A strong dividend recovery is underway

Jane Shoemake: Taking a global approach to income investing has several advantages for investors. Most importantly, it provides the benefits of diversification both by geography and by sector, and by reducing the concentration of dividends from just a handful of companies, which is a common problem in individual stock markets. This approach has proved its value through the pandemic as overall global dividends fell much less than in many individual countries. The anniversary of the big COVID-19 dividend cuts passed in April, so the second quarter of 2021 is the first to show how strong the recovery is going to be. And it’s certainly strong.

Global dividends jumped 26 percent year on year in the second quarter of 2021, recovering to $472 billion U.S. dollars. This surge was caused largely by companies restarting cancelled payouts, which contributed three quarters of the underlying increase. Moreover, 84% of companies increased their divisions in the second quarter or held them steady compared to this time last year.

Our headline increase of 26% was flattered, both by special dividends and by companies restoring their dividends to their usual timetable. In the second quarter last year, lots of companies, especially in Europe and the UK delayed their payments until the third quarter or later. Dividends fell to a level last seen in 2011, but the rebound witnessed this year means they have made up a lot of the lost ground, with underlying growth over 11%.

The second quarter is Europe’s key dividend season, and payouts jumped 66% on a headline basis, equivalent to an underlying increase of 20%. France and Sweden were amongst the strongest rebounders, while Germany, Switzerland and Norway were amongst those that lagged behind, mainly because payouts there fell less last year.

The UK’s underlying growth of 42% was largely due to dividends being restarted, whilst in the US and Canada, dividends were resilient in 2020 so the bounce back there was smaller, although Canadian dividends still managed to rise to a new record high. In Asia Pacific, ex Japan, Australia was boosted by the return of banking dividends and Korea by Samsung. In fact, three quarters of the region’s companies increased or held their dividends.

Japanese dividends rose an impressive 12%, despite the relative resilience they showed last year, while in emerging markets, many companies have cut dividends after their profits were impacted rather than pre-emptively. The second quarter was weaker in many countries.

If we look at the sector picture, mining companies led with an underlying dividend growth of around 70%, taking payouts above their pre pandemic second quarter total. Industrial, consumer discretionary and financial dividends were also strong. On the other hand, energy payouts fell as 2020 cuts came later than in some other sectors. Defensive sectors proved their resilience last year and therefore did not show strong growth this quarter.

At the company level, some of the biggest payouts this quarter included Samsung, which paid a large special dividend and jumped to the top of the table. In fact, it will be amongst the world’s five largest dividends for the whole of 2021.

Dividends are very seasonal, so most of these Q2 top players will not be amongst the world’s top 10 players for the full year. At a global level, dividends are much less concentrated than they are on a country by country basis. One of the real benefits of thinking globally when investing for income.

The world economy is rebounding strongly and company profits are recovering sharply, too. This is feeding through to a faster dividend bounce back than we initially forecast, and we are therefore upgrading our expectations for 2021 to $1.39 trillion U.S. dollars, a rebound of almost 11% on a headline basis or 8.5% underlying. Our new forecast is just 3% below pre pandemic levels. Amazingly, global dividends will regain pre-pandemic highs in just the next 12 months.

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