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Global dividend growth set to stall in 2022

Global growth in dividends is forecast to slow sharply this year with the prospects for big increases dimming even before Russia’s invasion of Ukraine further clouded the outlook.

After a bumper set of payouts delivered a full recovery from the worst of the Covid-19 crisis in 2021, this year was set for only modest growth even before the war broke out. Now, analysts warn of a knock to confidence and potential consequences from inflationary input prices and economic sanctions.

While total corporate payouts rose almost 17 per cent in 2021, dividend increases in 2022 were expected to be limited to 3 per cent before Russia’s attack on Ukraine, according to the Janus Henderson Global Dividend Index, a widely-followed report on payouts. Now this forecast may have to be trimmed further.

“The impact of the crisis will vary according to the sector and company with some being more impacted than others by sanctions and rising input prices,” said Jane Shoemake, client portfolio manager, global equity income at Janus Henderson.

She added that it would take time to gauge the economic fallout from the conflict, but that “the contribution from Russian banks and oil companies is likely to be severely impacted”. 

Global dividends hit a record $1.47tn last year, staging a full recovery from the sharp cuts to payouts during the worst of the Covid-19 pandemic, according to the Janus Henderson report.

Total corporate payouts to shareholders rebounded in 2021 from the depressed levels recorded the year before, when many companies held on to their cash to weather the initial economic impact of the Covid-19 pandemic, according to the report.

The rebound brought relief to income-dependent investors — including retirees, pension plans and charities — who had suffered from the cuts. However, the recovery was heavily dependent on a handful of sectors, notably mining firms, who benefited from exceptional boosts in commodities prices.

“A large part of the 2021 dividend recovery came from a narrow range of companies and sectors in a few parts of the world,” said Shoemake.

Andrew Bell, chief executive of the Witan Investment Trust, said the pace of the recovery in 2022 would depend on “the degree to which the current Russian invasion of Ukraine weighs — via energy prices and general confidence issues — on economic growth in 2022, and for how long”.

One-off special dividends, particularly from mining firms, played an unusually large role in 2021’s rebound. Companies such as Rio Tinto, which were big winners from the rebound in economic growth from the pandemic, delivered handsome rewards to shareholders. Rio investors are set to receive a total of $16.8bn (£12.3bn) in the 2021 financial year, the second-biggest payout in the history of the FTSE 100.

Mining companies paid double their previous record level of dividends, set in 2019. Miners, along with banks, delivered three-fifths of the increase to payouts last year.

Column chart of Corporate payouts hit record level in 2021 showing Global dividends recover from Covid-19 cuts

“For the banks, this was about restoring payouts to more normal levels given that regulators had curbed distributions in many parts of the world in 2020,” Janus Henderson said.

Those payments contributed to a particularly strong annual rebound for the UK last year, with total dividends up by 44 per cent from the year before. However, the UK recovery came from a base of particularly severe cuts during 2020, leaving payouts still lagging behind pre-pandemic levels.

“Having underperformed other equity markets in recent years, the UK equity market looks very attractively valued on both an earnings and dividend yield basis,” said Shoemake.

British funds group Link, which compiles data on UK dividends, expects payouts to decline again in 2022, meaning a return to pre-pandemic levels is a long way off. “The recovery in UK dividends is not complete, but the easiest part of the catch up is now behind us,” said Ian Stokes, managing director, corporate markets UK and Europe at Link.

North American markets saw slower growth, in part because US companies were more resilient to cut in 2020. Healthcare firms were among the largest payers in US markets, alongside banks and tech groups.

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