis 

Australian dividends slumped in Q3

Australia has historically driven a large proportion of the Asia Pacific region’s Q3 performance.

In 2022, however, Australia lagged behind its Asian counterparts – it was Taiwan that drove the 18.7% underlying growth in the region.

Previously anchored by the mining industry – which had seen record dividend levels in 2021 and the first half of 2022 – Australian dividends fell victim to an underlying lack of sector diversification. 

The biggest impact came from Fortescue Metals Group (ASX: FMG), which fell due to its significant exposure to lower metals prices, while those with large coal operations such as BHP (ASX: BHP) made smaller cuts.

However, Australian dividends benefited from the global improvement in trading conditions for banks as interest rates rose. Globally, bank dividends increased 8.7% on an underlying basis, and in Australia, banks made the largest contribution to dividend growth, with payouts increasing 5.8% on an underlying basis.

In contrast, the biggest percentage increases came from Telstra (ASX: TLS) and Transurban (ASX: TCL), the former returning surplus capital, despite the lacklustre operating performance, and the latter recovering sharply from the lifting of lockdowns.

The Australian headline total fell by a fifth, reflecting lower special dividends and weakness in the Australian dollar. The impact of the miners meant that seven companies out of ten in our index increased payouts or held them steady in Q3

Upgraded global forecast

The encouraging third quarter has prompted a $45 billion upgrade in Janus Henderson’s full-year headline figures, driven mainly by higher one-off special dividends, and strength in the oil sector and in Asia. 

Janus Henderson now expects headline dividends of US$1.56 trillion (A$2.33 trillion), up 8.3% year-on-year. 

Underlying growth is set to be 8.9%, an increase of 0.4% compared to Janus Henderson’s expectations three months ago and still firmly ahead of the 5-6% longer-term dividend growth trend.

The surge in oil dividends has coincided with reductions from the miners, though payouts from the sector are nevertheless very high in comparison to history. Like other commodities, energy prices are cyclical, and the oil price is already lower than levels reached earlier this year, so the current exceptional level of payouts is unlikely to be permanent.

Moving into 2023, slower global economic growth is likely to have an impact on profits and the ability of some companies to grow payouts. But dividend cover, the relationship between a company’s earnings and its dividends, is near historic highs – this is because profitability is currently strong while the pandemic resulted in many companies rebasing dividends to more sustainable levels. 

This may provide some support even if profits come under pressure in 2023. Crucially, dividends vary much less over the economic cycle than profits as companies seek to maintain a sustainable level of income for their investors.

What is the Janus Henderson Global Dividend Index?

The Janus Henderson Global Dividend Index is a long-term study that tracks the world's 1,200 largest firms by market capitalisation, measuring the progress global firms are making in paying their investors an income on their capital.