Record US dividend growth puts UK to shame

There were above-trend performances in the US and Europe in Q3, but UK income stocks let the side down.

The latest Janus Henderson Global Dividend Index report, a long-term study of global dividend trends, shows underlying growth in payouts from publicly listed companies of 5.3% for the third quarter, coming in at $355 billion (£273 billion).

Janus Henderson says growth is in line with the long-term trend identified by its index, but adds that a market slowdown is under way. There were notable above-trend performances from the US and Europe.

US dividend growth registered 8% – an all-time record high – coming in at $124.7 billion, while in Europe dividends rose 7.1%, both on an underlying basis. The North America region including Canada generated a headline growth figure of 4.3% ($135 billion).

Janus Henderson measures underlying dividend growth by adjusting for special dividends, currency movements and the impact of any timing and index changes.

The impressive US performance may prove to be a high-water mark, given that a majority of US companies have stopped increasing their dividends as profit growth slows. 

The report notes that telecoms giant AT&T (NYSE:T) is set to be this year's largest US dividend payer for the first time since 2012, jumping above Apple (NASDAQ:AAPL), Exxon Mobil (NYSE:XOM) and Microsoft (NASDAQ:MSFT), largely as a result of its acquisition of media firm Time Warner in 2018. 

In the UK, the headline growth figure was a respectable 2.9% at $34 billion, a third-quarter record; but on an underlying basis growth was a far less impressive 0.6%. The UK results were helped by special dividends from miners and banks. 

Poor relative performance by the UK reflected large dividend cuts from FTSE 100 income seeker favourite Vodafone (LSE:VOD). A number of other household names on the UK stock market have also cut dividends, including Centrica (LSE:CNA), parent company of British Gas, and Royal Mail (LSE:RMG). 

In addition, Marks & Spencer (LSE:MKS) cut its dividend when it reported in early November that half-year profits fell 17%. At the time it confirmed a 40% cut (6.5p to 3.9p a share) in its interim dividend payment. M&S was ejected from the FTSE 100 in September.

Annual dividends by region (US$ billions)

(Table courtesy Janus Henderson Global Dividend Index report Q3 2019)

On a seasonally adjusted view, Japan and Canada also delivered record third-quarter income to shareholders.

Asia Pacific ex Japan helped to drag down the global average, with dividend payouts shrinking 1% in underlying terms. Particularly weak was Australia, pulling back 5.9% to US$18.6 billion. 

In contrast, Hong Kong saw an 8.1% dividend growth rate (US$16.7 billion); however, the global financial hub's slide into its first recession since 2009 because of the impact of the ongoing political crisis could hit future dividend payments.

Hong Kong's strong performance in the third quarter was flattered by stellar payouts from oil company CNOOC (NYSE:CEO) and from the territories' red-hot real estate sector.

On a sectoral view, energy was out in front in the third quarter, while payments to investors from telecoms companies fell across the board. Russia and South Africa were both beneficiaries of the strong showing by energy companies.

Emerging market dividends came in with an underlying growth rate of 7.3%, at $59 billion. China payments totalled $29 billion, up 3.7%, although nearly half of the Chinese companies represented in the Janus Henderson Global Dividend index reduced their dividends on a year-on-year basis, likely partly as a result of the trade war with the US pressuring profits.

Janus Henderson is keeping to its forecast that 2019 global dividends will be a record $1.43 trillion, 3.9% higher on a headline basis and 5.4% after adjusting for special dividends and currency movements.

The strength of the US dollar in its major trading pairs has pressured lower the headline growth rate compared to the same period last year, with the exception of the Japanese yen, which witnessed safe haven inflows against the backdrop of worries about slowing global economic growth rates.

Janus Henderson's investment director of global equity income, Jane Shoemake, reiterated previous warnings from the asset manager to investors that the strong dividend growth of recent years is probably in danger.

"We have been cautioning investors all year that the rapid dividend growth they have enjoyed in the last couple of years was set to return to more normal levels: a softening global economy is beginning to have an impact on corporate earnings and, in turn, on dividends," Shoemake said.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.