Energy crisis drives global dividends to a third-quarter record

by | Nov 17, 2022

The energy crisis drove a large rise in dividends in the third quarter as oil companies distributed record profits to shareholders, according to the latest Janus Henderson Global Dividend Index. The global total paid out rose by 7.0% on a headline basis to $415.9bn, a record for the third quarter. The underlying increase was 10.3% once the strength of the dollar and other sectors were taken into account. Globally, 90% of companies raised dividends or held them steady, slightly below the 94% recorded in the first half of the year.

Surging oil dividends offset a slump in mining payouts

Global sector trends are dominant at present. This means oil & gas producers were the overwhelming drivers of growth in Q3, increasing their headline dividends by three quarters (75.1%) year-on-year[1] to a record $46.4bn. Oil companies all over the world hiked their payouts, largely via special dividends rather than an increase in their regular payments. Oil dividends were strong in emerging markets, Asia and North America, with the biggest increase coming from Petrobras in Brazil. Indeed, without the positive impact from this sector, the global total would have barely risen in the third quarter. The surge in oil exactly matched the slump in mining, where companies are now cutting dividends from their recent record highs in response to lower commodity prices, impacting Australia in particular. There was growth from almost every other sector, most notably transport (including shipping), banks, semiconductors, and chemicals.

In the UK, 84% of companies raised dividends or held them steady

UK dividends rose 2.5% on an underlying basis in the third quarter. The impact of the exchange rate of the sharply weaker pound led to a headline decline of 6.4%, although the currency effect was limited given that two fifths of UK dividends are declared in dollars by large multinationals headquartered in London. A big decline in mining dividends, down by a third on a headline basis, detracted significantly from solid growth from other sectors. However, higher banking and oil dividends made a strong contribution, and 84% of UK companies raised dividends or held them steady.

Taiwan and the US made the largest contribution to growth but China disappointed and Australia saw declines

From a geographical perspective, Taiwan, the US, Hong Kong and Canada were the most important contributors to growth. Taiwanese companies collectively delivered record dividends to their shareholders and were a major driver of the strong Q3 figures at the global level. The $29.6bn quarterly total almost doubled (+95.5%) on an underlying basis year-on-year. A mix of energy and financials were key for the last three countries, but in Taiwan there was exceptional strength across a range of industries. Seasonally, the third quarter is very important for Chinese dividends. However, underlying payout growth lagged the wider world (+6.7%) and one third of Chinese companies in our index cut dividends – Chinese real estate, hit by a severe downturn, was a notable point of weakness. Australia saw a 13.0% underlying decline, reflecting large cuts from mining companies whose profits are falling from their record highs as the commodity cycle rolls over.

Upgraded forecast

The encouraging third quarter has prompted a $30bn upgrade in Janus Henderson’s full-year headline figures, driven mainly by higher one-off special dividends, strength in the oil sector and in Asia. Janus Henderson now expects headline dividends of $1.56 trillion[2], up 8.3% year-on-year. Underlying growth is set to be 8.9%, an increase of 0.4 percentage points compared to Janus Henderson’s expectations three months ago and still firmly ahead of the 5-6% longer-term dividend growth trend.

Jane Shoemake, Client Portfolio Manager for global equity income said: “The surge in oil dividends has coincided with reductions from the miners, though payouts from the sector are nevertheless very high by comparison to history. Like other commodities, energy prices are cyclical, and the oil price is already lower than levels reached earlier this year, so the current exceptional level of payouts is unlikely to be permanent.

“Moving into 2023, slower global economic growth is likely to have an impact on profits and the ability of some companies to grow payouts. But dividend cover, the relationship between a company’s earnings and its dividends, is near historic highs; this is because profitability is currently strong while the pandemic resulted in many companies rebasing dividends to more sustainable levels. This may provide some support even if profits come under pressure in 2023. Crucially, dividends vary much less over the economic cycle than profits as companies seek to maintain a sustainable level of income for their investors.”

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