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Fewer special divis send dividend growth rate into reverse

Monday, November 21, 2016 10:59
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In a low interest rate environment, many investors are turning to equity dividends as an attractive alternative, but maybe not for much longer.

Fund manager the Henderson Group said the amount paid out in dividends across global stock markets in the third quarter was down 4.0% year-on-year.

Stripping out the effects of one-off special dividends, the picture was not so bad, with an underlying decline of 0.3%. The amount paid out in special dividends was down 3.2% from a year earlier, with North American companies, in particular, proving to be more parsimonious this year.

In North America, the total value of special dividends paid out was down 8.5% from a year earlier, contributing significantly to a 7.1% fall in dividend pay-outs. Strip out the special dividends, and North American companies actually paid out 2.8% more in dividends than in the third quarter of 2015, giving the continent the fastest dividend growth rate compared to emerging markets (-7.7%), Europe excluding the UK (+1.1%), UK (-2.9%), Asia Pacific excluding Japan (+0.5%), and Japan (+1.4%).

US pay-outs fell 7.0% from a year earlier to US$100.4bn, mainly as a result of lower special dividends, and although the underlying picture (i.e. excluding special divis) painted a better picture, with growth of 3%, this was the slowest growth rate ever recorded by Henderson’s Global Dividend Index.

Henderson noted US dividend growth has been decelerating for just over a year. The slowdown reflects more pedestrian profit growth stateside, with the strength of the dollar taking its toll, while Henderson believes mounting debt also suppressed pay-outs.

“The United States has been the engine of global dividends in the last two years, so the slowdown here helps largely explain the loss of momentum in dividend growth at the global level,” Henderson said.

Exxon Mobil Corporation (NYSE:XOM), Apple Inc (NASDAQ:AAPL), AT&T Inc (NYSE:T) and Microsoft Corporation (NASDAQ:MSFT) remained the top payers in the US, splashing out US$11.9bn in aggregate, which was a cool billion bucks more than in the same period of last year.

AT&T’s dividend distribution increased the most, partly because it now has to pay dividends on the stock it issued in its takeover of DirecTV.

Exxon held its position as the oil industry’s second largest payer of dividends in the world behind Anglo-Dutch rival Royal Dutch Shell PLC (LON:RDSB).

In Canada, dividends fell for the twelfth consecutive quarter, mainly because Canadian companies left Henderson’s dividend index, reflecting Canada’s weak currency, which effectively devalued the market capitalizations of Canadian companies.

Canada showed decent underlying dividend growth of 0.7%, with healthy increases from banks offsetting stingier payments from energy companies, Henderson said.

Royal Bank of Canada (TSE:RY) and Toronto Dominion Bank (TSE:TD) were Canada’s two largest payers, and both pushed through decent divi increases.

“The outlook for dividend growth in the final quarter of 2016 is more uncertain than normal due to volatile currency market conditions,” Henderson concluded.

“Though we don’t attempt to forecast exchange rates, they could affect the final total by several billion dollars. It is in such time that thinking globally for income can really help investors mitigate risks concentrated in their own markets,” Henderson advised.

Story by ProactiveInvestors


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