US dividends forge ahead, but Chinese payouts are set for first ever annual decline

Nov 16, 2015, 08:30 ET from Henderson Global Investors

CHICAGO, Nov. 16, 2015 /PRNewswire/ -- Global dividends rose 2.3% year over year on a headline basis in the third quarter, rising to $297.0bn, an increase of $6.8bn, according to the latest Henderson Global Dividend Study (HGDS). The increase follows three consecutive quarters of declines, and is due to rapid growth in the US, as well as a huge special payment from Kraft after its merger with Heinz. Underlying growth, which strips out exchange rate movements and other lesser factors, was an encouraging 9.0%, in line with the first half of the year. The HGDS ended the third quarter at 156.3, down 3.3% from the 161.7 peak in September last year.

Key highlights

  • Global dividends rose 2.3% (headline) in Q3 to $297.0bn
  • Underlying growth is a rapid 9.0%, in line with Q1 and Q2
  • US dominates the quarter, with dividends soaring 23.4%; a large special payment from Kraft boosted the total
  • US sees double digit growth for seven consecutive quarters, with expansion across almost all sectors
  • Weakness in global exchange rates depressed headline growth rates in US$ terms around the world, masking strong underlying developed market performance
  • China disappoints and 2015 is on course for the first ever decline in Chinese dividends
  • Hong Kong follows China's lead but other Asia Pacific ex Japan countries do well
  • Europe ex-UK and Japan fall on weaker currencies, but see excellent underlying growth, while UK lags behind
  • 2015 forecast trimmed $10bn to $1.15 trillion, given currency and emerging market weakness; this is 2.0% lower (headline) than 2014
  • Underlying growth is on track to be an impressive 9.5% in 2015, but Henderson expects a slowdown in 2016 to 4.1%

Further weakness in global exchange rates depressed headline growth rates around the world, masking a strong underlying performance from most developed markets. Emerging markets, however, lagged behind with dividends from China set to fall in 2015 for the first year on record as the economic slowdown there began to impact profits and payouts. Chinese dividends fell 2.1% year on year. China Construction Bank, the largest global payer in Q3, made its smallest increase in years, while China Citic Bank cancelled its distribution altogether. China's HGDS dropped back to 284.1, having peaked at 293.4 in Q3 2014.

Once again, US companies grew their dividends at an astonishing pace, with almost every sector increasing distributions. Overall payouts soared 23.4% (headline) to $107.9bn, comfortably a new record for the US. Kraft's $9.8bn special payment following its merger with Heinz accounted for almost half the increase. 10.0% underlying growth was also impressive, and marked the seventh consecutive quarter of double digit increases. Every sector except mining and tobacco increased its payout. Among the miners, Freeport McMoran has slashed its dividend in the face of collapsing commodity prices. Canadian dividends fell 10.6% as the currency declined, with oil and mining sectors weak. Underlying Canadian growth was better than expected at 9.3%.

The China effect rippled out across Asia Pacific ex-Japan impacting exchange rates in Australia, Korea and Singapore which held back growth in US dollar terms. Dividends rose just 3.3% to $45.7bn in the biggest quarter of the year for the region. Underlying growth was 18.8%, however. Australia's banks make up over two-fifths of the country's total dividends, and were again dominant in Q3, with ANZ, Westpac, and NAB all making large payments, each up in Australian dollar terms.

Hong Kong took its cue from China, though it slightly outperformed its larger neighbor. Headline dividends rose 2.8% (underlying +4.4%), held back by a further dividend cut from China Mobile. Taiwan and South Korea both grew strongly at the underlying level on higher payout ratios. Taiwan Semiconductor Manufacturing paid a record dividend as cash flow soared.

Q3 saw seasonal lows in Europe ex-UK and Japan. Both regions continued trends seen earlier in the year, with strong underlying growth concealed by sharply lower exchange rates. Investors in the Netherlands enjoyed rapid dividend growth as ING and KPN have restarted dividends this year after overcoming financial difficulties. Spain and Italy, however, each saw high profile dividend cuts from Banco Santander and oil major, Eni Spa. Santander's cut reflects a focus on paying cash dividends rather than dilutive share distributions, but Eni Spa's is a direct result of low oil prices. The UK, its index dominated by global commodity stocks and banks like Shell and HSBC, lagged behind other developed markets. Strong growth came from smaller companies too small to make a significant impact on the country's overall total.

With the greater than expected slowdown in emerging markets and weaker global currencies, Henderson has trimmed its forecast for 2015 by $10bn. It now expects global dividends of $1.15 trillion this year, which is down 2.0% (headline), though it expects underlying growth of 9.5%. The extraordinary strength of the US dollar against all major currencies explains this marginal headline decline. Henderson has also introduced its preliminary forecast for 2016. With Japan and North America still set to be the fastest growing regions, while emerging markets lag behind, Henderson expects dividends to grow 2.4% (headline) to $1.18 trillion, an underlying increase of 4.1%.

Alex Crooke, Head of Global Equity Income at Henderson Global Investors said:

"The big trends in global financial markets are showing up in the world's dividends. Developed markets are seeing the best growth as their financial sectors heal and consumers become more confident. The US is far ahead of the curve, propelling dividends forward at breakneck speed. Though falling currencies have concealed growth from other developed markets, the underlying picture is encouraging, creating a solid base for expansion over the year to come. Currency movements tend to even out over the longer term, so investors should not be concerned about the current fluctuations in exchange rates.

"The slowdown in Chinese dividends has come sooner than we expected. Payouts from Chinese companies have nearly tripled in six years, but a fall in the country's total payout is likely in 2015 for the first time. Companies there tend to link payout ratios directly to profits, so dividends are not smoothed through bad times as they are in many more developed markets. China is now the 10th largest dividend payer in the world, so the slowdown matters. This is a salutary reminder for investors that rapid growth is impossible to sustain indefinitely, in any part of the world, whether it is in the US or China, and highlights the value of taking a globally diversified approach to income investing."

Source: Henderson Global Investors as of 9/30/2015

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.

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Notes to the editors:


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 9/30/15) 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.

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