- A strong dividend recovery is underway – global dividends jumped by 26.3% year-on-year, recovering to $471.7bn, only 6.8% below their Q2 2019 levels.
- Companies restarting cancelled payouts contributed three quarters of the underlying surge.
- 84% of companies increased their dividends or held them steady compared to Q2 2020.
- UK payouts jumped 60.9% and European payouts were up 66.4% during the Continent’s key dividend season.
- Janus Henderson upgrades its 2021 forecast to $1.39 trillion from $1.36 trillion; this new forecast is just 3% below the pre-pandemic peak.
- Growth in 2021 now expected to be 10.7% on a headline basis, equivalent to an underlying rebound of 8.5%.
The global dividend recovery began in earnest in the second quarter of 2021, according to the latest edition of the Janus Henderson Global Dividend Index. Globally, dividends jumped by 26.3% year-on-year on a headline basis, recovering to $471.7bn, only 6.8% below their Q2 2019 level. Janus Henderson Investors predicts dividend payouts will return to pre-pandemic highs in the next 12 months.
Dividends from companies restarting payments totalled $33.3bn and contributed three quarters of the underlying growth in Q2.
On an underlying basis, dividend growth in Q2 was a more modest 11.2%. The headline figure was flattered by the normalisation of payment timetables, by large special dividends and by the translation of non-US dollar dividends at more favourable exchange rates. On an underlying basis, the year-on-year picture is ahead of our expectations and very encouraging.
Globally, more than eight in ten (84%) of companies increased their dividends or held them steady. Those cutting were most likely to be in emerging markets and reflected the delayed impact from lower reported 2020 profits. Early in 2020, many of the dividend cuts witnessed in developed markets were by contrast pre-emptive and precautionary.
Upgraded Forecast
For 2021, Janus Henderson is upgrading its forecast to $1.39 trillion, an increase of 2.2 percentage points since the May edition. This results in headline dividend growth of 10.7% and will take the total paid within 3% of the pre-pandemic 2019 level, though this is boosted by dollar weakness and higher special dividends. Underlying growth is set to be 8.5% for 2021.
Jane Shoemake, Client Portfolio Manager on the Global Equity Income Team at Janus Henderson said: “Just as the impact of the pandemic on company dividends has been consistent with a conventional but severe recession, so the recovery is also consistent with the rapid economic bounce-back now occurring in those parts of the world where vaccination programmes are enabling economies to reopen. Households have record savings and there is pent-up demand to spend which should be good for company profits.
“The corporate world is awash with liquidity and the financial system is robust. The banks generally hold surplus capital, and policymakers continue to provide fiscal and monetary support for economies, so this recovery will not be hampered by a weak banking system as it was after the global financial crisis a decade ago. What’s more, regulatory limits on bank dividends are now being lifted and this will make a significant contribution to the dividend recovery in the months ahead given they accounted for half the global decline in 2020.
“Across the world, the restart of cancelled dividends has driven the recovery so far, but we are also seeing stronger dividend growth than we expected. Despite the severity of the recession last year, global dividends in aggregate will likely regain their pre-pandemic levels within the next twelve months.”
Second Quarter of 2021 sees significant payout divergence across markets
There has been enormous divergence across markets. Payouts were up 66.4% in Europe and 60.9% in the UK, but just 0.4% in Japan and 5.0% in North America. The wide disparities reflect the extent, the timing and the depth of cuts made in 2020 in the face of the pandemic.
UK: UK dividends bounced back strongly in the second quarter, jumping by more than three fifths (60.9%), closely in line with the rest of Europe, having experienced a similar fall this time last year. Underlying growth was 42.2%. But the total was still 27% lower than Q2 2019.
Europe ex-UK: Q2 is the main European dividend season. Half the headline growth of 66.4% was driven by companies returning to their normal dividend timetable. Underlying growth of 20.1% was almost entirely driven by cancelled payouts restarting, though mostly at lower levels than pre-pandemic. France and Spain led the rebound, but Switzerland lagged behind – reversing the 2020 picture. The regional total remained a fifth lower than Q2 2019.
N America: Record dividends in Q2, driven in particular by Canada. Dividends held up throughout 2020, so there is little rebound effect.
Asia-Pacific-ex Japan: Headline growth of 45% was boosted by Samsung Electronics’s one-off special dividend. Underlying growth was 13%. South Korea and Australia led growth in the region, but Singapore’s dividends were depressed by ongoing restrictions on banking payouts. Hong Kong dividends were resilient in 2020 so had little room to rebound.
Japan: Having seen so little downside in 2020, underlying growth of 11.9% was strong. More than eight in ten Japanese companies raised their dividends year-on-year or held them steady.
Emerging Markets: On an underlying basis, dividends were down 3.2% year-on-year, as cuts reflect lower 2020 profits retrospectively. Just 56% of emerging market companies raised or held their dividends in Q2.
Implications for portfolio allocations
Dividends from mining companies grew fastest as they are benefiting from booming commodity prices. Industrials and consumer discretionary dividends came back strongly too, though some sub-sectors like leisure remain under severe pressure. Defensive sectors, like telecoms, food, food retail, household products, tobacco and pharmaceuticals registered their characteristic low single-digit growth rates, having seen little negative impact in 2020.
Limits on bank dividends had a major impact in 2020 – banks accounted for half of the fall in global dividends last year. Constraints on banking dividends where they have been imposed are lifting. In the UK they have been removed entirely, though banks are likely to use some of their surplus capital to buy back their lowly valued shares as well as increase dividend payments.
How Janus Henderson’s fund managers are positioning the global income portfolios:
Ben Lofthouse, Head of Global Equity Income at Janus Henderson, added: “As the global economy rebounds, the broad recovery in dividends makes it possible for investors once again to have a wide spread of sectors that are generating income, diversifying the risk of stock and sector specific issues. This is the approach our funds are following. In terms of the highest yielding sectors, the financial services and commodity sectors dividend outlooks are the most improved since last year. We took selective advantage of opportunities to add to positions in these sectors over the last 12 months in anticipation if this improvement. The travel and leisure sectors remain hardest hit in terms of the Covid impact, and while many have adjusted operations to be able to survive, the sector is unlikely to be paying dividends until balance sheets recover, so we continue to avoid these for the time being.”
-ends-
Twister communications group
Adriana Sampietro/Silvia Tavola
T: 02 438114.200
E: janushenderson@twistergroup.it
Unless otherwise stated all data is sourced by Janus Henderson Investors as of 30 June 2021.
Past performance is no guarantee of future results. International investing involves certain risks and increased volatility not associated with investing solely in the UK. These risks included currency fluctuations, economic or financial instability, lack of timely or reliable financial information or unfavourable political or legal developments.
Notes to editors
Janus Henderson Group (JHG) is a leading global active asset manager dedicated to helping investors achieve long-term financial goals through a broad range of investment solutions, including equities, fixed income, quantitative equities, multi-asset and alternative asset class strategies.
At 30 June 2021, Janus Henderson had approximately US$428 billion in assets under management, more than 2,000 employees, and offices in 25 cities worldwide. Headquartered in London, the company is listed on the New York Stock Exchange (NYSE) and the Australian Securities Exchange (ASX).
Methodology
Each year Janus Henderson analyse dividends paid by the 1,200 largest firms by market capitalisation (as at 31/12 before the start of each year). Dividends are included in the model on the date they are paid. Dividends are calculated gross, using the share count prevailing on the pay date (this is an approximation because companies in practice fix the exchange rate a little before the pay date), and converted to US$ using the prevailing exchange rate. Where a scrip dividend is offered, investors are assumed to opt 100% for cash. This will slightly overstate the cash paid out, but we believe this is the most proactive approach to treat scrip dividends. In most markets it makes no material difference, though in some, particularly European markets, the effect is greater. Spain is a particular case in point. The model takes no account of free floats since it is aiming to capture the dividend paying capacity of the world’s largest listed companies, without regard for their shareholder base. We have estimated dividends for stocks outside the top 1,200 using the average value of these payments compared to the large cap dividends over the five-year period (sourced from quoted yield data). This means they are estimated at a fixed proportion of 12.7% of total global dividends from the top 1,200, and therefore in our model grow at the same rate. This means we do not need to make unsubstantiated assumptions about the rate of growth of these smaller company dividends. All raw data was provided by Exchange Data International with analysis conducted by Janus Henderson Investors.