2019 proved to be a bit of a mixed bag for income investors. Dividends hit new record peaks, as a report just released from Janus Henderson shows. But the rate at which payouts grew had slowed because of growing earnings pressure.
With large parts of the global economy slowing, it makes sense companies reined in their dividend plans. The additional impact of US-Chinese trade wars — and fears that tariff tensions would spread during this new decade — put the handbrake on payment expansion too.
Those same fears are clearly still in play at the start of 2020. So how should share investors expect their dividends to be affected this year?
Dividend growth slows
The report shows global dividends hit all-time highs of $1.43trn in 2019. This was up 3.5% on a headline basis — that is, including the impact of currency movements and special dividends.
On an underlying basis, growth chimed in at 5.4%, however, the latest Global Dividend Index shows. This larger figure reflects the consequences of dollar strength that smacked the headline figure.
“With the exception of a few specific sectors, the pace of earnings growth slowed across the world in 2019 as the global economy lost some momentum,” Ben Lofthouse, co-manager of Global Equity Income at Janus Henderson, confirmed.
“This has inevitably driven a reduction in the pace of dividend growth, after a particularly strong two years,” he added. By comparison, headline payout growth rang in at 9.3% in 2018, Janus Henderson data shows, or by 8.5% on an underlying basis.
Slower growth for UK investors
Last year’s dividend growth was particularly disappointing for many UK investors. The doling out of exceptionally-huge special dividends helped total dividends bulge 6.2%, to $105.8bn, on a headline basis in 2019.
But on an underlying basis, annual growth came in at a modest 2.9%. The report points out that large supplementary dividends from BHP Group, Rio Tinto and RBS (or NatWest Group as it is soon to be known) helped drive the headline figure last year.
In sunnier news, Royal Dutch Shell emerged 2019 as the world’s biggest dividend payer for the fourth year in a row. Another UK-quoted stock, HSBC, was also on the top 10 list, albeit in last place.
Another record year expected!
What can share investors expect in 2020? Well Janus Henderson expects dividend growth on a headline basis to improve from last year’s levels, at 3.9%. It says lower-than-expected special dividends should be offset by a weaker US dollar. In terms of underlying growth, however, dividend expansion is expected to falter to 4%.
It’s no surprise dividend growth is expected to slow again in line with company earnings. This, though, doesn’t mean stock investors need to reach for the bottle of course!
As Janus Henderson points out, total dividends in 2020 (which it predicts will reach $1.48trn) will hit fresh all-time highs. It will represent the fifth consecutive year of record payouts as well.
The prospect of more earnings and dividend growth at the start of this new decade certainly makes this share investor pretty excited. I reckon the UK stock market remains a great place to invest your cash today.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.