What's Up With Slowing Dividend Growth?

Total dividends paid to shareholders globally in the second quarter set a record of $513.8 billion, but the rate of increase was the slowest in more than two years as the world economy decelerated, Janus Henderson Investors reported Monday.

The firm’s Global Dividend Index rose to a record 191.0.

Janus Henderson said second quarter figures for the 1,200 largest companies by market cap as of year-end were in line with its expectations.

As a result, the global asset manager did not change its full 2019 forecast for $1.4 trillion in dividends, which is equivalent to a 4.2% growth level on a headline basis, and 5.5% in underlying terms.

Second quarter U.S. dividends slowed to 3.9% on a headline basis (though they were up 5.3% on an underlying basis), their slowest pace in two years, to $121.7 billion. The dividend growth slowdown occurred across a range of sectors, with most seeing single-digit increases.

Even so, some four in five companies raised their payouts, keeping the U.S. near the top of the international rankings.

The banking sector continued to show strong dividend growth, but auto manufacturers all held their payouts flat, reflecting growing global structural challenges for the sector.

Global payouts, restrained by the strength of the U.S. dollar, were 1.1% higher compared with a year ago. Underlying growth of 4.6% was the slowest in two years, but was only slightly below the long-run average.

“At this stage in the economic cycle, we are seeing a moderation of dividend increases across a broad range of companies, and the number of cuts is on the rise too,” Ben Lofthouse, head of global equity income at Janus Henderson, said in a statement.

“Global dividends have been growing very quickly over the last two years, however, so the slowdown we are now seeing is not a cause for concern. The underlying growth rate we expect this year is simply in line with the long-run average, rather than well ahead of it.”

Lofthouse noted that the effect of the global economic slowdown was particularly notable in Europe.

Dividend growth continued to lag the global average, up by just 2.6% in underlying terms. A few big dividend cuts held back the total, but the proportion of companies raising payouts also declined.

Slower growth resulted fewer records in the second quarter, with only four countries walking away winners:

• Japan, up 6.8% on an underlying basis
• Canada, sporting double-digit growth, paid a record $133 billion
• France, Europe’s biggest payer, with total paid a record $51 billion
• Indonesia, while the rest of Asia/Pacific ex-Japan lagged the rest of the world

Russia and Columbia propelled emerging markets to the world’s fastest growth, while Japan registered the best performance among the developed regions.

Asia/Pacific ex-Japan and Europe ex-U.K. underperformed the global average. Dividends from financials and energy stocks experienced the fastest increases. Technology and consumer basics lagged.