Global dividend outlook stabilises in spite of Ukraine war

The global outlook for dividends has stabilised, defying fears that Russia’s invasion of Ukraine would prompt cuts to shareholder payments, according to a widely followed industry report.

The first quarter of this year delivered a broad-based increase in company payouts across all industries, led by oil and mining groups riding the resources boom, according to the Janus Henderson Global Dividend Index.

Analysts at the fund manager expect steady dividend growth to continue during 2022, allaying concerns earlier in the year that sanctions and price rises following the war in Ukraine would upset the outlook.

Fund managers nonetheless warned that the prospects for dividends — which are a key source of income for many retirees, pension funds and charities — face considerable uncertainty and are particularly vulnerable to a downturn in the commodities sector.

“Growth came through on a very broad basis, across different sectors and geographies,” said Jane Shoemake, portfolio manager for global equity income at Janus Henderson.

However, she warned that “the world economy is beset by a number of challenges at present — the war in Ukraine, rising geopolitical tensions, high energy and commodity prices, rapid inflation and a rising interest rate environment . . . These challenges also mean much greater uncertainty is likely to affect corporate decision making.”

Income-seeking investors underwent a tumultuous period during the Covid-19 pandemic. Many companies slashed shareholder payouts to conserve cash in 2020 when the virus struck. Dividends rebounded last year to hit a record ​​$1.47tn, according to Janus Henderson’s index, which tracks payments from more than 1,000 large companies. However, 2021’s recovery was narrowly based on certain sectors, notably mining companies flush with cash from the boom in commodities prices.

Mining company payouts jumped 30 per cent in the first quarter of 2022 compared with the year before, according to the index. The boost to resources groups has further to run, Janus Henderson said. “Both oil and metal prices have been propelled higher following the Russian invasion of Ukraine, helping to sustain dividend growth in these sectors for the time being.”

Total dividends rose 11 per cent to $302.5bn, a record level for the normally quiet first three months of the year. Janus Henderson forecast payouts for 2022 will hit $1.54tn, an increase of 4.6 per cent. Almost 95 per cent of companies in the fund manager’s index either increased their dividend or held steady in the first quarter.

Danish shipping company AP Møller-Maersk delivered the largest single dividend increase in the quarter, according to Janus Henderson, as it benefited from high shipping rates.

However, there are warnings that the dividend outlook is vulnerable if commodities cease to provide a powerhouse of growth. “There is a risk of dividend cuts in the mining sector. If metal prices fall, as I expect them to, then dividends could be cut significantly. Dividend growth looks more certain in healthcare and consumer staple sectors,” said Emma Mogford, fund manager at Premier Miton.

Link, the UK funds group, in April boosted its forecast for dividends from British companies. The tailwinds for oil and commodities groups have been particularly strong for the UK stock market, where these companies are well represented.