In the third quarter of 2023, the Global Dividend Index by Janus Henderson Investors reported a slight 0.9% decrease in global dividends, amounting to US$421.9 billion. This dip was significantly influenced by Australia's mining sector, which is closely tied to the commodity cycle.
Notably, BHP (ASX:BHP) Group, previously the world's largest dividend payer in 2021 and 2022, slashed its final 2023 dividend by more than half compared to the previous year. Similar reductions by Fortescue (ASX:FMG) Metals Group and Rio Tinto (ASX:RIO) also contributed to the global dividend downturn.
Australian companies in the index saw a 17.5% drop in dividends on an underlying basis, with one-fifth of them cutting dividends year-on-year.
Despite these cuts, the index showed an underlying growth of 0.3% when considering factors like special dividends and exchange rates. Excluding BHP and Petróleo Brasileiro S.A better known as Petrobus, the underlying growth of the index is 5.3%, aligning with long-term trends.
The banking, utilities and vehicle sectors, along with most oil companies, demonstrated robust growth. The global dividend landscape was balanced by a 9.3% increase in banking dividends worldwide and rising payouts in various other sectors. Australian banks increased their dividends by about 14% year-on-year, with the oil sector contributing a 19% increase, easing the overall decline.
Matt Gaden, head of Australia at Janus Henderson Investors, highlighted that the challenging conditions faced by miners masked an otherwise positive quarter in other sectors. He emphasised the importance of global diversification for Australian investors, especially considering rising living costs.
“The tougher market conditions for Australian and global miners masked an otherwise positive third quarter with almost every other sector seeing dividend growth.
"Investors often seek refuge in high dividend-yielding companies or sectors such as mining and banks, but it’s not always a sure thing.
"The findings of our dividend index reinforce why global diversification is critical for Australian investors that are often dependent on dividends for income generation. This has become ever more important as the cost of food, fuel, housing and energy soars.
"Investors must grasp the nuances of dividends, their advantages and the potential risks tied to high dividend-paying shares for a successful investment strategy.”
China dividends reach new record
In China, dividends reached a new record, primarily due to PetroChina, despite weaknesses in the banking and property sectors.
The US saw a healthy 4.5% growth in dividends, with Canada outperforming due to its strong banking and oil sectors.
European dividends continued their robust growth, while in the UK, the impact of lower mining payouts was balanced by increases in other sectors.
Janus Henderson has slightly adjusted its 2023 forecast, reducing the headline forecast from $1.64 trillion to $1.63 trillion, a 4.4% year-on-year increase. However, underlying growth is expected to be stronger than anticipated, with several countries on track for record payouts.
Ben Lofthouse, head of Global Equity Income at Janus, commented that the apparent weakness in Q3's global dividends wasn't alarming, as it was largely due to a few companies.
He noted that dividend growth remained strong across various sectors and regions, except in commodity-related areas.
Lofthouse also pointed out the stabilising effect of a globally diversified income portfolio, where sectors like banking and oil could offset declines in others like mining and chemicals. He emphasized that dividends were typically less volatile than earnings, offering reassurance during economic uncertainties.
“Apparent weakness in Q3’s global dividends is not a cause for concern, given the large impact a handful of companies made. In fact, the level of growth and its quality look better this year than seemed likely a few months ago as payouts have become less reliant on one-offs and volatile exchange rates.
“Dividend growth from companies generally remains strong across a wide range of sectors and regions, with the exception of commodity-related sectors like mining and chemicals.
"It is quite normal and well understood by investors that commodity dividends will rise and fall with the cycle, however, and does not indicate wider malaise.
"Moreover, our figures show that a globally diversified income portfolio has natural stabilisers – sectors in the ascendance, such as banking and oil, have been able to counteract those with declining dividends, like mining and chemicals. And of course, dividends are typically much less volatile than earnings over time, providing comfort in times of economic uncertainty.”