According to the latest Janus Henderson Global Dividend Index (JHGDI), Australian dividends fell 21.2% over the third quarter of 2022, down from US$36.3 billion (AU$54.3 billion) in the previous corresponding period to US$28.6 billion (A$42.8 billion).
The contraction was attributed to lower special dividends and weakness in the Australian dollar.
Historically buoyed by the mining industry, Australian dividends “fell victim” to an “underlying lack of sector diversification”, Janus Henderson Group observed, with mining dividends down US$7.7 billion.
The report referenced Fortescue Metals’ “significant exposure” to lower metals prices, noting companies with “large coal operations”, including BHP, better absorbed the impact.
However, the hit to mining dividends was felt around the world, with the total value of global sector dividends slipping US$20.1 billion in Q3.
The mining-induced slump was offset by favourable conditions for the banking sector, driven by higher interest rates.
Australian banks accounted for a quarter of the total value of dividends or approximately US$7.1 billion.
When compared to other nations in the Asia Pacific region, Australia “lagged behind” despite typically contributing to regional growth.
“The third quarter highlighted the impact of heightened volatility and the commodity cycle across global markets,” Matt Gaden, head of Australia, Janus Henderson said.
“For Australian dividend investors, the fall in performance from mining companies and a lack of sector diversification in many portfolios meant a less-than stellar Q3 dividend performance.”
Despite weakness in Australia, Janus Henderson upgraded its full-year global forecast by US$30 billion.
According to the global active asset manager, the improvement would be driven by higher one-off special dividends, and strength in the oil sector and across Asia.
Janus Henderson noted it is expecting headline dividends of US$1.56 trillion, up 8.3% year-on-year.
Underlying growth is tipped to increase by 0.4% to 8.9%, ahead of the 5%-6% longer-term dividend growth trend.
“The surge in oil dividends has coincided with reductions from the miners, though payouts from the sector are nevertheless very high by comparison to history,” Jane Shoemake, client portfolio manager for global equity income, said.
“Like other commodities, energy prices are cyclical, and the oil price is already lower than levels reached earlier this year, so the current exceptional level of payouts is unlikely to be permanent.”
But Shoemake said she expects global dividends to weaken in 2023, off the back of subdued global economic conditions.
This, however, would be offset by dividend cover, which is “near historic highs” amid strong profitability.
“This may provide some support even if profits come under pressure in 2023,” she added.
“Crucially, dividends vary much less over the economic cycle than profits as companies seek to maintain a sustainable level of income for their investors.”
