Positive signs of a global dividend recovery to wrap up 2021

We certainly choose our moments to bring some slightly more upbeat financial updates! Yes, we are coming to the end of another year in which we have continued to see the ongoing financial impact of the COVID-19 pandemic, furloughed staff, panic hitting the petrol forecourts, and fear of potential food shortages during the festive season for various reasons. But research from Q3 2021 shows that dividend payments are headed in the right direction once again in all major markets. Indeed, there is evidence of a global dividend recovery, with dividends expected to reach pre-pandemic levels before the clock strikes midnight on New Year’s Eve.

2020 vs 2021

Having seen a sharp decline in 2020, according to an index calculated by investment manager Janus Henderson, global dividends fell by 11.9% USD year on year. We now know though that the UK experienced a far more severe drop, with dividends plummeting by 42.9% as recorded by leading corporate services provider, Link Group.  

This significant ‘underperformance’ was largely attributed to the Bank of England forcing UK banks to temporarily halt dividend payments during the crisis period.

However, the latest market forecasts are evidencing a global dividend recovery. And with both Janus Henderson and Link Group publishing their latest dividend reports covering Q3 2021, it seems that some of the negativity surrounding the financial markets in 2020 has been wiped away.

• Globally, overall dividend payments surged by 22.0% year-on-year. A record figure leading to an all-time high for the penultimate quarter of the year.  
• Total dividend payments in the UK knocked the same period of 2020 out of the park, with a phenomenal final recorded increase of 89.2%, to £34.9 billion.  

Janus Henderson’s calculations reflected that a dividend boom in the mining companies helped the overall figures, accounting for two thirds towards the global dividend recovery. The largest global dividend payer in Q3, potentially 2021 in its entirety, is Australian miner, BHP currently listing shares in both London and Sydney.

The same quarter saw UK dividend payments soaring. A number of mining companies made one-off ‘special’ dividend payments totalling £4.3 billion, about £1 in £8 of all dividend payments over the quarter.

However, figures have also highlighted the worryingly high concentration of dividend payments among a small number of companies in the UK increasing significantly, with over 50% of all Q3 dividends across just five companies.  

Reports from the Link Group have highlighted just how dependent the UK market is on both the energy and mining sectors, the so-called “extractive industries.” In fact, miners took the top three rankings in the UK dividend payers’ league table for Q3 2021, and together energy and mining industries will be attributable for almost 33% of British company dividend pay-outs in 2021.  

The outlook for UK dividends and the global dividend recovery

Despite the low point in March of this year, Janus Henderson has increased its 2021 dividend forecast from $1.36 to $1.39 trillion, predicting a global dividend recovery surpassing the pre-Covid peak within 12 months, with positive results by the end of 2021. And although lower than the 2019 levels, Link Group estimate UK dividend payments will reach 45% higher than those seen in 2020.  

So, as Jane Shoemake of Janus Henderson states, “Just as the impact of the pandemic on company dividends has been consistent with a conventional but severe recession, so the recovery is also consistent with the rapid economic bounce-back now occurring in those parts of the world where vaccination programmes are enabling economies to reopen.”

We are likely to see some impact on UK dividends with BHP Group and WM Morrison Supermarkets Plc both exiting the London market in 2022.

But even with this £4.9 billion reduction in distributions, the future remains bright, as bank pay-outs are set to return. And the global dividend recovery is still on track to reach previous highs sooner than was anticipated at the beginning of 2021.

What does the global dividend recovery mean for investors?

In essence, with the pandemic having completely restructured spending patterns over the past two years, evidence suggests that with current record savings alongside the immediate urge to spend now, company profits are looking strong.

And with the latest dividend data, we are clearly seeing the power of companies to generate income once again for their investors.

If you are wanting to discuss your existing financial portfolio, or are looking to set up an investment plan, now is the perfect time to contact us here at Simpson Financial Services. We will explain the financial markets and global dividend recovery in terms you will understand. And we will ensure that your investments bring the best return for you and your family. We look forward to hearing from you and getting your new year off to a secure financial start!