Strong payout growth in the fourth quarter continued to defy market volatility.

Key Takeaways

  • Global dividends increased 9.3% in the fourth quarter on a headline basis thanks in part to continued improvements in banking, mining and oil payouts.
  • Nine in 10 countries saw steady or increasing dividends, with Canada, Japan, Russia and the U.S. leading the way.
  • All told, global companies paid out $1.37 trillion in dividends in 2018, $10 billion ahead of our forecast. Dividends should stay stable in 2019, but the pace of growth will likely subside.

Benjamin Graham’s observation that the market is a voting machine in the short term but a weighing machine in the long run says a little bit about the disconnect between equity performance and dividend growth in the fourth quarter of 2018.

While most global markets suffered losses in the final stretch of the year, the Janus Henderson Global Dividend Index increased 9.3% on a headline basis, which is based on U.S. dollar payouts in relation to the same period last year. Underlying dividend growth, which accounts for any currency changes and special dividends, surged 8.5% year-over-year in the fourth quarter.

As was the case throughout 2018, North American countries continued to raise their payouts. In the fourth quarter, dividends rose 8.1%, driving annual payouts past $500 billion for the first time. Only one in 25 U.S. companies tracked by the index reduced its dividend, with General Electric’s cut making a significant impact. Canada was also a major contributor, with an 11.8% improvement on underlying terms and just one out of 40 companies reducing its dividend.

Relative to other regions, Europe’s dividend growth lagged. Even so, underlying payouts improved 5.4% in the fourth quarter, thanks largely to significant increases coming out of Germany. Meanwhile, strong profits and improving payout ratios in Japan paved the way for record payouts, which increased 10.6% last quarter.

Although overall dividend growth was relatively widespread – both on a sector and country basis – last quarter’s exceptional growth was due in part to the continued normalization of payouts for banking, mining and oil. This is the primary reason emerging markets – led by a 44% increase in Russia – posted double-digit dividend growth last quarter.

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Outlook

Following significant gains of 2018, the current year may shape up to be a little more ordinary. We expect dividend growth, while still healthy, to move toward the long-term trend with a 5.1% improvement in underlying growth in 2019. Headline growth is on pace to increase 3.3% as the strength of the dollar is reflected in results.

It is important for investors to distinguish between slower growth in payouts and dividend cuts. Even when market volatility reflects investor angst, dividends tend to follow a steadier trajectory.

Putting next year’s outlook into perspective: The world’s companies are set to pay their shareholders more than $1.4 trillion in dividends in 2019 – double what they distributed a decade ago.

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This article by Ben Lofthouse was originally published at JanusHenderson.com