Special declines and slower US growth pull global dividends down

Added 21st November 2016

The weakest US dividend growth since the financial crisis pulled global dividends down 4% year on year in the third quarter, Henderson Global Investors said on Monday.

Special declines and slower US growth pull global dividends down

According to the firm’s latest Global Dividend Index report, at a headline level, global dividend pay-outs fell 4% year on year to $281.7bn. The US, which accounts for around a third of global dividends saw pay-outs fall 7% on a headline basis, mainly as a result of fewer special dividends.

By way of example, in the third quarter of 2015, Kraft paid out a special dividend of $9.8bn following the completion of its merger with Heinz. By contrast, the total number of special dividends in the most recent quarter came to $4.7bn.

This fall in the number and quantum of special dividends was one of three main factors accounting for the decline in global dividend growth, the firm said.

The other two reasons were: seasonal effects and a slowdown in the pace of regular dividend growth within the US.

Looking at the seasonal effects first, the third quarter is when those parts of the world that currently have weaker dividend growth (emerging markets, Australia and the UK) report peak dividends. In this instance, UK dividends, dropped 13.9% in dollar terms to $26.3bn, reflecting the steep falls in sterling seen since the EU referendum. The rate would have been even lower were it not for the fact that many of the country’s largest payers declare their dividends in dollar terms.

In underlying terms, they fell 2.9%, reflecting sharp cuts within the mining sector as well as from Barclays and Rolls Royce.

Emerging markets dividends fell for the third consecutive quarter, down 7.1% to $42.9bn. On an underlying basis dividends fell 7.7%. Australian dividends at $18.2bn were 6.9% lower in headline terms, despite a stronger currency, Henderson said.

If special dividends are excluded, the rate of dividend growth in the US was 3%, the lowest level since Henderson began the index in 2009.

“The slowdown follows more subdued profit growth in the US partly thanks to the strong dollar, but it also reflects higher indebtedness at US corporates, leading to greater caution on preserving cash flow,” Henderson said. It does not, however, see this as a major cause for concern as it said, it is only natural after a couple of years of double-digit expansion that growth in the US “had to return to a more sustainable rate”.

Looking ahead Henderson said it has trimmed its expectations for the last quarter by $5bn. For the full year it expects global dividends to come in at $1.16 trillion, up 0.9% on 2015 at a headline level and 1% higher on an underlying basis. 

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Geoff Candy

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Geoff Candy joined Portfolio Adviser as News Editor in May 2014. He has been a financial journalist and broadcaster since 2005 and, in that time has worked in both South Africa and the Netherlands, covering everything from high street retailers and construction companies to mining and insurance.

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