Australian dividends totalled $42.8 billion in Q3 2022, down considerably from $54.3 billion in Q3 2021, reflecting lower special dividends and weakness in the Australian dollar.
Globally, mining dividends slumped $30.1 billion in Q3 as the commodity cycle rolled over and, according to the latest Janus Henderson Global Dividend Index, this was a major contributor to the $11.5 billion decline in Australian payouts.
Historically, Australia has driven a large proportion of the Asia-Pacific region’s Q3 performance.
In 2022 however, Taiwan drove the 18.7 per cent underlying growth in the region, while Australia lagged behind its Asian counterparts.
A lack of sector diversity in Australia meant that the hit to mining industry dividends disproportionately affected the broader returns. Janus Henderson said the biggest impact came from Fortescue Metals, which “fell due to its significant exposure to lower metals prices, while those with large coal operations such as BHP, made smaller cuts”.
Matt Gaden, head of Australia at Janus Henderson, said: “The third quarter highlighted the impact of heightened volatility and the commodity cycle across global markets. 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.”
However, rising interest rates have improved global trading conditions for banks. Globally, bank dividends increased 8.7 per cent on an underlying basis, and banks made the largest contribution to dividend growth in Australia, with payouts increasing 5.8 per cent on an underlying basis.
The encouraging third quarter has prompted a $44.9 billion upgrade in Janus Henderson’s full-year headline figures, driven mainly by higher one-off special dividends, and strength in the oil sector and Asia. Janus Henderson said it now expects headline dividends of $2.33 trillion, up 8.3 per cent year-on-year.
Underlying growth is set to be 8.9 per cent, an increase of 0.4 percentage points compared to Janus Henderson’s expectations three months ago and still ahead of the 5 to 6 per cent longer-term dividend growth trend.
Jane Shoemake, client portfolio manager for global equity income at Janus Henderson, said: “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. 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.
“Moving into 2023, slower global economic growth is likely to have an impact on profits and the ability of some companies to grow payouts. But dividend cover, the relationship between a company’s earnings and its dividends, is near historic highs — this is because profitability is currently strong while the pandemic resulted in many companies rebasing dividends to more sustainable levels. This may provide some support even if profits come under pressure in 2023.
“Crucially, dividends vary much less over the economic cycle than profits as companies seek to maintain a sustainable level of income for their investors.”
