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At a time when good news is still hard to come by and income remains a top priority for advisors and investors alike, there is a silver lining: Global dividends continue growing.
In the fourth quarter global payouts jumped 8.4%, hitting a record $1.56 trillion. That growth rate was actually 13.9% when stripping out the effect of currency fluctuations and in the last three months of 2022, 88% of global dividend payers held steady or boosted payouts, according to the latest reading of the Janus Henderson Global Dividend Index.
While dividend growth is likely to slow this year, owing to rising interest rates and the specter of a recession in the U.S. and other developed markets, but the bright spot is the bulk of dividend-paying firms have the ability to cover those obligations.
As advisors know, not all dividend payers are created equal. This is something not all clients are cognizant of, meaning this is a credible value-add conversation. Acknowledging that not all dividend-paying firms are the same is critical in inflationary environments because clients need income AND exposure to companies and strategies that thrive when consumer prices surge, as is happening today.
Lots of Regional Records Notched
At a time when international stocks are showing signs of finally beating U.S. counterparts, advisors have added reasons to look outside the U.S. because this country isn’t the only one notching dividend records.
“Gobal dividend growth was so strong that twelve countries saw record payouts in dollar terms. These included the US, Canada, Brazil, China, India and Taiwan, but a number of others posted records in their local currencies, including France, Germany, Japan and Australia,” notes Janus Henderson.
As noted above, Europe is home to some stout growth payout growth. Further supporting the case for European stocks are dividends – both in growth and yield terms. For example, the dividend yield on the STOXX Europe Total Market Index is roughly twice the comparable metric on the S&P 500. Plus, earnings growth is proving surprising stout in Europe, indicating the cash flow is there to support dividend growth. Last year, the region, ex-UK, benefited from attractive sector trends.
“One third of the increase came from the consumer discretionary sector, particularly vehicles and luxury goods companies. They enjoyed extremely strong demand and higher prices, with their dividends reflecting increased profitability as well as post-pandemic normalisation. Just under a quarter of the increase for the region came from financials, mainly banks for whom pandemic-related regulatory limits on payouts had been largely lifted,” adds Janus Henderson.
In the fourth quarter, France was the biggest driver of European dividend growth with contributions from Germany, always steady Switzerland and the Nordic nations, among others.
Sector Trends Matter
For advisors looking to make astute allocations to dividend equities and funds, sector observations are crucial. Last year, just three sectors – financials, energy and tech – accounted for double-digit percentages of global payouts.
Those trends aren’t linear from year-to-year, but it’s reasonable to expect that financials and tech have the ability to remain payout growth leaders over the long-term.
“The extent to which these patterns have boosted particular geographies depends on each sector’s importance in the local sector mix as well as cultural factors that affect how much cash management decide to distribute as a dividend. For example, in emerging markets, it is common for dividends to vary very significantly from one year to another as conditions change, whereas in countries such as the US and UK, companies generally try to grow their regular dividends steadily over time,” concludes Janus Henderson.
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