Global dividends jump to record high in the second quarter amid trade war concerns

  • Global dividends jumped 12.9 percent year-on-year in the second quarter to $497.4 billion, hitting a new record, according to a report on the Janus Henderson Global Dividend Index.
  • Payments rose in almost every region of the world in headline terms
  • Records were broken in 12 countries including France, Japan, and the U.S.

Global dividends jumped 12.9 percent year-on-year in the second quarter to $497.4 billion, hitting a new record, according to a report on the Janus Henderson Global Dividend Index.

Payments rose in almost every region of the world in headline terms and records were broken in 12 countries including France, Japan, and the U.S. This comes amid warnings from analysts that the looming trade war and punitive tariffs from the U.S. and China could pose a risk for equities across the globe.

The index, which analyses the dividends paid by the 1,200 largest firms by market capitalization, ended the quarter at a new record 182.0, meaning that global dividends have risen by more than four-fifths since 2009.

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"Rising corporate profitability is driving higher dividend payments in all parts of the world," the global asset manager said in its report, published Monday, "Exchange-rate effects exaggerated the headline performance. Even so, on an underlying basis, Janus Henderson's measure of core trends, global payouts grew 9.5 percent, the fastest increase in three years," the asset manager said.

A dividend is a payment to investors that is a portion of a company's earnings. Made at the discretion of the company's board, a dividend can be in the form of cash payments or shares of stock. Paying investors a dividend is often seen as a sign of financial robustness but some investors might prefer to see profits retained and reinvested rather than paid out.

Jane Shoemake, Investment Director of Global Equity Income at Janus Henderson Investors, told CNBC on Monday that the best companies to invest in, achieved a balance between dividend payment and the re-investment of profits.

"What we're looking for always is the sustainability of dividends, the ability to grow that dividend and the cash flow you need to do that, is very much a focus for us in what we're looking for for our investments," she told Squawk Box Europe.

"What we want is a nice mix of companies to invest for the future, so they continue to pay for dividends, but also that they can grow that. So we want companies to balance it, we don't want them to just return it all back to our shareholders at the expense of their business not doing well in the future," she said.

Europe versus US

The dividend data analyzed by Janus Henderson is dominated by continental Europe as two-thirds of the region's dividends are paid during the period.

Underlying growth here was the strongest since the second quarter of 2015 with European companies paying a record $176.5 billion, an increase of 18.7 percent year-on-year, as higher corporate profits in 2017 flowed into dividends, the report noted. Underlying growth was 7.5 percent, once the strength of European currencies compared to the second quarter last year was accounted for. France, Germany, Switzerland, the Netherlands, Belgium, Denmark and Ireland all broke new records. Only a handful of companies, among them such as Deutsche Bank, EDF and Credit Suisse, cut their payouts in a bid to lower costs.

In the U.S., meanwhile, dividends rose 4.5 percent to a record $117.1 billion in the second quarter. "Underlying growth was 7.8 percent after lower special dividends and index changes were taken into account, the fastest expansion in two years. Even though their expansion was a touch slower than average in the second quarter, U.S. dividends have grown more steadily than anywhere else, declining in only four quarters over the last ten years," the report stated.

Only one company in 50 in the U.S. cut its payout, Janus Henderson noted, with the largest firm to do so being GE as it commenced a restructuring program and a bid to reduce its debts.

In the rest of the world, the index showed that Canadian dividends outpaced those in the U.S. while in Asia, underlying growth in dividends in the second quarter, year-by-year, was 13.5 percent in Hong Kong and 46.9 percent in Singapore. Japan, where the second quarter also marks a "seasonal dividend high-point" also saw 14.2 percent headline growth (12.3 percent underlying growth), also boosting the global total.

Will the good times last?

The strong dividend growth around the world prompted Janus Henderson to increase its forecast for 2018 underlying dividend increases from 6.0 percent to 7.4 percent.

The resurgent dollar, up 4.45 percent year to date against a basket of major currencies however, is offsetting the improvement, the report added.

"Dividends in the second half will be translated at less favorable exchange rates, so Janus Henderson's forecast of $1.358 trillion is unchanged, an increase of 8.6 percent in headline terms year-on-year."

Ben Lofthouse, head of global equity income at Janus Henderson said that income investors will be cheering record payouts and strong growth but that an escalating tariff dispute between the U.S. and major economies could impact corporate profitability.

"Even in out-of-favor regions, such as Europe, dividends continue to increase, driven by ongoing economic and earnings growth. Looking further ahead, the impact on global trade of escalating tariff battles with the U.S. could have a negative impact on corporate profitability, though its magnitude is highly uncertain at present," he said in the report.

"Nevertheless, we are still optimistic that in aggregate corporate earnings can continue to grow next year, and payout ratios in key parts of the world like Japan have scope to rise further too."

He noted that "dividends in any case are less volatile than profits, and we are confident that 2019 will see the global total continue to rise in underlying terms. The trajectory of the dollar may affect the headline growth rate next year, but exchange-rate fluctuations have little impact over the longer term."