Global dividend growth is expected to slow in 2023 after a record 2022, according to the latest Janus Henderson Global Dividend Index.
Payouts rose 8.4% to $1.6trn (£1.3trn) last year, with underlying growth much higher, at 13.9%. This was the second widest gap ever, behind only 2015, with the difference blamed on dramatic fluctuations in exchange rates. The significant strengthening of the dollar reduced the translated value of payouts in every country except Brazil and Mexico.
However, dividend growth is expected to slow to 2.3% on a headline basis in 2023, equivalent to an underlying increase of 3.4%. Jane Shoemake, client portfolio manager at Janus Henderson, said this is down to a weakening global economy.
Source: Janus Henderson Global Dividend Index
“Central banks around the world have responded to high inflation by sharply raising interest rates,” she explained. “Economic growth is already slowing across the globe and some regions may now be in recession.
“Corporate cashflow will therefore come under pressure both from lower levels of demand and from the higher cost of servicing loans, which will limit the scope for dividend growth. More broadly, the easy post-pandemic catch-up is now complete, with payouts back to their historic trend.”
On a more positive note, she said the re-opening of China is likely to boost economic growth once the current wave of Covid-19 infections passes. She also pointed out that payouts are much less volatile than profits at the global level, while dividend cover is currently high.
“We do expect dividend growth to slow from the exceptionally high levels enjoyed in 2022, but we believe dividends are still likely to edge higher in 2023,” she added.
“Time lags, principally in Europe, China and parts of Asia where companies often pay just once per year, mean any slowdown in these regions will emerge later than in parts of the world such as the US where dividends are distributed quarterly.”
Returning to 2022, the Janus Henderson Global Dividend Index found that 88% of global companies either increased their dividends or held them steady last year.
The report found that sector trends had more of an impact on dividends than geographical ones. Oil & gas producer payouts rose by two thirds on a headline basis, accounting for a quarter of the global increase in 2022. However, the report noted that payouts came from a lower base and were boosted by special dividends. Half of the increase came from emerging markets.
Source: Janus Henderson Global Dividend Index
Financials accounted for another quarter of global growth, building on their 2021 recovery from the cuts during the pandemic. Transport dividend growth, mainly from freight companies in Asia and Europe, accounted for one eighth of the global increase.
However, the report said that “having been the biggest engine of global dividend growth in 2021”, accounting for one third of the increase, miners’ payouts fell in 2022, down by 10% on a headline basis. The sector was still the fourth largest for dividends, however.
In terms of regions, UK dividends rose 12.1% on an underlying basis once lower special dividends and the weak pound were taken into account. In total, 92% of UK companies raised dividends or held them steady.
“Resurgent banking dividends were the main driver of growth, but the rise in oil payouts was also a significant contributor, as was the restart of BT’s dividend,” said the report.
“Payouts from the large mining sector dipped very slightly on a headline basis (which we consider to be a better measure of trends in this highly cyclical industry). Glencore, which has significant exposure to coal, bucked the trend and made a very large increase, but this was not enough to offset lower payouts from Rio Tinto.”
US dividends comfortably hit a new record of $574.2bn, up 7.6% on an underlying basis in 2022, but grew less than half the rate of the rest of the world (18.1%).
“This was by no means a poor result, however, and was faster than the long-run 6.6% US annual average,” said the report.
European dividends jumped by 20.4% on an underlying basis in 2022. The headline total reached a new record of $254.7bn and shrugged off a significant drag from weaker European exchange rates.
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,” said the report. Just under a quarter of the increase for the region came from financials, mainly banks for which most pandemic-related regulatory limits on payouts were lifted.
Looking ahead, Shoemake said that energy dividends were unlikely to repeat the sharp increases of 2022, while mining payouts were likely to fall further.
On the other hand, higher interest rates mean banks and other financials should benefit from wider margins, meaning further dividend growth is possible, subject to an increase in bad loans as economic growth slows.
“After a much stronger-than-expected recovery in dividends post the 2020 pandemic, there is more uncertainty over the prospects for dividend growth in the year ahead,” Shoemake continued.
“Inflation, the extent of further rate hikes and geopolitical risks all cloud the horizon. The drag from exchange rate factors should be smaller, however, and could begin to reverse in the second half based on current trends, while one-off special dividends are more likely to reduce towards their longer-run average than increase further.”