The U.S. stock market is easily outpacing equities elsewhere in the world in 2018, but there’s nothing uniquely American about one attribute of the current investing environment — the massive amounts of money being returned to shareholders.
According to a study by Janus Henderson, dividend payments surged in the second quarter, increasing rapidly and broadly, with nearly every geographic region and most equity sectors participating in the trend.
Globally, $497.4 billion in dividends was returned in the quarter, which represents year-over-year growth of 12.9%. Underlying dividend growth — which corrects for currency changes and special dividends — was up 9.5% over the quarter, the fastest increase in three years.
Ben Lofthouse, Janus’s head of global equity income, wrote that payouts in the quarter “were especially notable for their breadth across every global region (with the exception of the U.K., which was held back by technical factors) and a wide swath of sectors.” Despite negative headlines on issues like trade policy, he added, “payouts paint a far more upbeat picture, one of strong corporate balance sheets, continued management confidence and, consequently, significant dividend growth.”
In the U.S., second-quarter dividends rose 4.5% to a record $117.1 billion. Underlying growth came in at 7.8%, a two-year high. Technology and financial companies were the largest contributors to growth, with financials alone accounting for a roughly a quarter of all payouts. Only 2% of companies cut their payouts, Janus’s report read, with General Electric GE, +1.05% being the largest.
The trend of U.S. companies returning cash to shareholders was greatly accelerated by the tax-cut bill that was passed in late 2017. That bill provided an immediate boost to corporate profits, resulting in both boosted dividends and expanded stock-buyback programs. According to data from S&P Dow Jones Indices, buybacks rose 57% in the second quarter.
Earlier this month, Goldman Sachs analysts estimated that repurchasing programs would reach $1 trillion this year, up 46% from 2017, a surge it credited to the tax bill.
Currently, the S&P 500 SPX, +0.38% has a dividend yield of 1.74%, according to FactSet data. That’s below the yield on the U.S. 10-year Treasury note TMUBMUSD10Y, -0.03% currently around 2.82%, as well as the 2.6% yield of the two-year Treasury TMUBMUSD02Y, +0.15%
The U.S. was joined by another 11 countries, including such notable markets as France and Japan, in terms of regions with record dividend payouts in the quarter. Europe overall (excluding the U.K.) saw growth of 18.7% in dollar terms (7.5% on an underlying basis), while payouts spiked 29.2% in the Asia-Pacific region, largely due to “extraordinarily large special dividends in Hong Kong and Singapore,” Lofthouse wrote.
Emerging markets, a region that has seen steep losses of late, saw dividend growth of 11.5% in the second quarter.
According to the report, this is a trend that is likely to continue. Janus forecast global dividend growth of 7.4% for all of 2018, which would bring the full-year total to $1.36 trillion.
“Although escalating tariff battles could weigh on corporate profits, we are still optimistic that aggregate earnings can continue to improve – and with that, so should global payouts,” he wrote. “If dividends are an indication, managers believe companies are better positioned today than they were a year ago.”