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Global dividend growth tipped to slow

3 minute read

The strong growth in dividends seen post-pandemic is expected to moderate this year.

While predicting that dividends from global equities will increase again this year, Plato Investment Management has warned that the pace of growth is beginning to slow.

This follows a sharp recovery in dividends seen post-pandemic, which Plato Global Shares Income Fund portfolio manager Daniel Pennell said had been good news for income investors.

“After 2020’s pandemic-driven income cuts, global investors have seen strong growth in dividends across 2021 (+12.8 per cent in AUD), again in 2022 (+15.8 per cent in AUD), and we expect this trend to moderate in 2023 as interest rate rises bite,” he said.

“However, we believe global shares will continue to provide Australian investors a great source of diversified income.”

According to Plato’s latest Global Income Report, global developed markets paid out $419 billion in Q4, 6.2 per cent more than a year earlier largely due to currency movements.

Dividend growth in local currency terms slowed to 0.4 per cent, which Plato said reflected global inflation and concerns regarding economic growth over the coming year.

Mr Pennell noted that a number of large companies including Microsoft, Johnson & Johnson, and Proctor & Gamble increased their dollar payouts during the quarter.

“Across sectors, we’re also seeing some standouts for dividends. The big recent increases have been from energy companies, with the sector considerably outperforming all other sectors in 2022,” he said.

“Strong balance sheets, driven by the commodity rally, enabled increased payouts from businesses including Shell, BP plc and Exxon Mobil Corp. We think this strength can continue into 2023 with energy prices likely to remain elevated.”

During what he described as the “current messy global macro environment”, Mr Pennell suggested that investors should be selective when it comes to dividends and make sure they pay attention to the risk of dividend traps.

“One sector we’re watching very closely for potential dividend traps is consumer discretionary, where yields strengthened further over the past year driven by surprisingly strong household balance sheets,” he noted.

“But as we look to 2023, it will be interesting to see how the sector goes, given it historically struggles when we see cost-of-living pressures and weakening consumer sentiment.”

Additionally, Mr Pennell pointed out that the proportion of companies cutting to zero remains around pre-pandemic levels, which he said supports Plato’s view of future dividend strength.

“While many investors ignore the income potential in global equities, actively managed global equities portfolios continue to be a pillar of strength for income-seeking investors, importantly, providing diversification away from the traditional Australian income stocks and helping to mitigate concentration risk,” he concluded.

Jon Bragg

Jon Bragg

Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.