Dividends from largest companies hit record US$326-billion in first quarter

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Dividends issued in the first quarter by the world’s largest listed companies hit a record this year, even as prominent investors and asset managers warn of a coming global economic slowdown.

The world’s 1,200 biggest public companies issued US$326.7-billion collectively in dividends in the first quarter of 2023, a rise of 12 per cent on the same period a year ago, according to a quarterly report from fund manager Janus Henderson Group PLC.

Payouts to shareholders were boosted by the largest contribution in nine years from special dividends, as companies such as carmakers Ford Motor Co. F-N and Volkswagen AG VWAGY made one-off contributions.

The rises reflect the durability of corporate earnings even as stock markets around the world tumbled on Russia’s invasion of Ukraine, high energy prices and rising interest rates.

Fund managers have also expressed concerns over the record US$1.3-trillion of share buybacks that companies engaged in last year, seen by some as an alternative to dividends, citing concerns that they did not benefit shareholders as much as company management.

Ben Lofthouse, head of global equity income at Janus Henderson, says the growth was “impressive, considering the challenges the global economy faced in 2022.”

Stripping out special payments and moves in exchange rates, Janus Henderson says global dividends rose 3 per cent in the first quarter and predicted the total would rise 5 per cent to US$1.64-trillion in 2023. Mr. Lofthouse says the banking and oil industries are likely to be among the biggest payers.

Mark Donovan, a senior portfolio manager focusing on large-cap U.S. equities at Boston Partners Global Investors Inc., suggests that the rise in dividend payouts by companies reflected a “growing acceptance” that management has to weigh the benefits of investing profits back into the company alongside returning gains to shareholders.

“Energy is a great example where, for years and years, a lot of executives were biased toward putting money back into projects, many of which yielded low returns and ultimately resulted in poor stock price performance,” he says.

“Those executives have figured out that raising a dividend and increasing buybacks is a better way to enrich shareholders and ultimately keep their jobs.”

Janus Henderson says U.K. dividends grew 6 per cent to US$15.3-billion in the first quarter, driven by payouts from oil companies, airlines and the contract caterer Compass Group PLC, which raised its dividend back close to pre-pandemic levels amid strong demand.

The U.S. was responsible for close to half of corporate dividends issued in the first quarter, Janus Henderson reports, with real estate, technology and health care also driving growth. Dividends from mining companies fell due to the drop in commodity prices.

Earlier this month, Goldman Sachs Group Inc. forecasted dividends would rise by 5 per this year, adding that even in a recession scenario, dividend payouts were only likely to fall slightly, as they’re the “stickiest” alongside spending on research and development.

Daniel Peris, a fund manager at Federated Hermes Inc. and author of The Strategic Dividend Investor, predicted that dividends would increase in popularity, including among tech companies, as companies reduced share buybacks and competed to attract investors in a tougher climate.

“The challenge for investors will be to determine which companies can afford to do so – are well positioned for the new cash-based capital markets paradigm – and which are not,” he added.

Additional reporting by Chris Flood

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