Investors enjoyed a record haul for global dividends in the third quarter, as soaring oil payouts fuelled a 7 per cent rise on the same period last year.
Without the $19.9bn contribution from the oil sector, the global total would have been flat year-on-year, according to the Janus Henderson Global Dividend Index. Total global payouts hit $415.9bn in the three months to the end of September.
“The energy crisis drove a large rise in dividends in the third quarter as oil companies distributed record profits to shareholders,” the asset manager said in its latest dividend report.
The increase was driven by special dividends, one-time payments which are typically larger than normal payouts, while the biggest jumps came from companies in Brazil, Hong Kong, the US and Canada.
Oil and gas companies with excess capital can choose to funnel money into investment — including the energy transition — or shareholder payouts. They often choose the latter, since investors seek high returns from oil stocks.
The bumper third quarter has driven up Janus Henderson’s headline dividend expectations for 2022 by $30bn to $1.56tn, up 8.3 per cent year-on-year.
Although the prospect of a recession is likely to dent earnings, companies are often reluctant to reduce payouts, the report said. Companies including BP and Shell cut payments to more sustainable levels during the pandemic, which may give them room to maintain dividends if profits come under pressure in 2023.
“Next year the outlook is dependent on the global economy . . . if we are headed towards a recession, earnings will be impacted,” said Jane Shoemake, portfolio manager for global equity income at Janus Henderson. “But the good news is that dividends tend to be more resilient. Generally companies don’t want to cut and reduce them.”
UK dividends rose 2.5 per cent on an underlying basis — adjusting for special dividends, changes in currency, timing effects and index changes — while 84 per cent of UK companies raised payouts or held them steady.
Sterling took a battering over the period, but a weak pound boosts UK dividends from dollar-based behemoths like HSBC and Rio Tinto. Two-fifths of UK dividends are paid in dollars by large multinationals with headquarters in London.
“The dollar impact for UK businesses with US revenue exposure is massive,” said Nick Fowler, managing director at Lazard ECM Advisory. “How it plays out will depend on bigger picture dynamics, for example, what does a company’s cost base look like with high inflation and interest rates?”
Analysts said that the UK market may be undervalued, but faces political and economic turbulence.
“The UK market has been cheap for a long time, as we do tend to have more sectors which tend to be value stocks,” said Tineke Frikkee, head of UK equity research and fund manager at Waverton Investment Management. “The main thing to ponder is, what would get people investing? The Brexit vote has increased uncertainty and recent government turmoil hasn’t helped.”
Taiwan, Hong Kong and the US were the biggest contributors to dividend growth, while China lagged behind the rest of the world at 6.7 per cent. One-third of Chinese companies cut dividends, with real estate a particular weakness. However, Beijing’s plans to support the property market and the prospect of reopening could buoy growth, Janus Henderson suggested.
“It’s encouraging to see those steps, and it will be interesting to see how they move on from zero Covid,” said Shoemake.