Energy crisis drives global dividends to new record

Janus Henderson upgrades its dividend forecast for 2022 as higher oil prices benefit income investors. 

Surging oil prices, partly as a result of the war in Ukraine, significantly contributed to a record $416 billion (£350 billion) in global dividends being paid out in the third quarter of the year.

In total, dividend growth in the third quarter was 7% on a headline basis, and 10.3% on an underlying basis. The headline figure is the amount paid in dollars and includes special dividends, while the underlying figure excludes the impact of currency fluctuations and one-off payments. A strong dollar this year decreased the headline figure.

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Oil producer dividends rose by 75% to a record $46.4 billion and overwhelmingly drove growth in the third quarter, offsetting falling mining payouts, according to fund manager Janus Henderson’s latest Global Dividend Index report.

Globally, 90% of companies raised dividends or held them steady, slightly below the 94% recorded in the first half of the year.

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Janus Henderson notes: “Oil companies all over the world hiked their payouts, largely via special dividends rather than an increase in their regular payments. Oil dividends were strong in emerging markets, Asia and North America, with the biggest increase coming from Petrobras (NYSE:PBR) in Brazil.

“Indeed, without the positive impact from this sector, the global total would have barely risen in the third quarter. The surge in oil exactly matched the slump in mining, where companies are now cutting dividends from their recent record highs in response to lower commodity prices, impacting Australia in particular. There was growth from almost every other sector, most notably transport (including shipping), banks, semiconductors, and chemicals.”

In the UK, 84% of companies raised dividends or held them steady, with UK dividends rising 2.5% on an underlying basis in the third quarter.

However, the impact of a weaker pound led to a headline decline of 6.4%, although the currency effect was limited given that two-fifths of UK dividends are declared in dollars by large multinationals headquartered in London.

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A big decline in mining dividends, down by a third on a headline basis, detracted significantly from solid growth from other sectors. However, higher banking and oil dividends made a strong contribution.

Janus Henderson upgraded its dividend forecast for 2022 due to the strength of the oil sector. It now expects headline dividends of $1.56 trillion, up 8.3% year-on-year.

Underlying growth is set to be 8.9%, an increase of 0.4 percentage points compared to Janus Henderson’s expectations three months ago and still firmly ahead of the 5-6% longer-term dividend growth trend.

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Jane Shoemake, client portfolio manager for global equity income at Janus Henderson, said: “Moving into 2023, slower global economic growth is likely to have an impact on profits and the ability of some companies to grow payouts.

“But dividend cover, the relationship between a company’s earnings and its dividends, is near historic highs. This is because profitability is currently strong, while the pandemic resulted in many companies rebasing dividends to more sustainable levels.

“This may provide some support even if profits come under pressure in 2023. Crucially, dividends vary much less over the economic cycle than profits as companies seek to maintain a sustainable level of income for their investors.”