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Global dividends reach all-time high in Q2 with strong bank contributions

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2023-09-01

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Global dividends achieved a historic milestone in the second quarter, propelled by major banks, particularly in Europe, which accounted for half of the growth, offsetting lackluster returns from mining giants such as BHP, Rio Tinto, and Glencore.

According to the latest edition of the Janus Henderson Global Dividend Index, dividend payouts in the second quarter surged by 4.9% worldwide, reaching a total of $568.1 billion USD. This followed a 12% increase in the first quarter to $326.7 billion USD on a headline basis, and a 3.0% rise on an underlying basis after accounting for the effects of buybacks and special dividends.

The firm anticipates a robust dividend growth of 5.2% on a headline basis, amounting to $1.64 trillion USD for the entirety of 2023, which equates to an underlying growth of 5.0%.

The Janus Henderson quarterly index monitors dividend payments from 1,200 global companies. The report highlighted that in the second quarter, 88% of companies either raised their dividends or maintained them at the same level.

Bank dividends played a significant role in global growth during this period, accounting for half of the quarter's global expansion. Rising interest rates bolstered margins, and disruptions caused by the pandemic that affected dividend payments gradually faded from the data, as noted by Janus Henderson.

Central banks' interest rate hikes led to increased net interest margins for financial institutions, resulting in higher dividend payouts to shareholders. Additionally, car manufacturers contributed to the dividend growth, benefiting from improved supply chain conditions and addressing the backlog in demand created by component shortages.

Dividends from U.S. companies rose by 2.6% to $148 billion USD, driven by the healthcare and real estate sectors. However, the latter is under pressure due to the decline in commercial real estate, which has impacted asset values, earnings, and returns.

Janus Henderson acknowledged that while U.S. dividend growth has slowed for six consecutive quarters, this deceleration follows a period of remarkable resilience during the pandemic, unlike other parts of the world that experienced significant cuts.

In the U.S., healthcare companies played a crucial role in driving growth during the second quarter. Notably, the largest dividend cuts in North America came from chipmaker Intel and global asset manager Blackstone.

Despite the strong performance of dividend payments in the second quarter, Janus Henderson cautioned that economic growth is moderating due to higher interest rates. The firm still expects favorable dividend growth for the remainder of the year, particularly from the banking sector.

While dividends remain a foundational element of many investment portfolios, they face competition from growth-focused tech stocks, which typically do not offer dividends. Dividend-paying companies are vying for investor attention alongside attractive yields on government bonds, which exceed 4% in some cases.

The significant contribution from banks resulted in them driving half of the world's dividend growth in the June quarter, marking a 19.7% year-on-year increase to a record $85.3 billion USD.

Europe saw elevated banking dividends as the primary driver of its 9.7% growth. This trend was echoed globally, with few exceptions. In countries such as the UK and Singapore, banks propelled dividend payouts to record levels.

In Australia, second-quarter dividend payouts reached $8.8 billion USD, the highest since the $10.9 billion paid in the same quarter of 2019. The 23.0% underlying increase was influenced by large payers during a seasonally quiet quarter, including Woodside Energy's substantial increase and a substantial cut from mining company Rio Tinto.

The trajectory of Australian dividends in 2023 will become clearer in the upcoming quarters when reporting companies reveal their payouts. Companies like BHP have already announced cuts to their final dividends.

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