UK dividends dip as world sees record payouts

Headline global dividends growth hits 12.9%

Pension transfer boom over says Lang Cat

Dividends from UK companies fell 1.4% in Q2 year on year amid a surge in global numbers, according to the latest Janus Henderson Global Dividend Index.

The report showed UK dividends fell to $32.1bn, while the US saw payouts grow 7.8% to a record $117.1bn. Dividends in Europe ex-UK were up 18.7% year on year to $176.5bn, and Japan saw strong headline growth of 14.2%.

“Even in out-of-favour regions, such as Europe, dividends continue to increase, driven by ongoing economic and earnings growth,” said Janus Henderson head of global equity income Ben Lofthouse. Japan has scope for payout ratios to increase, while aggregate corporate earnings globally should continue to grow next year, Lofthouse said.

Global underlying growth was an impressive 9.5%, and 12 countries saw record payments year on year. Headline growth was even higher at 12.9%.

Underlying UK dividend growth strong

UK headline figures were hit by much lower special dividends than other regions, as well as technical and timing issues.

Last year, energy infrastructure company National Grid paid a very large special dividend following the disposal of non-core assets, and this year, tobacco giant BAT switched to quarterly payouts following its acquisition of Reynolds in the US. The report stated that BAT’s dividend payments are now more evenly spread across the year.

Despite this dip, underlying growth in the UK was 13.1% ahead of the impressive underlying global growth of 9.5%. This was thanks to the big global mining groups listed in London, which have rapidly raised dividends on the back of improving profits, according to the report.

Mid-cycle longer due to financial crisis

Hargreaves Lansdown senior analyst Laith Khalaf said the global figures reflect the general picture of harmonised growth since the beginning of the year.

He added: “Special dividends have driven many of the top line growth figures here, but underlying growth is a more important measure of stock market health. The UK, like much of the rest of the world is very strong in these terms.”

He continued: “We are somewhere in the middle of the cycle, the global economy is still recovering from the financial crisis, and it is natural that following this, we would have a long middle section. Although the US market looks stretched, most other markets have more attractive valuations meaning we will probably see good dividends for some time yet.”

Volatile sectors dominate FTSE

However, AJ Bell investment director, Russ Mould was of a different opinion, he said: “payouts in the UK market look high. The gap between 10-year gilts at 1.3% and the FTSE All Share at 3.8% is 2.5%. This gap is wide and likely to be making investors nervous. To give some context, 2% was considered too wide around the time of the financial crisis.”

He added: “Although underlying dividend growth is good in the UK, it is worth remembering that the sectors delivering the growth are banks, oil and mining. All are volatile meaning that although the direction looks good, dividends may not be as resilient as those in other regions.

The Janus Henderson Global Dividend Index measures the progress global firms are making in paying their investors an income on their capital, using 2009 as a base year – index value 100. The index is calculated in US dollars, and can be broken down into regions, industries and sectors.

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