Last updated: 09:34 / Monday, 17 August 2015
HGDI of Henderson Research

Global Dividends Fall in Q2 as The US Dollar Soars In Value, But Underlying Growth Is Strong

Global Dividends Fall in Q2 as The US Dollar Soars In Value, But Underlying Growth Is Strong

Global dividends fell 6.7% year on year in the second quarter to $404.9bn, a decline of $29.1bn according to the latest Henderson Global Dividend Index. This is the third consecutive quarter of declines, mainly owing to the strength of the US dollar against major world currencies.

The euro, yen and Australian dollar were all a fifth weaker year on year and sterling was down a tenth. The rising dollar knocked a record $52.2bn off the value of dividends paid during the quarter. The HGDI ended the second quarter at 155.1, down 4% from the 161.5 peak in September last year.

Underlying growth, however, which strips out exchange rate movements, special dividends, index changes and changes in the timing of payments, was an encouraging 8.9%.

Q2 is dominated by Europe ex-UK, so trends in that region characterise the global results this quarter, and largely explain the weak headline global growth figure. Two thirds of Europe’s dividends are paid in the period and these fell 14.3% on a headline basis (to $133.7bn), a drop of $22.3bn, with most countries seeing double digit declines. This was almost entirely due to the sharply lower euro against the US dollar. The negative exchange rate effect was a record $29.5bn in the quarter.

Underlying growth was 8.6%, an impressive result for the region with Italy, the Netherlands and Belgium enjoying the highest underlying growth, boosted by a strong performance from financials. Indeed, the region’s financials as a whole significantly increased their payouts, led by Allianz in Germany, which is raising its payout ratio.

This encouraging performance from the sector is part of a growing trend around the world. Danish shipping conglomerate Moller Maersk paid a very large special dividend, while France, the region’s largest payer, saw a slowdown (underlying growth was 2.3%, headline was -20.2%), with weakness at Orange and GDF Suez affecting growth there. German dividends fell 16.0% to $29.9bn, but were 6.6% higher on an underlying basis, with a similar result in Spain (-24.4% headline, +6.0% underlying). In Switzerland, headline dividends fell 2.4% to $17.0bn, owing to a weaker Swiss franc. They rose 5.9% on an underlying basis, with a large increase at UBS contributing to the improvement in European financial dividends.

Once again, US companies grew their dividends rapidly, with almost every sector increasing payouts. Here too, financials showed rapid growth, with Bank of America and Citigroup quintupling their distribution. Overall headline growth was 10.0%, taking the total to $98.6bn, and the US HGDI to a record 186.0. This strong performance marked the sixth consecutive quarter of double digit increases. Underlying growth was a similarly strong 9.3%.

Q2 is also an important quarter for Japan, accounting for almost half the annual total. Headline dividends fell 7.1%, but underlying growth was very impressive, up 16.8% to $23.4bn, as rising profits combined with higher payout ratios to drive dividends higher. Japanese companies are responding to calls from investors and the government to increase the proportion of their profits they return to shareholders (from a very low base compared to other developed markets). South Korea is among other countries seeing the same pressures, and that helped push South Korean dividends higher by 37.4% on an underlying basis year on year, with large increases from Samsung Electronics among others.

Though technology dividends rose fastest, in line with a long running trend, financial dividends grew 0.3% at a headline level year on year, far outperforming the 6.7% global headline decline, and indicating rapid underlying growth. Financials account for roughly a quarter of annual global dividends, so improvements to dividend payments in this industry can make a real difference to income investors.

With underlying growth so encouraging, Henderson has upgraded its forecast for 2015 by $29bn. It now expects global dividends of $1.16 trillion this year, which is down 1.2% at a headline level, but up 7.8% on an underlying basis. The strength of the US dollar against all major currencies explains the marginal headline decline.

Alex Crooke, Head of Global Equity Income at Henderson Global Investors said: “Though the headline decline seems disappointing, it is concealing very positive underlying increases in dividends. The strength of the US dollar had a significant impact again this quarter but our research shows that the effect of currency movements even out over time and investors adopting a longer term approach should largely disregard them. At the sector level, it is encouraging to see increases from financial companies as they start to slowly move towards higher payout levels. But this is less about a renewed boom to financial payouts and more about a gradual return to normality.

“This means a dividend paying culture is extending into new markets, beyond those where paying an income to equity investors is already deeply entrenched, highlighting the increasing income opportunities available to investors who adopt a global approach”, said.