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Shareholder payouts hit record high, fuelled by oil companies

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UK listed companies boosted dividend payments by 29.3% in the second quarter, while global divident payments reached an all time high of £461bn in Q2.

Oil, financial services and auto sectors drove record shareholder payouts around the world, which were up 11.3% on Q2 last year. Underlying growth, which exludes one-off special dividends and accounts for currency movements, was even stronger at 19.1%.

Janus Henderson’s latest global dividend index showed the recovery is so strong that dividends are now just 2.3% below the long-term trend, though the report noted the “marginal shortfall can be attributed to the dollar’s recent strength”.

It means 94% of companies in the index either increased dividends or held them steady between April and June, prompting Janus Henderson analysts to upgrade the asset manager’s 2022 forecast to $1.32tn.

The second half of the year is “unlikely” to see the same level of growth however, warned Janus Henderson’s head of global equity income, Ben Lofthouse.

He said: “Many of the easy gains have now been made as the post-Covid-19 catch-up is almost complete. We are also facing a significantly slower global economy and the headwind from the strength of the US dollar.

“As we move into 2023, there will be no more impetus from post-Covid-19 catch-up payments.”

Lofthouse said slower global economic growth and the likelihood that mining dividends are now “close to peaking” will weigh on overall shareholder payouts.

“Exchange rates are unlikely to act as a significant drag on headline growth next year given the currency impact witnessed in recent months. Overall, dividend growth is likely to be slower next year given the current economic outlook,” he added.

Positive outlook

Nevertheless, headline growth is expected to be 5.8% year-on-year, equivalent to an 8.5% increase on an underlying basis.

Lofthouse said: “It’s important not to let short-term uncertainty cloud the long-term view. There is nothing to suggest that global dividends cannot sustain over the long term the 5-6% annual growth rate we have become used to.

“The economic cycle rises and falls, exchange rate fluctuations dissipate almost entirely over the long-term, and even the impact of Covid-19 on global payouts has already been overcome.”

The primary regional drivers for Q2 dividends were Europe and the UK, with each showing a significant recovery from the impact of the pandemic during their peak Q2 dividend season. Both regions were up by almost a third on an underlying basis.

With many European companies (ex UK) paying dividends just once a year, Q2 2022 was the first opportunity since 2019 where the majority paid normal dividends. The lifting of central bank restrictions on bank dividends was especially important in the two regions.

Very large increases from German car manufacturers also made a major contribution. Swiss and Dutch payouts reached new heights.

Dividend growth in the US lagged the wider world at 8.3% but the increase still led to a new US dividend record. Canadian dividends also reached a new high.

Oil, banks and cars

Key sector trends played out internationally. Surging cash flows from high oil prices meant oil producers contributed two fifths to second quarter growth; those in Brazil and Colombia in particular contributed significantly.

Banks and other financials accounted for another two fifths, while consumer discretionary sectors, especially car manufacturers, also delivered strong dividend growth. Lower special dividends and a steep cut from AT&T held back technology and telecoms respectively.