Global dividends made a strong start in 2023 on the back of booming special dividends, according to the latest Janus Henderson Global Dividend Index. The headline total rose 12.0% to a first-quarter record of $326.7bn. Underlying growth, however, which strips out special dividends, exchange rate effects and other technical factors, was significantly slower at 3.0%.
One-off special dividends at highest level since 2014
One-off special dividends surged to $28.8bn, the second on record (after Q1 2014). Ford and Volkswagen accounted for almost a third of the world’s Q1 special dividends, meaning headline payouts from the vehicles sector were ten times larger year-on-year as a result. One-off special dividends also made a significant impact in the transport, oil and software sectors.
US payouts reached a new record
The highly seasonal nature of dividends in most parts of the world means the first quarter is dominated by the United States, where payouts are spread more evenly through the year. Dividend growth here has been progressively slowing in recent quarters and dropped to 4.8% on an underlying basis in Q1. However, headline payouts were boosted by exceptionally large one-off special dividends, pushing headline growth to 8.3% and taking the US total to a record $153.4bn. The US real estate, technology and healthcare sectors were the largest contributors to dividend growth.
Energy sector drove dividend growth in the UK
In the UK, oil companies made the largest contribution to first-quarter growth, though the biggest single increase came from airline and contract caterer Compass, which increased its dividend almost back to pre-pandemic strength. There were no dividend cuts among UK Q1 payers in the index. UK dividends in Q1 accounted for $15.3bn. Underlying growth was 5.6% in Q1.
Strong outlook for Europe
In Q1 2023, total dividends in Europe reached $60.3bn, with Denmark, Germany and Switzerland accounting for three quarters of the total paid. 96% of European companies in the index that paid in the first quarter either raised their dividends or held them steady. The outlook for Q2 2023 is positive, with most European companies expected to pay a single annual dividend on healthy 2022 profits.
Growth from banks and oil companies offset falling mining dividends
The sharp decline in mining sector payouts, driven down one fifth to $16.6bn by lower commodity prices, was almost exactly offset in Q1 by the strong positive contribution to growth from banks and oil companies. Most sectors delivered single-digit growth and there were relatively few weak spots. Globally, 95% of companies either raised dividends or held them steady in Q1.
Strong Q1 and positive Q2 expected in Europe mean upgrade to Janus Henderson’s forecast
For the rest of 2023, falling mining payouts will continue to act as a significant drag on growth, affecting Australia, emerging markets, and the UK in particular. But payouts from the banking and oil sectors continue to deliver. Moreover, the picture across Europe is much more encouraging than seemed likely three months ago, as 2022’s robust profit performance is reflected in higher dividend payments. The boom in special dividends reported in the first quarter is also contributing to a higher-than-expected headline total for the year.
Janus Henderson now expects total dividends for 2023 to be $1.64 trillion, equivalent to a headline increase of 5.2% for the year and underlying growth of 5.0%.
Ben Lofthouse, head of global equity income at Janus Henderson said: “The strong dividend growth we have seen in Q1 2023 is all the more impressive considering the challenges the global economy faced in 2022, such as high inflation, rising interest rates, geopolitical conflict and continuing Covid lockdowns. Profits were nonetheless strong last year, and this has supported further dividend growth.
Over the course of 2023, mining dividends will create the biggest drag on global dividend growth, but payouts from the banking and oil sectors will continue to deliver. Combined with the exceptionally large one-off special dividends we have seen in the first quarter, we have upgraded our forecast for 2023, although it is worth reiterating that we expect growth to be markedly slower for the rest of 2023 than over the last two years. The world economy is slowing as inflation, higher interest rates and tighter financial conditions increasingly impact demand, and almost all the easy gains from the post-pandemic bounceback have now been made. Happily, dividends are typically less volatile than earnings over time, however.”