Global dividends reached a new high in the second quarter, totaling $568 billion, according to a quarterly survey conducted by UK-based fund manager Janus Henderson. While the overall growth rate was 4.9%, the US experienced a slowdown for the sixth consecutive quarter as prominent tech and financial groups reduced their payouts.
Janus Henderson’s survey, which included the world’s 1,200 largest public companies by market value, revealed that 88% either increased their dividends or maintained them during this period. Despite predictions of a global economic slowdown, Janus Henderson maintained its forecast of reaching a full-year record of $1.64 trillion in dividend payments by 2023, representing a 5% underlying growth rate.
As economic growth moderates globally due to higher interest rates, companies are adopting a more cautious outlook. However, Ben Lofthouse, head of global equity income at Janus Henderson, finds reassurance in the stability of dividend income compared to earnings. While profits are expected to remain flat this year after reaching record levels in 2022, dividend payouts have the potential to exceed profit growth.
The banking sector played a significant role in driving dividend growth during Q2, contributing half of the overall increase with a staggering 19.7% rise year-over-year to reach a record $85.3 billion. Lofthouse anticipates this trend to continue in the coming quarters.
The Power of Bank Margins and Dividend Payouts
In a weaker economic environment, banks typically face challenges. However, the recent end of ultra-low interest rates has had a surprisingly positive effect on bank margins, driving significant dividend payouts. This is especially true for the big banks, which have maintained a strong capital position due to stringent regulation.
The United States experienced a slight dip in aggregate dividend growth, with a $148 billion payout that increased by only 2.6%. This was primarily due to a decrease in one-off special dividends being distributed. Two notable companies that reduced their dividends were Intel and Blackstone. Intel made the decision to save nearly $1 billion per quarter, while Blackstone adjusted its payout following a drop in profits due to lower private asset valuations.
On the other hand, the healthcare sector showed strong dividend growth, thanks to companies like UnitedHealth Group and Eli Lilly.
Meanwhile, in the UK, the restoration of HSBC’s payout contributed to a positive trend in the banking sector. However, this was offset by fewer large one-off special dividends and more reductions in regular payouts from mining companies. As a result, the overall headline total payout in the UK decreased by 12.1%.
Looking beyond the UK, European dividend growth outpaced that of any other region, reaching $184.5 billion, a 9.7% increase. This growth was mainly driven by banks and vehicle manufacturers.
Furthermore, when examining the list of the world’s biggest dividend payers, European-based global corporations continued to dominate. Microsoft, Apple, and Exxon Mobil secured seventh, seventeenth, and nineteenth positions, respectively.
Overall, despite some challenges in certain regions and industries, the recent shift in interest rates has proven to be advantageous for banks, resulting in significant dividend payouts.