What does the chart show?
That despite fears over global economic growth and Brexit-related uncertainty, global companies paid out more in dividends last year than any year on record, benefiting shareholders and income investors the world over.
Last year, global companies paid out a record $1.37tn in headline dividends according to Janus Henderson’s dividend index, up 9.3 per cent on the previous year.
On an underlying basis — stripping out exchange rate movements and special dividends, among other things — global companies grew their dividend payouts at the fastest rate since 2015, increasing 8.5 per cent on 2017, and way above the long-term trend of 5-7 per cent growth.
What’s behind the boost?
The US had a lot to do with it. North American companies notched up record dividend payouts of $509.9bn in 2018, an increase of 7.2 per cent, accounting for 42 per cent of global dividends.
Only one in 25 US companies cut their dividends last year, as a growing number of technology giants paid out income. Companies also benefited from tax reforms introduced in 2017, which cut the headline US corporate tax rate and offered companies incentives to repatriate cash held overseas.
Several other regions also notched up new records including Japan, emerging markets, Europe and Asia Pacific.
What about the UK?
UK payouts rose by 8.8 per cent at an underlying level, ahead of the global average of 8.5 per cent, with the miners and British American Tobacco contributing the most to growth. Headline dividends inched up by just 4 per cent however, to $99.5bn, as companies struggled to match a spate of large special dividends in 2017.
UK companies are currently trading at yields — a measure of income relative to share price — not seen since the financial crisis, according to investment platform Hargreaves Lansdown.
Many UK companies have seen their shares slide in recent months amid Brexit-related nervousness, but have continued to pay out high dividends.
“If it weren’t for Brexit, investors would be snapping up bargains left, right and centre,” according to Hargreaves’ senior analyst Laith Khalaf.
Should UK income investors get stuck in?
There are opportunities to be had, says Hargreaves Lansdown, but UK investors should watch out for a £90,000 “dividend tax trap”.
If investments are held outside an Isa or pension, tax is payable on dividend income exceeding £2,000 per year — which dropped from £5,000 in April 2018.
“Before the cut, you could hold around £135,000 of UK shares outside an Isa before paying any tax on dividends, today it’s just over £46,500,” says Sarah Coles, personal finance analyst at Hargreaves Lansdown.
“In the twinkling of an eye, the amount you can hold outside an Isa or pension without facing dividend tax has plummeted almost £90,000.”
Which income stocks paid the most?
Looking back, the mining companies, oil companies and technology stocks were responsible for the largest payouts in 2018, following big recoveries in the energy and mining sectors and the maturing nature of technology companies.
Royal Dutch Shell was responsible for the biggest dividend payout last year, with £15.65bn in global dividends. Apple was the next largest, paying out $13.78bn, followed by Exxon Mobil Corp and Microsoft — both regulars in the top five dividend-paying companies.
Will companies continue raising dividends?
Global economic growth is expected to slow by 2.9 per cent in 2019, according to the World Bank, which could hit corporate profitability. However, Janus Henderson says it expects dividends to grow again this year. The company forecasts 2019 headline dividends to be 3.3 per cent higher than 2018, at $1.414tn, equivalent to underlying growth of 5.1 per cent.
Ben Lofthouse, head of global equity income at Janus Henderson, says: “For the year ahead, we expect dividend growth to be more in line with the longer-run trend. Most observers still expect companies to deliver positive earnings growth. Dividends, in any case, are much less volatile than earnings, so we remain optimistic on the prospects for income investors.”
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