Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
Global dividend boom just getting started
According to the Janus Henderson Global Dividend Index, dividends rose by 26.3% year-on-year in the second quarter of 2021 on a headline basis. This number recovered to A$628.3 billion, which was 6.8% below the second quarter of 2019. What does this all mean? Dividend payouts look set to return to pre-pandemic highs in the next 12 months.
Interestingly, the dollar figure of dividends from companies restarting dividend payments was A$44.4 billion. Janus Henderson said “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.”
More than eight out of ten, or 84%, of companies were able to lift their dividends or hold them steady.
The only companies that were seemingly cutting dividends were those from emerging markets, echoing a delayed impact from lower reported 2020 profits.
“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,” says Jane Shoemake, client portfolio manager on the Global Equity Income team at Janus Henderson. “Households have record savings and there is pent-up demand to spend which should be good for company profits.”
Janus Henderson has raised its forecast to A$1.85 trillion (US$1.39 trillion) in dividends for 2021, up 2.2 percent since the May edition. It takes the total paid to within 3% of the pre-pandemic 2019 level, however the result was supported by US-dollar weakness and higher special dividends. Underlying growth is set to be 8.5% for 2021.
Shoemake says, “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.”
In Australia, the biggest dividend contributor was Westpac, which paid a dividend one-third lower than its pre-pandemic level, but a lot higher than it was permitted to pay at the end of 2020. In total, dividend payouts rose by 103.6%.
“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,” says Shoemake.
Implications for portfolio allocations
Janus Henderson notes the fastest area of growth in dividends came from mining companies as they benefitted from thriving commodity prices. Following this, industrials and consumer discretionary dividends also paid well. Banks had limits placed on what they were allowed to pay, which had a major impact in 2020. But these limits have since been removed leading to recovery in Australia, Europe and the UK.
Defensive sectors, such as telecoms, food, food retail, household products, tobacco and pharmaceuticals were paying “low single-digit growth rates, having seen little negative impact in 2020.”
Head of global equity income at Janus Henderson, Ben Lofthouse, points out that “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.” He notes the travel and leisure sectors were the hardest-hit, so best avoid them for the time being.
