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Bad news for income investors as global dividends drop in third quarter

21 November 2016

Research by Henderson Global Investors shows that dividends payouts declined during the third quarter of 2016 with the US being worst hit.

By Gary Jackson,

Editor, FE Trustnet

Dividend payouts were worse than expected in the third quarter of the year, according to analysis by Henderson Global Investors, driven by a sharp fall in the US.

The latest edition of the Henderson Global Dividend Index shows that dividends payments across the globe fell to $281.7bn (£228.6bn) in the three-month period to the end of September, which is $11.9bn lower than one year earlier.

This is a 4 per cent year-on-year decline and the weakest quarterly performance since the second quarter of 2015. It was the US that witnessed some of the worst declines although a significant fall was also seen in the UK, reflecting currency weakness.

Total global dividends, annual growth per quarter

 

Source: Henderson Global Dividend Index

The research points to three main factors behind the decline: special dividend payments were lower, which impacted the headline growth rate; the third quarter tends to have a seasonal peak from areas of the world with slower dividend growth, such as the UK, Australia and emerging markets; and regular dividend growth slowed sharply in the US, which is largest contributor to global dividends.

Alex Crooke, head of global equity income at Henderson Global Investors said: “Global dividend growth has been lacklustre this year.

“The most significant trend is the reduction in US dividend growth, now at its slowest since the index started in 2009. However, we do not see this as a major cause for concern as US dividend growth had to return to a more sustainable rate after a couple of years of double-digit expansion.

“The United States has been the engine of global dividends in the last two years, so the slowdown here helps explain the loss of momentum in growth at the global level. A strong performance in Europe means underlying growth there may now exceed North America this year, although this has not been enough to offset greater-than-expected weakness elsewhere in the world, for example in China, Australia and the UK.”


When it comes to US, dividend payouts dropped by 7 per cent on a headline basis to $100.4bn – mainly down to the large Kraft Heinz special dividend bumping up 2015’s figure for the quarter.

However, even when this is stripped out, underlying growth was just 3 per cent. This is the lowest underlying rate of dividend growth since the Henderson Global Dividend Index launched in 2009 but, as Crooke notes above, is not seen as too worrying given the strong growth rate of recent years.

2016 Q3 dividends by region

 

Source: Henderson Global Dividend Index

The top dividend payers in the US remain Exxon, Apple, AT&T and Microsoft, which paid out $11.9bn between them – which is $1bn more than last year. AT&T was the biggest contributor to this increase as it now pays dividends on the stock it issued to buy DirecTV, but Exxon is the world’s second largest dividend payer, beaten only by Royal Dutch Shell.

In the UK, the headline dividend was down 13.9 per cent and amounted to $26.3bn over the three-month period. Henderson notes that this is mainly down to the dramatic fall in the value of sterling following the county’s vote to quit the European Union.

The report added: “The decline would have been greater still, if many of the UK’s largest companies did not declare dividends in dollars (like HSBC, BP, Shell and the mining sector) or euros (like Unilever).

“Even without the effect of sterling, dividends were down 2.9 per cent in underlying terms as big cuts in the mining sector and from Barclays and Rolls Royce took effect.”


Dividends in Europe were up 15.9 per cent at the headline level and, although the quarter is a seasonal low for the region as the period comprises less than one-tenth of its total annual payouts. Total dividends amounted to $19bn.

The Henderson Global Dividend Index report points out that this strong headline increase by driven by index and timing changes in Spain. However, it adds that “encouraging” levels of dividend growth continue to be seen from French and Dutch companies.

Looking at emerging markets and dividends declined for the third quarter running. They were down 7.1 per cent in headline terms to $42.9bn.

Henderson highlights Chinese companies as being one of the reasons behind the decline, as they are reducing payout ratios. This is particularly the case in the banking sector.

Dividends also fell in India, on the back of the new dividend tax, but were roughly flat in Russia and Brazil.

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