Weaker dollar lets global dividends growth shine through

Global dividends rose 2.2% to US$218.4bn in Q1 on a headline basis; underlying growth was 3.1%. Special dividends doubled year on year. Japan, North America, and Europe led the way.

Weaker dollar global dividendsGlobal dividends rose 2.2% to US$218.4bn in the first quarter of 2016, according to the latest Henderson Global Dividend Index, an increase of $4.7bn year on year. This pushed the HGDI to 158.8, its highest level in a year. Japan, North America, and Europe led the way, while the UK, Asia, and emerging markets lagged behind. Exchange rates have been much more stable recently and so made a much smaller impact when translating global dividends into US dollars. On an underlying basis, which adjusts for exchange rate movements, timing effects, one-off special dividends, and index changes, growth was 3.1%.

Key highlights

– Global dividends rose 2.2% to US$218.4bn in Q1 on a headline basis; underlying growth was 3.1%
– HGDI reached 158.8, its highest level in a year
– Special dividends doubled year on year
– Exchange rate movements made a minor impact in most parts of the world
– Japan, North America, and Europe led the way
– Emerging markets, Asia-Pacific ex Japan and the UK lagged behind
– Europe started the year very well, with headline growth of 10.8%; underlying growth was 3.6%
– Germany and France both saw good growth, while Spain saw declines. Swiss dividends fell slightly on a lower Swiss franc
– Henderson expects global dividends to rise 3.9% to $1.18trillion in 2016, an underlying increase of 3.3%

In 2015, the dollar rose strongly against almost every currency, disguising dividend growth from around the world. In the first quarter of 2016, though the dollar was still stronger in many cases than it was a year ago, the effect of exchange rate movements was the smallest in almost two years. Special dividends almost doubled year on year, providing a boost to the headline growth rate of almost four percentage points, with particularly large payments coming from the US and Hong Kong.

Europe started the year very well, with headline growth of 10.8%. Adjusting for the flattering effect of higher special dividends, the largest of these from Vivendi in France, and some significant timing effects, underlying growth was 3.6%. Europe’s seasonal patterns mean more than one third of first quarter dividends come from Swiss pharmaceutical manufacturers Novartis and Roche. Each raised its payment fractionally, but overall Swiss dividends fell 3.4% (headline) to $13.9bn owing to a slightly weaker Swiss franc, and because Schindler paid a special dividend in Q1 last year. On an underlying basis, Swiss dividends were almost unchanged, down just 0.1%. Dividends from Germany, France, Spain, and Sweden all amounted to between $4bn and $5bn.

German dividends rose 3.0% on a headline basis, equivalent to 7.5% once exchange rate movements were taken into account. Every German company increased its dividend, including the largest payer Siemens, which raised its euro distribution 6.1% year on year. In France, 51.3% headline growth was exaggerated by Vivendi’s $1.5bn special payout, but 5.3% underlying growth marks an improvement compared to 2015, with every French company holding its euro payment steady or increasing it. Spanish dividend growth of 5.1% translated into the only significant decline in Europe on an underlying basis, at -5.6%, owing to a sharp cut at Banco Santander, the largest payer in Spain. Elsewhere in Europe, increases at Unilever and Solvay secured growth for the Netherlands and Belgium.

Around the world, Japan raced ahead, with its rapid underlying growth of 10.5% no longer disguised by a weak yen. Indeed, the yen has strengthened, pushing headline growth to 21.1%. In North America, Canada and the US both produced similar underlying growth rates of 6.3% and 6.7% respectively, with growth from all sectors, except commodity-related companies.

Among the weaker regions, in the UK, dividends dropped 5.0% year on year on a headline basis (+0.7% underlying), and are set to fall for the full year as the UK-listed mining multinationals have slashed billions of dollars from their dividends, along with a handful of other large blue-chip names in banking and engineering. Australia is sharing the same fate as the UK. Its currency is weak against the US dollar, and it too has large resources companies listed on its exchange. In Q1, Australian dividends fell 29.7% year on year on an underlying basis. Henderson expects cuts from oil and mining companies will take 12% off Australian payouts this year. Emerging markets also struggled and although Q1 is small in terms of dividend payments a large increase from India was not enough to offset big cuts in Brazil. Emerging market dividends fell 16.9% on an underlying basis.

Henderson expects global dividends to rise 3.9% to $1.18 trillion this year, slightly ahead of the HGDI’s $1.14bn January forecast thanks to the effects of a slightly weaker dollar. This an increase of 3.3% in underlying terms, unchanged from the HGDI’s January forecast.

Alex Crooke, Head of Global Equity Income at Henderson Global Investors said: “The first quarter is relatively small for Europe, but it has shown encouraging signs for the crucial second quarter, when European companies pay most of the year’s dividends. Over the last six years, dividend growth in Europe has lagged far behind every other part of the world, as the prolonged effects of the global financial crisis and the protracted euro crisis that followed made it very difficult for companies to grow. The picture began to brighten considerably in 2015 and we are optimistic it will improve further in 2016. Thinking globally helped European investors continue to enjoy rapid dividend growth while their own countries were stuck in the doldrums. This approach diversifies risks, not only from a geographic perspective, but also from a sector one. For the year ahead, we expect global dividend growth to be a little slower in 2016 than it was in 2015, with strong growth in Japan, North America and Europe partially offset by weakness in the UK, Australia and emerging markets.”

Source: Henderson Global Investors