Equities

Seasonality of payouts, an over-reliance on the financials and resources sectors, and a lack of dividend growth means that Australian investors would benefit from taking a more global approach when it comes to securing their dividend income, according to Janus Henderson Investors.

The latest Janus Henderson Global Dividend Index has shown that the deceleration in the world economy has begun to make an impact on dividends.

The total paid to shareholders hit a new record of $513.8 billion in the second quarter, but the rate of increase was the slowest for more than two years. In headline terms, payouts were 1.1% higher, held back by the strength of the US dollar. Underlying growth of 4.6% was the slowest in two years but was only slightly below the long-run average.

This slowdown was in line with Janus Henderson’s forecast, which had already factored in a lower rate of growth this year.

With slower growth comes fewer records, the manager said in a report. Japan, Canada, France and Indonesia were the only countries to set records in the second quarter. Emerging markets saw the fastest growth, propelled higher by Russia and Colombia, while Japan registered the best performance among the developed regions.

The rest of Asia Pacific, and Europe ex UK underperformed the global average, while the US came in a touch weaker than the manager had anticipated. Dividends from financials and energy stocks saw the fastest increases, but technology and consumer basics lagged, it said.

Asia Pacific ex Japan lagged slightly behind the rest of the world in the second quarter, with the total $43.2 billion distributed up 2.2% on an underlying basis.

In a "seasonally quiet" Australia, Janus Henderson said dividends only rose 5.7% on an underlying basis, continuing the five-year trend of stagnant dividend growth.


(Source: Janus Henderson)

Ben Lofthouse, Head of Global Equity Income at Janus Henderson, said that at this stage in the economic cycle, the manager is seeing a moderation of dividend increases across a broad range of companies, while the number of cuts is also on the rise.

However, global dividends have been growing very quickly over the last two years, so the slowdown that is now being witnessed is not a cause for concern, he said.

"The underlying growth rate we expect this year is simply in line with the long-run average, rather than well ahead of it. The impact of the global economic slowdown is greater in some parts of the world than others, with Europe seeing a particular impact," Lofthouse said.

"But this is why taking a global approach to income investing is so valuable – the regional and sector diversification brings significant benefits to investors.

"From an Australian perspective, the seasonality of payouts, over-reliance on financials and resources and lack of dividend growth reiterates the benefits of a global approach to secure income."

Underlying dividend growth in Hong Kong in the second quarter was just 2.5% and a quarter of Hong Kong companies in the index cut their dividends, including China Mobile. This was a larger proportion than in all the other large markets, reflecting a slowing Chinese economy, Janus said.

Record dividends in Japan, up 6.8% on an underlying basis, reflected rising profitability and expanding payout ratios. Almost three quarters of companies raised their dividends.

Janus pointed out that Japanese dividend growth has been outperforming the rest of the world for four years, reversing a long period of relative stagnation. Japanese dividends have now caught up with Asia Pacific and North America, the two fastest growing regions in the world, with all three having seen payouts rise close to 130% since the end of 2009.

Growth in Europe has lagged behind the rest of the world over the last few years, and Janus said that the second quarter of 2019 was no exception. Payouts fell 5.3% year on year on a headline basis, thanks in large part to a weak euro, and took the index for Europe to 134.0, its lowest level in over a year.

In underlying terms, European dividends were just 2.6% higher. A small number of big dividend cuts held back the total, but the proportion of companies raising payouts is also in decline. Spain, the Netherlands, Switzerland and France were ahead of the European average, but Germany and Belgium lagged behind.

US dividends rose at their slowest pace in two years, up 5.3% on an underlying basis to $121.7 billion, the manager said. The pace of dividend growth in the US slowed across a range of sectors with most seeing single-digit increases.

More than four fifths of companies raised their payouts, however, keeping the US near the top of the international rankings. The banking sector continued to show strong dividend growth, but auto manufacturers all held their payouts flat, reflecting growing global structural challenges for the sector.

In the UK, underlying growth was 5.3%, similar to the global average, though very large specials boosted the headline total. The largest contribution to underlying growth came from the banking sector, Janus said.

The manager said the second quarter figures were in line with its expectations, and therefore it is making no change in its full-year 2019 forecast for $1.43 trillion in dividends, equivalent to 4.2% growth on a headline basis, and 5.5% in underlying terms.

(Source: Janus Henderson)


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