China’s economic slowdown is beginning to flow through to dividends payments, with Chinese dividends set to fall for the first year on record in 2015, says Henderson Global Investors.
The latest Henderson Global Dividend Index revealed that China’s slowing economy is beginning to impact profits and payouts, as dividends fallen 2.1 per cent year-on-year.
Henderson Global Investors head of global equity Alex Crooke said: “Payouts from Chinese companies have nearly tripled in six years, but a fall in the country’s total payout is likely in 2015 for the first time.”
“Companies there tend to link payout ratios directly to profits, so dividends are not smoothed through bad times as they are in many more developed markets.
“This is a salutary reminder for investors that rapid growth is impossible to sustain indefinitely, in any part of the world, whether it is in the US or China, and highlights the value of taking a globally diversified approach to income investing,” he said.
According to Mr Crooke, diversification is foremost for Australian investors due to their exposure to China and dependence on domestic bank dividends.
Although Australian banks are continuing to pay generous dividends, new capital requirements question the sustainability of this practice.
“Many Australian banks are judged by the regulator to have too little capital, so paying large dividends at a time when they are issuing new shares in the market is a rather expensive and senseless exercise,” said Mr Crooke.
“For Australians more than most, thinking global would help diversify these risks away.”
On a headline basis, Australian dividends fell 3.1 per cent year-on-year, though the decline was mainly attributed to a falling Australian dollar. On an underlying basis, payouts rose 12.4 per cent, Henderson found.
In Q3, US dividends rose 23.4 per cent, while global dividends also increased 2.3 per cent to $297 billion.
Henderson expects North America and Japan to be the fastest-growing regions throughout 2016, with emerging markets expected to lag behind.
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