Lacklustre US earnings drag down global dividends
Payouts tumble as flat profits add to fears over Trump, China and Brexit
Global dividends have fallen sharply as subdued earnings in the US hit payouts alongside growing uncertainty because of the election of Donald Trump, worries about China’s economy and Brexit.
The slump in dividends in the third quarter is the weakest performance in more than a year as lacklustre company earnings and low special dividends in the US undermined headline growth at a time of rising concern over the global economic outlook.
Underlying dividend growth, which excludes specials, has also been slowing as profits have disappointed. As the US is the largest contributor to dividends, this has a significant impact, according to the Henderson Global Dividend Index.
Jane Shoemake, investment director of global equity income at Henderson, said: “There have been a few years of double-digit dividend growth in the US and it had to come back down to more sustainable levels.
“US profits are also subdued because we are in a low growth environment and it is challenging for companies to get strong top-line growth. The strength of the dollar has also been a headwind for US corporates.”
John Roe, head of multi-asset funds at Legal & General Investment Management, added: “There is a lot of uncertainty because of concerns about a Chinese hard landing, European economic problems and potential risks from a US rate rise.”
Other investors say the election of Mr Trump as president, despite the boost to US stocks, has also created uncertainty, while the repercussions from the UK vote to leave the EU continues to reverberate and raise concerns over growth in the UK and EU.
Global dividends fell 4 per cent on a headline basis in the third quarter to $281.7bn. This was $11.9bn lower than a year ago.
US payouts fell to $100.4bn, down 7 per cent on a headline basis, mainly due to lower special dividends. Even taking this into account, underlying growth in the US was the slowest since the survey was launched in 2014, at 3 per cent on the year.
Henderson said the slower growth reflected poor profit growth in the US and also a return to more sustainable levels of increases after a period of double-digit rises.
UK dividends fell 13.9 per cent in headline terms to $26.3bn, largely reflecting the steep drop in sterling against the dollar following the Brexit vote in June. In underlying terms, they fell 2.9 per cent as big cuts in the mining sector and from Barclays and Rolls-Royce took effect.
In Asia, slow growth continued, up 2.8 per cent in headline terms and 0.5 per cent higher on an underlying basis. Once again, headline dividend growth of 36.7 per cent was inflated by the strong yen and underlying growth at 1.4 per cent was more modest.
Emerging market dividends fell for the third consecutive quarter. At $42.9bn, they were 7.1 per cent lower in headline terms and 7.7 per cent lower in underlying terms.
Chinese dividends and payouts fell 4.5 per cent in headline terms, 10.8 per cent on an underlying basis, the second year of dividend declines. Chinese banks make up 80 per cent of the total and they are reducing payout ratios, leading to dividend cuts.