This article first appeared in Personal Wealth, The Edge Malaysia Weekly on March 2, 2020 - March 8, 2020

Companies around the world paid a record US$1.43 trillion in dividends last year, up 3.5% from 2018. The growth was driven by North America, emerging markets and Japan, according to the Janus Henderson Global Dividend Index report released last month.

Last year, the dividend payouts of US companies rose 6.8% on an underlying basis, reaching a record US$490.8 billion, though the second half of the year saw slower growth than the first. The most significant growth driver were double-digit increases from almost every bank.

The US dollar was stronger than other currencies last year, so dividends paid around the world were translated at less favourable exchange rates, says the report. This particularly affected payouts in Europe and reduced the overall global dividend growth by 1.9%. “By the end of the year, the effect was dissipating and there was no exchange-rate impact in the final quarter,” the report adds.

New annual records were set in the US, Canada, Japan, Russia and France. It was another good year for North America, with dividend payouts rising 4.8% to US$534.6 billion, says the report. The headline figure was held back by lower special dividends, but the underlying growth of 7% was faster than in any other region except emerging markets, where dividends were given a boost by strong Russian payments.

US companies paid US$1 for every US$2.50 of the dividends paid out across the globe last year, equivalent to US$490.8 billion or a headline increase of 4.7%. “We expect the US to breach the half-trillion-dollar mark for the first time in 2020. Momentum slowed a little in the second half of the year, with underlying growth in 4Q reducing to 4.8%,” says the report.

“The proportion of companies raising their payouts was steady year on year at just over eight in 10, but there was a small increase in the number of companies reducing their dividends from one in 20 in 2018 to one in 14 in 2019.”

One-third of sectors in the US saw double-digit dividend growth last year, with mining, retail and utilities among the best performers. AT&T was the largest payer in the US following its acquisition of Time Warner and is now a close second to Shell, the UK-based oil major and the world’s largest dividend payer.

Dividend growth in Canada was faster than in any other major developed economy last year — up 9.5% on an underlying basis to US$43.8 billion — thanks to the banking and energy sectors, says the report.

Emerging market dividends beat record

Over the last decade, dividends in emerging markets have almost doubled in US dollar terms. The US$139.8 billion total last year was just enough to beat the record set in 2013.

“China, Russia, India and Brazil are the four largest payers. Russian and Indian dividends in particular can be rather unpredictable, so we caution against reading too much into one year’s figures,” says the report.

Russian payouts rose a little over a quarter on an underlying basis last year, boosted by oil companies, miners and Sberbank. Banks contributed to solid growth in Brazil too, says the report.

A slowing economy led to unexciting growth in Chinese dividends last year, which rose 4.4% on an underlying basis to US$36.7 billion, the highest level in five years but not enough to beat the 2014 record.

“The biggest increase came from Petrochina, without which Chinese payouts would have been flat year on year. China Construction Bank, which accounts for a third of the Chinese total, held its dividend steady year on year,” says the report.

“Three-fifths of companies raised payouts year on year, but almost all the others cut them, an unusually large proportion related to the fact that Chinese dividends are closely linked to profits and therefore quickly reflect the more challenging economic environment.”

Meanwhile, Malaysia’s dividends stood at US$4.8 billion last year, a slight increase from US$4.7 billion in 2018.

Japan is the fastest growing region in the world as it is up 137% on a headline basis over 10 years, reflecting a growing willingness among Japanese companies to pay a higher ratio of profits to shareholders, says the report. “This trend began in earnest five years ago. 2019 was the fifth consecutive year of world-beating growth for Japanese dividends, though at 6.3% the underlying increase was the slowest in this period,” it notes, adding that the total paid rose to a record US$85.7 billion. 

Last year, Japan saw a headline growth of 8.4%, an increase in dividend payouts to US$85.7 billion in 2019 from US$79.1 billion in 2018. The report highlights that almost 75% of companies raised their dividends last year, with the largest contribution to growth coming from pharmaceutical group Takeda, following its acquisition of Shire in the UK. A steep cut from Nissan in the fourth quarter, following very poor profit performance, made the largest negative impact. It was big enough to deduct almost one percentage point from the annual growth rate.

The challenging global economic backdrop last year saw the slowest rate of growth since 2016, with Asia-Pacific ex-Japan, the EU and the UK lagging behind the global average. Over the last decade, dividends in Asia have performed strongly, rising 124% on an underlying basis, with the fastest growth coming from South Korea and Taiwan.

Last year, the slower pace of global economic growth and the impact of the US-China trade tensions took their toll. Most companies in Asia operate with a fixed ratio in terms of their dividend payout policy, so weaker profitability translates quickly into lower dividends. 

Across the region, the total fell 0.2% on an underlying basis to US$147.7 billion, the worst performance in three years. “The loss of momentum in Asia meant that the region dropped from No1 to No 3 in the global rankings of 10-year dividend growth, behind Japan and North America,” says the report.

South Korea saw the greatest weakness and was down 8.3% on an underlying basis, mainly owing to a large cut by Samsung Electronics following a weak profit performance. A decade ago, the company was ranked No 853 among the world’s dividend payers. It rose to No 11 in 2018, but dropped back to No 25 last year. Meanwhile, Singapore saw the strongest underlying growth at 10.1% last year, thanks to the banks. 

In the UK, headline dividends have risen by three-fifths over the last decade, the second slowest growth of any region except Europe ex-UK. The report says this equates to a 10-year increase of 77% on an underlying basis. The headline growth rate is lower, mainly due to the weakness of the pound sterling in recent years.

Huge special dividends from mining groups Rio Tinto and BHP as well as Royal Bank of Scotland drove a 6.2% increase in headline growth in the UK last year to a record US$105.8 billion. After deducting these and adjusting for the weakness of the pound, underlying growth was a more subdued 2.9%, says the report.

“Many of the UK’s largest dividend payers, including Shell, HSBC, BP, Glaxosmithkline and Astrazeneca, have shown almost no dividend growth in the last four years, though Shell is returning US$25 billion in capital via share buybacks. This explains the relatively slow rate of growth for the UK overall as these companies have high dividend yields and payout ratios. So, there is less room to grow payouts,” says the report.

European payouts fell 2% to US$251.4 billion last year, but this was mainly due to a sharply lower euro against the US dollar, says the report. Underlying growth was 3.8%, a little behind the global average.

Dividends in Europe have seen slower growth than in any other region over the last decade, though as a higher-yielding region, there is less room for dividend growth, says the report. Dividends have risen by just more than one-third in 10 years, well behind the rest of the world. 

Dividend growth in Europe would only be about 53% over the decade, even after allowing for weaker exchange rates. “Europe has lacked the same growth engines enjoyed in the US. For example, banking dividends, which account for a much larger share of the European total than in the US, have doubled since 2009 compared with a fourfold increase in the US,” says the report.

“European banks have been held back by difficulties over post-crisis restructuring and tensions within the eurozone. Equally, the European technology sector’s dividend growth has been in line with the fivefold increase of US tech companies in the last decade. But the sector made up only US$1 in every US$50 of  

European dividends last year, compared with US$1 in US$6 in the US. The impact of its dramatic growth has been negligible.”

From a sector perspective, oil dividends rose the fastest last year, up by 10% on an underlying basis, driven by emerging markets and North America. Financials were by far the largest sector, making up over a quarter (27%) of the total of total dividends last year when broken down by industry and sector. Dividend payouts from this sector rose 5.5% on an underlying basis, in line with the global average, again led by the emerging markets and North America. These were weakest in Asia-Pacific, mainly due to Australia. 

Industrials, telecoms and consumer basics were the sectors that saw the slowest growth last year.

Over the last decade, technology dividends have risen the fastest, quadrupling since 2009 to reach US$118 billion last year. “They have grown in every region, but the biggest contribution to growth has come from the US and South Korea. Telecoms and utility dividends, meanwhile, have not grown at all,” says the report.

For this year, the market expects the global economy and company profits to continue to grow, meaning that dividends should rise again, says the report. “The headline rate of growth is, however, likely to be held back by lower special dividends, especially in the UK and Australia, following an unusually large total in 2019.”

On the positive side, the US dollar started the year a little weaker than it was throughout most of 2019, says the report. “We do not attempt to forecast exchange rates, but if the current level is sustained all year, we can expect a headline boost in 2020 as the value of dividends around the world is translated at a more favourable exchange rate. These two factors are likely to roughly offset one another.

“On an underlying basis, we expect payouts to grow 4% this year, delivering a total of US$1.48 trillion, 3.9% higher than 2019 on a headline basis. Therefore, 2020 is on track to deliver the fifth consecutive year of record dividends.”

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