Global dividends are booming, but here’s why investors should expect a slowdown

Banks, oil producers and vehicle manufacturers drove payouts to a new record in the first three months of the year. 

Dividends globally hit a record in the first three months of the year, jumping 12% in total as oil companies and banks rewarded shareholders after posting strong profits.

According to fund manager Janus Henderson, total dividends hit $326.7 billion (£262 billion), with UK firms paying out $15.3 billion (£12.4 billon) thanks to large payouts from oil companies.

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Underlying growth, however, which strips out special dividends, exchange rate effects and other technical factors, was significantly slower at 3% growth over the three-month period.

The investment firm forecasts payments of $1.6 trillion this year, up 5.2% on last year. However, this compares with total dividend growth of 8.2% in 2022 and 16.9% in 2021 following a bounce back from the pandemic-driven dividend drought.

Banks, oil producers and vehicle manufacturers were significant drivers of growth in the first quarter, although most sectors delivered increases, and in total 95% of firms raised dividends or held them steady.

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Lower mining dividends, driven down one-fifth quarter-on-quarter to $16.6 billion by lower commodity prices, caused a significant drag on growth.

In the UK, oil companies made the largest contribution to first-quarter growth, although the biggest single increase came from airline and contract caterer Compass, which increased its dividend almost back to pre-pandemic strength. There were no dividend cuts among UK Q1 payers in the index, and total growth for the quarter was 5.6%.

Despite strong growth so far this year, Janus Henderson warned that higher interest rates and slowing economies will put pressure on profits and therefore hit dividends.

The fund group says that after a strong couple of years, almost all the easy gains from the post-pandemic bounce back have now been made too, which is why dividend growth in 2023 will be markedly slower than over the last two years.

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Ben Lofthouse, head of global equity income at Janus Henderson, adds: “The strong dividend growth we have seen in Q1 2023 is all the more impressive considering the challenges the global economy faced in 2022, such as high inflation, rising interest rates, geopolitical conflict and continuing Covid lockdowns. Profits were nonetheless strong last year, and this has supported further dividend growth.

“Over the course of 2023, mining dividends will create the biggest drag on global dividend growth, but payouts from the banking and oil sectors will continue to deliver. Combined with the exceptionally large one-off special dividends we have seen in the first quarter, we have upgraded our forecast for 2023, although it is worth reiterating that we expect growth to be markedly slower for the rest of 2023 than over the last two years.”