Global dividend growth set to stagnate in 2022

Global dividend growth is expected to slow sharply this year, with prospects for large increases fading even before Russia’s invasion of Ukraine further dims the outlook.

After an exceptional set of payments enabled a full recovery from the worst of the Covid-19 crisis in 2021, this year was set for only modest growth even before war broke out. Now, analysts are warning of a blow to confidence and the potential consequences of input price inflation and economic sanctions.

While total corporate payouts rose nearly 17% in 2021, dividend increases in 2022 were expected to be capped at 3% before Russia’s attack on Ukraine, according to the Janus Henderson Global Dividend Index, a widely followed report on disbursements. Now, this forecast may need to be further reduced.

“The impact of the crisis will vary by sector and company, with some being more affected than others by sanctions and rising input prices,” said Jane Shoemake, client portfolio manager, equity income. worldwide at Janus Henderson.

She added that it would take time to assess the economic fallout from the conflict, but that “the contribution of Russian banks and oil companies is likely to be seriously affected”.

Global dividends hit a record $1.47 trillion last year, showcasing a full recovery from steep payout cuts during the worst of the Covid-19 pandemic, according to Janus Henderson’s report.

Total corporate payouts to shareholders rebounded in 2021 from depressed levels seen the previous year, when many companies held on to cash to weather the initial economic impact of the Covid-19 pandemic, according to the report.

The rebound brought relief to income-dependent investors – including retirees, pension plans and charities – who had suffered from the cuts. However, the recovery was heavily dependent on a handful of sectors, notably mining companies, which benefited from exceptional increases in commodity prices.

“Much of the 2021 dividend rally came from a narrow range of companies and sectors in a few regions around the world,” Shoemake said.

Andrew Bell, managing director of the Witan Investment Trust, said the pace of recovery in 2022 will depend on “the extent to which the current Russian invasion of Ukraine weighs – via energy prices and confidence issues general – on economic growth in 2022, and for how long”.

One-off special dividends, particularly from mining companies, have played an unusually large role in the 2021 rebound. Companies like Rio Tinto, which have been big winners in the rebound in economic growth from the pandemic, have offered handsome shareholder rewards. Rio investors are set to receive a total of $16.8bn (£12.3bn) in financial year 2021, the second-biggest payout in FTSE 100 history.

Mining companies paid out double their previous record level of dividends, set in 2019. Miners, along with banks, provided three-fifths of the increase in payouts last year.

“For the banks, it was about restoring payments to more normal levels given that regulators had restricted distributions in many parts of the world in 2020,” Janus Henderson said.

These payments contributed to a particularly strong annual rebound for the UK last year, with total dividends up 44% on the previous year. However, the recovery in the UK came from a base of particularly severe cuts in 2020, leaving payments still lagging behind pre-pandemic levels.

“Having underperformed other stock markets in recent years, the UK stock market looks very attractive on an earnings and dividend yield basis,” said Shoemake.

UK fund group Link, which compiles data on UK dividends, expects payouts to fall again in 2022, meaning a return to pre-pandemic levels is still a long way off. “The UK dividend recovery is not complete, but the easier part of catching up is now behind us,” said Ian Stokes, managing director, UK and Europe corporate markets at Link.

North American markets have seen slower growth, in part because US companies have been more resilient to cuts in 2020. Healthcare companies were among the biggest payers in US markets, alongside banks and technology groups.

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