This article first appeared in Personal Wealth, The Edge Malaysia Weekly on June 10, 2019 - June 16, 2019

Asia-Pacific ex-Japan had seen the world’s strongest dividend growth since 2009, due to rising profits and expanding payout ratios, according to the latest Janus Henderson Global Dividend Index report released last month. The region’s 1Q total of US$18.1 billion was up 14.7% year on year (y-o-y) on a headline basis — setting a record.

“Even so, the first quarter marks a seasonal low point. Thus, one-offs can distort the figures quite easily. After adjusting for BHP’s big special dividend and its franking credit, which made up over a third of the total paid in Australia, as well as other factors, underlying growth was a more modest 3.8%,” says the report.

The report notes that Australia accounted for three-quarters of the total dividend payout in 1Q2019 and that the Australian index has shown no dividend growth in the last five years. However, large dividends from commodity companies recently helped the country achieve a 1Q dividend growth of 5.4% — the fastest rate in almost a year.

“The biggest contribution to growth came from Woodside Petroleum, which is restoring its dividend after a couple of challenging years. Telstra cut its payout again while the largest payer, Commonwealth Bank, held its dividend flat, in common with the recent trend in the wider banking sector in Australia,” says the report.

In Hong Kong, dividends rose 8.4% on an underlying basis, delivering a total of US$ 3.1 billion. This is despite seeing zero growth for the fourth year from Sands China, the biggest payer in Hong Kong.

Meanwhile in China, property developer Longfor Group Holdings had the largest contribution to growth, where the dividend increased almost 50% due to higher profits. As for Singapore, only Singapore Telecoms paid a dividend, holding it flat y-o-y.

In Japan, more companies have embraced the dividend-paying culture, resulting in income investors enjoying growth far ahead of the global average in the last five years.

“Dividends are 70% higher than in 2014, compared with 25% for the rest of the world. This strong performance continued in 1Q2019. Although headline growth of 5.7% was held back by a weaker yen. Underlying growth was 8.7%,” says the report.

The report warns investors to be cautious of drawing too many conclusions for the full year as 1Q2019 marked a seasonal low point for Japanese dividends. “Even so, the fact that every company raised or held its dividend and that this was Japan’s best 1Q on record is very positive,” it says, adding that on the index, Japanese payouts score rose to 219.9 — one of the highest in the world.

Emerging-market dividends were seasonally low in 1Q2019, with the total falling 6.1% y-o-y to US$16.2 billion. This was due to emerging-market exchange rates, which were weaker against the US dollar. But dividends were 2.2% higher on an underlying basis.

“India accounted for more than a quarter of the total, and although most companies paid out less y-o-y, the overall total jumped 12.7% on an underlying basis, thanks to the payment of an extra US$700 million from Oil & Natural Gas Corp. It reported sharply higher profits, thanks to rising product prices, but also faced pressure from a cash-strapped government shareholder to pay larger dividends,” says the report.

On a global level, despite concerns about the macroeconomic environment, corporate profits and dividends have largely met expectations so far. Dividends grew 7.8% on a headline basis in 1Q2019 to a first-quarter record of US$ 263.3 billion, in line with the 2018 growth rate. The report also states that underlying growth of 7.5% followed the same trend.

“All-time quarterly records were broken in the US and Canada (which are less affected by seasonal changes) and new 1Q records were set in eight other countries around the world. Growth in North America was the fastest in the world on an underlying basis and its seasonally large weighting in 1Q2019 meant it made a significant contribution to global dividend growth,” says the report.

It notes that the Janus Henderson Global Dividend Index rose to a record 190.1 in 1Q2019, which means dividends are now almost twice the level they were at a decade ago when the index started.

The report says most companies in North America pay dividends every quarter, which means that it accounts for more than three-fifths of the global total in 1Q. “The country’s impressive headline 8.1% increase y-o-y to an all-time record of US$133.1 billion, therefore, had a disproportionate influence on the overall global growth rate.”

Underlying growth was still stronger at 9.8%, ahead of other parts of the world.

In the US, dividends totalled a record US$122.5 billion, which was up 8.3% on a headline basis with its underlying growth coming up better at 9.6%. The US’ growth exceeded the global average 70% of the time over the last five years as company profits benefited from a robust economy and favourable tax changes, says the report.

“Almost nine-tenths of US companies in our index raised their dividends, with the largest impact coming from the banking sector. Banking dividends jumped by a quarter, adding US$1.9 billion y-o-y, with many banks making high double-digit increases.”

The largest percentage increase came from Citigroup. However, JP Morgan made the biggest contribution to growth by paying almost US$700 million more y-o-y. The US pharmaceutical payout was the highest and more than double that of its peers around the world, with US$1 out of every US$11 of the total. Payouts were up 9% y-o-y.

Meanwhile in Canada, weaker foreign exchange rates held back headline growth. However, dividends still reached a record US$10.7 billion, up 12% in underlying terms. This was the third consecutive quarter of double-digit growth.

“Higher oil prices and the acquisition of Spectra Energy helped Enbridge become Canada’s largest payer for the first time. It increased its total payout by a third,” says the report.

As for sectors, pharmaceutical dividends were the highest-paying sector in 1Q2019, contributing US$1 in every US$8 paid globally. The report notes that Novartis paid US$1 for every US$30 and Roche was close behind, as seen in the chart of world’s biggest dividend payers.

“The sector delivered an all-time record of US$30.1 billion, though its underlying growth rate was lower than the global average,” says the report.

The leisure sector delivered record payment, boosted by a large special dividend from the UK’s Intercontinental Hotels. The report notes that on an underlying basis, financial dividends grew the fastest, thanks to US banks and real estate companies, but that their growth rate was matched by utilities.

“This is traditionally a high-yielding, slow-growth sector and even after the strong 1Q, dividends are unchanged in a decade. Oil dividends also bounced back, up by 10% y-o-y. They are the second slowest growing sector after utilities in the last 10 years,” says the report.

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