Global dividends hit record highs as oil prices rally and banks begin to heal – but it might not be all good news

Lucy White
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The UK was the only major region to post a headline decrease in dividend figures (Source: Getty)

Global dividends have hit an all-time quarterly record of $447.5bn (£347.6bn) in the second quarter of this year, according to Janus Henderson's Global Dividend Index, notching up the highest growth rate since 2015.

The amount in dividends paid out by companies across the globe rose 5.4 per cent year-on-year, or 7.2 per cent when exchange rates and special dividends were taken into account.

The UK was the only major region to buck the trend and post a decrease in dividends, due to the weak pound. When allowances were made for exchange rates, the UK also had strong underlying growth of 6.1 per cent.

Read more: Look away, investors: Global dividend levels barely budged in 2016

“The global economy is very supportive for company profits and dividends at present, and helped drive record payouts in many countries around the world,” said Alex Crooke, head of global equity income at Janus Henderson.

“The improvement reflects a normalisation in dividend growth, following two years during which it has been rather subdued.”

According to Russ Mould, investment director at broker AJ Bell, increases in dividends could reflect strong profit levels and management optimism.

“The oil’s price’s ability to hold the $50 a barrel mark is offering some degree of protection to the oil majors’ payouts, which represent a big chunk of many a headline index’s total distribution,” he said.

Across the pond in the US, banks are slowly healing and the prospect of regulatory change and less stringent capital requirements may let the big financial houses substantially increase dividends.

Read more: Federal Reserve gives largest US banks the green light to splash the cash in the second round of stress tests

“Throw in the impact of the Abenomics reform programme, whereby Japanese firms are becoming more shareholder aware and increasing cash returns to investors, and a focus in improved corporate governance in markets like South Korea, where Kospi index heavyweight Samsung is hugely increasing its the percentage of profits returned to investors, and the picture looks pretty rosy,” Mould added.

Yet there may be a darker underside to this healthy appearance. Zero interest rate policies and quantitative easing could be causing executive teams uncertainty over the real cost of capital, making managers reluctant to invest in their business. Returning cash to investors may seem easy when faced with an investment minefield.

“Investors need to keep doing their research on dividend cover, corporate cash flows and company balance sheets,” said Mould.

Read more: Corporate debt gets even cheaper as ECB launches next phase of quantitative easing

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