Global Dividends Make a Strong Start for 2018

Ben Lofthouse, Head of Global Equity Income, discusses highlights and trends from the latest Janus Henderson Global Dividend Index study.

Equity markets in 2018 have been characterized by the return of volatility. But while investors question the impact of rising rates and fate of this market cycle, dividends tell quite a different story – one of stable earnings, synchronous global growth and improving corporate confidence.

After a stellar showing in 2017, worldwide dividends continued to gain ground in early 2018. On a headline basis, payouts increased 10.2% to nearly $245 billion for the first quarter, a record improvement since we launched the Janus Henderson Global Dividend Index in 2009.

The results are not entirely surprising: When earnings rise, as they have across a broad swath of sectors in most regions in the world, dividends follow. Because the index is based on U.S. dollars, a weakening greenback further bolstered results; this accounted for about three percentage points of headline growth. It’s worth noting, however, that underlying growth did not disappoint. On the contrary, it lined up perfectly with our forecast of a 5.9% year-over-year improvement.

All told, nearly every region in the world hit a high-water mark for the first quarter. The only exception – Asia Pacific ex Japan – saw a decline in dividends because of stock-specific issues in Australia and lower special dividends in Hong Kong, not because of deteriorating fundamentals overall.

North American dividends, up 6.1% during the quarter, made no small contribution to overall results. The $123 billion paid out over the quarter represents the region’s highest tally for the history of the index. While Canada represents just $10 billion of this figure, the country carried more than its weight last quarter, with payouts surging more than 16.6%, or about twice that of the U.S.

Individual companies with the highest payouts are no strangers to the leader board: Exxon, Microsoft and Apple contributed one dollar for every nine in the U.S. total. That said, shareholders enjoyed pay raises across the board: Eight out of 10 U.S. companies we track posted year-over-year improvements. And while the full impact of tax reform has yet to funnel down to dividends, recent payout increases may reflect an early vote of confidence from U.S. companies poised to benefit from tax cuts or distribute repatriated cash.

A declining U.S. dollar was a big factor in Europe’s 13.7% increase for the first quarter. After factoring for currency differences, that figure is a more modest 3.9%. That said, our outlook for Europe in the second quarter and beyond is for continued growth. The economy is, by most measures, a few steps behind the U.S., suggesting that there may be more room for companies to increase dividends. The next quarter, moreover, should be a better representation, as nearly two thirds of European dividend payments are made during that period.

Looking ahead, earnings surprises may come fewer and farther between as companies begin to face tough comps on last year’s performance. Nevertheless, we think dividends will continue to move higher in regions around the world. We’re now calling for dividends to rise 8.5% in headline terms for the full year, for a total of $1.358 trillion.

Read the full Janus Henderson Global Dividend Index study.