Europe ‘emerges from doldrums’ to boost dividends, says new report

Companies paid out $153.4 billion in the three-months up to the end of June 2014, a rise of almost one-fifth compared with the comparable period last year, according to the latest Global Dividend Index (HGDI) from Henderson Global Investors (16-page / 1.34 MB PDF).

Henderson said Europe, where companies typically pay the bulk of dividends in this period, dominated the second quarter, “accounting for over two fifths of the global total”.

The amount paid by European firms was an increase of 18.2% on a headline basis, led by France and Switzerland, according to the HGDI said, while “Germany lagged behind its peers, up just 3.9%”.

Henderson said: “The European total was boosted by strong exchange rates against the US dollar. Even so, the $16.4bn constant currency growth from Europe is the best performance from the region by far over the five year history of the HGDI.”

For the first half of 2014 overall, Henderson said dividends grew a headline 18.4%, “the fastest in a six month period since 2011”. However, unlike 2011 when half of the growth came from the effects of the weaker dollar, Henderson said the increases this year “have largely come from companies raising dividends themselves with only a small favourable contribution from currency effects”.

Henderson’s head of global equity income Alex Crooke said: “In 2011, more than a third of the growth came from a falling US dollar. Developed markets are leading the charge, and we expect that to continue. It’s especially encouraging to see Europe and Japan delivering big increases to their shareholders, after lagging behind the rest of the world recently.”

Crooke said Henderson’s analysis of how currency moves contribute to investor returns “highlights the value of taking a global approach”. “Over time, such investors can broadly afford to ignore currency risk as currencies rise and fall against one another through the economic cycle,” Crooke said. “Investors who take a decision to invest internationally, but only focus narrowly on one region, will find themselves much more exposed. Generating a good income on your investments is more about understanding the companies themselves, wherever they are operating.”

European banks’ performance helped to make the financial sector one of the best-performing globally, with a 14.6% increase, but global currencies continued to be “volatile”, Henderson said. However, “research demonstrates that over the medium term, currency effects are a limited factor”. 

According to Henderson, over the last five years currency effects “have accounted for just 1.4% of the total $4.5 trillion of distributed dividend income”. In the latest quarter, the currency effect was just 1.5% as some currencies rose and some fell against the US dollar, Henderson said.

Japan also showed “convincing growth”, up 18.5% to reach $25.2bn. “With the sharp year-on-year declines in the yen now dissipating, currency effects only made a small deduction from the Japanese total,” Henderson said.

HGDI figures showed that the US continued to show “broad based strength (13.8%), but emerging markets saw their pay-outs decline 14.6% in US dollar terms”. Henderson said emerging markets are lagging behind developed markets, “though the fall was exacerbated by index changes and sharply lower exchange rates”.

The latest HGDI figures reflect research published by Henderson in May 2014, which said European equities and other developed markets had experienced “a strong run over the past 18 months, responding positively to the diminishing risks of a eurozone break-up”.