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Global dividends to bounce back

Global dividends

Global dividends are set to return to levels experienced before the COVID-19 pandemic affected world equity markets.

A global fund manager has predicted dividends in markets around the world will return to pre-coronavirus pandemic levels in the coming 12 months.

Janus Henderson Investors made its forecast based on the strong dividend declarations during the second quarter of 2021. During this period, dividends strengthened by 26.3 per cent year-on-year on a headline basis, totalling $628.3 billion, which is only 6.8 per cent below payments recorded during quarter two of 2019.

The manager acknowledged this headline was skewed by large special dividends, favourable exchange rate conversions and the normalisation of payment timetables.

In comparison, dividend growth on an underlying basis for quarter two of 2021 was 11.2 per cent, but despite this being a more modest result, Janus Henderson Investors still regards this as a result to promote optimism when looking at market performance in the coming year.

Fuelling the optimism is the fact 84 per cent of companies across the world increased their dividends or at least held them steady. Moreover, the manager pointed out the companies that did reduce their dividends were most likely from emerging markets suffering from reduced profitability in 2020.

“Just as the impact of the pandemic on company dividends has been consistent with a conventional but severe recession, so the recovery is also consistent with the rapid economic bounce-back now occurring in those parts of the world where vaccination programs are enabling economies to reopen. Households have record savings and there is pent-up demand to spend, which should be good for company profits,” Janus Henderson client portfolio manager Jane Shoemake said.

“The corporate world is awash with liquidity and the financial system is robust. The banks generally hold surplus capital and policymakers continue to provide fiscal and monetary support for economies, so this recovery will not be hampered by a weak banking system as it was after the global financial crisis a decade ago.

“What’s more, regulatory limits on bank dividends are now being lifted and this will make a significant contribution to the dividend recovery in the months ahead given they accounted for half the global decline in 2020.

“Across the world, the restart of cancelled dividends has driven the recovery so far, but we are also seeing stronger dividend growth than we expected. Despite the severity of the recession last year, global dividends in aggregate will likely regain their pre-pandemic levels within the next 12 months.”

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