Record First Quarter for Global Dividends

Total dividends now expected to be $1.358 trillion, with the US and Canada breaking records at the start of the year

David Brenchley 21 May, 2018 | 12:19PM
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US Dollar Notes

Global dividends are expected to be $10 billion ahead of forecasts for 2018, after the strongest first quarter on record, according to asset manager Janus Henderson.

Dividends around the globe rose 10.2% on a headline basis to $244.7 billion, the Janus Henderson Global Dividend Index revealed. Though that headline growth number was flattered somewhat by a weaker US dollar, underlying growth still stood at an “encouraging” 5.9%.

As a result, headline growth for the full year has been upped to 8.5% thanks to the effects of a weak dollar, with total dividends now expected to be $1.358 trillion. The underlying growth estimate is unchanged at 6%.

Ben Lofthouse, director of global equities at Janus Henderson, says the year has started on a strong note for dividends. “Economic growth is strong and corporate profitability is rising, generating cash that companies can return to their shareholders.”

Both the US and Canada broke their all-time records for payouts, with North American total dividends rising 6.1% on a headline basis to $123.1 billion and 8% on an underlying basis. Canada’s underlying growth was the fastest of any nation at 13.8%.

US Companies Feeling Confident

Meanwhile, firms in the US were, no doubt, buoyed by Donald Trump’s recent tax reforms, with underlying growth of 7.6%. “The Q1 acceleration in US dividend growth may be an early sign that companies are feeling confident about returning some of the cash they have accumulated to shareholders,” says Lofthouse. Technology, financial and healthcare stocks were the main contributors.

While Q2 is traditionally the best three months for dividends in Europe, headline growth was up a 13.7% to $40.9 billion. That was mainly due to stronger currencies across the region, meaning underlying growth was a more modest 3.9%.

The second quarter, though, should see a much broader range of industries and countries contributing, explains Lofthouse. “Europe’s economic recovery is likely to yield healthy growth from across the region.”

The UK was another with strong headline but weak underlying growth, at 21.1% and 4.2% respectively. The former figure was due to British American Tobacco’s (BATS) move to a quarterly distribution, as well as the effects of a stronger pound.

Elsewhere, Japan saw good growth; Asia paid out less, thanks to steep cuts at Australia’s Telstra (TLS) and QBE Insurance (QBE) as well as fewer special dividends in Hong Kong. In emerging market economies, India and Russia saw lower payouts, but Brazil was strong.

The index reached 174.2, meaning global payouts last year were almost three-quarters higher than they were in 2009. For investors looking to gain exposure to rising global dividends, Morningstar analysts rate two funds in the Global Equity Income sector:

Veritas Global Equity Income

This high-conviction portfolio of just 27 stocks is managed by former Newton duo Charles Richardson and Andrew Headley and has a Morningstar Analyst Rating of Gold.

The managers companies with durable competitive advantages and strong, sustainable cash flows that can lead to steady, repeatable dividend payments. While yield is a consideration, they will not invest in high-yielding companies that are unlikely to contribute to capital growth.

Almost a third of the portfolio is invested in European shares, with 22% in developed Asia and 19% in the US. UK stocks account for 16%. Four companies listed in Singapore are in the fund’s top 10 holdings, with United Overseas Bank (U11) the biggest holding. The UK is represented by oil major BP (BP.).

Artemis Global Income

Managed by Jacob de Tusch-Lec, this Bronze Rated fund yields just over 3.5% and is most exposed to the US and Europe, with 60% in those two regions combined. However, it is well diversified globally, with companies in every region.

The fund is flexible enough for de Tusch-Lec to express his views on the prevailing macro environment and he tends to avoid the stocks that typically appear in his peers’ funds.

That said, Morningstar analyst Randall Goldsmith has concerns over the fund’s size, which continues to balloon. This is due to his preference for less liquid small and mid-cap names. “We also noticed an increase in the number of holdings from 60 at inception to 90 currently. Our experience tells us to carefully monitor this,” says Goldsmith.

Its top three holdings account for almost 10% of the portfolio and include US bank Citigroup (C), Italy’s Infrastrutture Wireless Italiane (INW) and Norway’s Storebrand (STB).

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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David Brenchley

David Brenchley  is a Reporter for Morningstar.co.uk