Global dividends fall in Q2 as the US dollar soars in value, but underlying growth is strong

Aug 17, 2015, 09:40 ET from Henderson Global Investors

CHICAGO, Aug. 17, 2015 /PRNewswire/ -- Global dividends fell 6.7% year on year in the second quarter to $404.9bn, a decline of $29.1bn according to the latest Henderson Global Dividend Study. This is the third consecutive quarter of declines, mainly owing to the strength of the US dollar against major world currencies.

Key highlights

  • Global dividends fell 6.7% (headline) to $404.9bn in Q2, the third consecutive quarterly drop, with US dollar strength accounting for most of the decline
  • Underlying dividends (excluding currency and other factors) rose a very encouraging 8.9%
  • Q2 sees Europe ex-UK's seasonal peak; headline dividends dropped 14.3% due largely to euro weakness
  • Financial stocks around the world are raising payouts as the sector continues to recover from the financial crisis
  • Underlying growth was 8.6%, led by Italy, the Netherlands and Belgium
  • The US remains the engine of global dividend growth (+10% headline), delivering the sixth consecutive quarter of double digit increases
  • Q2 also represents a seasonal peak for Japan; dividends fell 7.1% on the weak yen but gained a dramatic 16.8% on an underlying basis due to rising payout ratios and strong earnings growth
  • 2015 forecast upgraded to $1.16trillion, from $1.13 trillion due to strengthening underlying dividend trends
  • Forecast implies 7.8% underlying growth and a fall of 1.2% at the headline level owing to dollar strength

The euro, yen and Australian dollar were all a fifth weaker year on year and sterling was down a tenth. The rising dollar knocked a record $52.2bn off the value of dividends paid during the quarter. The HGDS ended the second quarter at 155.1, down 4% from the 161.5 peak in September last year.

Underlying growth, however, which strips out exchange rate movements, special dividends, index changes and changes in the timing of payments, was an encouraging 8.9%.

Q2 is dominated by Europe ex-UK, so trends in that region characterize the global results this quarter, and largely explain the weak headline global growth figure. Two thirds of Europe's dividends are paid in the period and these fell 14.3% on a headline basis (to $133.7bn), with most countries seeing double digit declines. This was almost entirely due to the sharply lower euro against the US dollar. Underlying growth was 8.6%, an impressive result for the region with Italy, the Netherlands and Belgium enjoying the strongest underlying growth. The region's financials significantly increased their payouts, led by Allianz in Germany, part of a growing trend around the world. Danish shipping conglomerate Moller Maersk paid a very large special dividend, while France, the region's largest payer, saw a slowdown, with weakness at Orange and GDF Suez affecting growth there.

Once again, US companies grew their dividends rapidly, with almost every sector increasing payouts. Here too, financials showed rapid growth, with Bank of America and Citigroup quintupling their distribution. Overall, headline growth was 10.0%, taking the total to $98.6bn, and the US HGDS to a record 186.0. This strong performance marked the sixth consecutive quarter of double digit increases. Underlying growth was a similarly strong 9.3%.

Q2 is also an important quarter for Japan, accounting for almost half the annual total. Headline dividends fell 7.1%, but underlying growth was very impressive, up 16.8% to $23.4bn, as rising profits combined with higher payout ratios to drive dividends higher. Japanese companies are responding to calls from investors and the government to increase the proportion of their profits they return to shareholders (from a very low base compared to other developed markets). South Korea is among other countries seeing the same pressures, and that helped push South Korean dividends higher by 37.4% on an underlying basis year on year, with large increases from Samsung Electronics among others.

Though technology dividends rose fastest, in line with a long running trend, financial dividends grew 0.3% at a headline level year on year, far outperforming the 6.7% global headline decline, and indicating rapid underlying growth. Financials account for roughly a quarter of annual global dividends, so improvements to dividend payments in this industry can make a real difference to income investors.

With underlying growth so encouraging, Henderson has upgraded its forecast for 2015 by $29bn. It now expects global dividends of $1.16 trillion this year, which is down 1.2% at a headline level, but up 7.8% on an underlying basis. The strength of the US dollar against all major currencies explains the marginal headline decline.

Alex Crooke, Head of Global Equity Income at Henderson Global Investors said: "Though the headline decline seems disappointing, it is concealing very positive underlying increases in dividends. The strength of the US dollar had a significant impact again this quarter but our research shows that the effect of currency movements even out over time and investors adopting a longer term approach should largely disregard them. At the sector level, it is encouraging to see increases from financial companies as they start to slowly move towards higher payout levels. But this is less about a renewed boom to financial payouts and more about a gradual return to normality.

"The US remains the undisputed engine of global dividend growth but there are positive developments in many parts of the world, with Europe and Japan in particular doing increasingly well. The European economy is improving while higher payout ratios from a historically low base are a key driving force in Japan and elsewhere. This means a dividend paying culture is extending into new markets, beyond those where paying an income to equity investors is already deeply entrenched, highlighting the increasing income opportunities available to investors who adopt a global approach."

Past performance is no guarantee of future results. International investing involves certain risks and increased volatility not associated with investing solely in the US. These risks included currency fluctuations, economic or financial instability, lack of timely or reliable financial information or unfavorable political or legal developments.

Press inquiries
James Doyle, JCPR          973 850 7308 / jdoyle@jcprinc.com
Henderson Press Office:   020 7818 4222 / pressoffice@henderson.com

Notes to the editors:

Methodology
Each quarter Henderson analyzes dividends paid by the 1,200 largest firms by market capitalization (index is constructed annually on 12/31 before each year end). Dividends are included in the model on the date they are paid. Dividends are calculated gross, using the share count prevailing on the pay-date (this is an approximation because companies in practice fix the exchange rate a little before the pay date), and converted to USD using the prevailing exchange rate. Where a scrip dividend is offered, investors are assumed to opt 100% for cash. This will slightly overstate the cash paid out, but we believe this is the most proactive approach to treat scrip dividends. In most markets it makes no material difference, though in some, particularly European markets, the effect is greater. Spain is a particular case in point. The model takes no account of free floats since it is aiming to capture the dividend paying capacity of the world's largest listed companies, without regard for their shareholder base. We have estimated dividends for stocks outside the top 1,200 using the average value of these payments compared to the large cap dividends over the five year period (sourced from quoted yield data). This means they are estimated at a fixed proportion of 12.7% of total global dividends from the top 1,200, and therefore in our model grow at the same rate. This means we do not need to make unsubstantiated assumptions about the rate of growth of these smaller company dividends. All raw data was provided by Exchange Data International with analysis conducted by Henderson Global Investors.

About Henderson Global Investors
Henderson Global Investors, wholly-owned by Henderson Group plc, is a global asset manager with a strong reputation dating back to 1934. Henderson manages $129.1 billion (as of 6/30/15) of assets on behalf of clients in the UK, Europe, Asia Pacific and North America and employs approximately 900 staff members worldwide. Clients include individuals, private banks, third-party distributors, insurance companies, pension funds, government bodies and corporate entities. As a pure investment manager Henderson offers investments across equities, fixed income and multi-assets as well as alternative products, such as private equity, property and hedge funds.

Since 2001, Henderson has been offering US investors the opportunity to "own a piece of the world" through its global investment strategies. Henderson follows a differentiated, opportunistic investment philosophy combining local knowledge with worldwide reach.

This press release is solely for the use of members of the media and should not be relied upon by personal investors, financial advisers or institutional investors. The information in the document is not intended or should not be construed as investment advice. Past performance is no guarantee of future results. International investing involves certain risks and increased volatility not associated with investing solely in the UK. These risks included currency fluctuations, economic or financial instability, lack of timely or reliable financial information or unfavorable political or legal developments. The value of your investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

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