A new report shows underlying corporate pay-outs growing around the world.
Bond yields plumbed new lows in the first three months of the year, as the European Central Bank’s quantitative easing programme took effect. That made equity dividend yields look even more attractive. The latest report on global dividends from Henderson Global Investors for the first quarter of 2015 shows the underlying trend for dividends up by more than 10%, even as the headline figure declined.
On the face of it, global dividends expressed in US dollars fell by 6.3% year-on-year in the first quarter to $218 billion; although these figures are distorted by the impact of a strong dollar and a sharply lower ‘special dividends’ figure. Strip away those and other one-off effects and the picture is one of continued strong dividend growth, up by 10.9%.
The largest single effect on the numbers was Vodafone’s $26 billion special dividend in the first quarter of 2014, following the disposal of its stake in Verizon Wireless. The fact that this was not repeated explains the drop in first-quarter special dividends from $34.2 billion last year to $11.1 billion in 2015. While exchange rates don’t have a major impact on the numbers over the longer term, unusual dollar strength in the last few months has markedly reduced the dollar proceeds of dividends paid in other currencies – by nearly $16 billion.
These special circumstances masked the fact that US companies paid out a record $99.4 billion in the first quarter of this year, an increase of nearly 15%. European pay-outs actually rose 15.2% in local currency terms but, after translation into dollars, fell 2% to $34.3 billion. UK dividends fell 60.4%, thanks to the Vodafone effect. The contributions of Japan, Asia Pacific and emerging markets all rose.
Henderson expects dollar strength to continue to drag on headline dividends for the full year, forecasting a 3% drop to $1,134 billion. Yet it believes underlying growth will be up by 7.5%.
Stephen Thornber of Columbia Threadneedle agrees that real global dividend pay-outs have been very strong in recent quarters and expects them to keep growing in 2015. “Although a stronger dollar is likely to be a challenge for some US multinationals, we expect shareholder-friendly activity to continue,” he notes. “Returning cash to shareholders is viewed positively by the market and is the low-risk and sensible option for company managements – as opposed to using cash for higher-risk investment capital expenditure or M&A activity.”
Thornber reckons that dividend growth in the US will be around 7% this year. “That means that dividend-paying stocks should continue to offer an attractive and growing income when compared to bonds, even if bond yields rise,” he says.
The global dividend growth story is not just about the US, Thornber points out, even though that market pays out “an incredible amount” in dividends. In Japan, a slow but discernible change in corporate behaviour is taking place, with companies increasingly focusing on the needs of shareholders, and many firms have committed to making or raising dividend payments.
“Our data suggest that corporate Japan returns only 42% of its profits to shareholders,” he says. “In Europe, the equivalent figure is around 60% and in the US it is more like 80%. The long-term opportunity in Japan is therefore very meaningful and underlines the importance of not being constrained to investing in only one country or one region.”
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