Australian banks post double-digit growth in dividends, but mining firms experience significant cuts
Global dividends reached a record US$1.66 trillion in 2023, marking a 5% increase on an underlying basis, according to the latest Global Dividend Index report from Janus Henderson Investors.
The fourth quarter of the year highlighted this growth, with dividends rising by 7.2% thanks to strong performances in Europe, the UK, and Japan.
Despite global successes, Australia lagged behind, with only 75% of its companies either maintaining or increasing dividends, below the 86% global average. This shortfall was largely due to significant cuts in dividends by mining companies, leading to a 10.7% decrease in Australian dividends on an underlying basis.
The Global Dividend Index report identified the banking sector as a primary engine of dividend growth worldwide, achieving record payouts in 2023. This sector accounted for half of the global dividend growth, with emerging market banks, excluding those in China, contributing significantly.
Australian banks also saw double-digit growth in dividends, benefiting from a higher interest rate environment which improved margins.
However, the boon from the banking sector was almost completely counterbalanced by declines in the mining sector, where profits dipped in line with falling commodity prices. Beyond these sectors, Janus Henderson’s index pointed to positive growth across various industries, including vehicles, utilities, software, food, and engineering, underlining the value of diversification in an investment portfolio.
“Beyond the normal cyclical swings of the mining sector, Australian dividends continued to record healthy underlying growth,” said Matt Gaden (pictured), head of Australia at Janus Henderson Investors.
“Crucially, our Global Dividend Index highlights just how important it is for income-oriented investors to have diversification across industries and across geographies. The changing global cost of capital and shifts in supply chains underscore the importance for investors to closely monitor their impact on high dividend-paying shares.”
The report also highlighted that 86% of companies worldwide either raised or maintained their dividends. However, substantial reductions by five major companies—BHP, Petrobras, Rio Tinto, Intel, and AT&T—diminished the global growth rate for the year by two percentage points.
Record dividends were reported in 22 countries, with Europe excluding the UK and Japan being notable contributors to the growth. Despite the strong US contribution, its 5.1% growth rate was in alignment with the global average.
The UK’s growth rate of 5.4% was also similar to the global figure, reflecting a balance between increases in the banking and oil sectors and decreases in mining payouts. In contrast, most developed countries in the Asia Pacific excluding Japan experienced a decline in payouts year-on-year.
Looking ahead to 2024, Janus Henderson projects dividends to reach US$1.72 trillion, representing a 3.9% increase on a headline basis or an equivalent to 5% underlying growth.
“Pessimism over the global economy proved ill-founded in 2023 and although the outlook is uncertain, dividends are well supported,” said Ben Lofthouse, head of global equity income at Janus Henderson. “Corporate cash flow in most sectors has remained strong and is providing plenty of firepower for dividends and share buybacks.”
“The lagged effect of higher interest rates will continue to have an impact, with slower global economic growth anticipated and higher funding costs for companies. We are nevertheless optimistic for dividends in the year ahead.
“From a sector perspective, even though the rapid growth we have seen from banks around the world is going to slow this year, the rapid declines from the mining sector are also likely to make less of an impact. Energy prices remain firm so oil dividends are affordable and the big defensive sectors like healthcare, food and basic consumer goods should continue to make steady progress. What’s more, dividends are much less variable than profits over time.”
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