Australian dividends have completed their recovery from the COVID-19 pandemic, reaching AUD $98 billion in 12 months to March 2022, with banking and mining stocks responsible for 94% of recovery. This is according to the latest Janus Henderson Global Dividend Index.

The growth is in part due to the ongoing normalisation of payouts following the disruption caused by the pandemic, according to Janus Henderson.

Q1 2021 saw significant dividend cuts, so it provides a relatively low base for comparison purposes.

However, the Q1 2022 growth also reflects the robust post-Covid economic rebound that took place in much of the world in 2021 and into early this year.

Globally, 81% of companies that issued payouts in the first quarter increased their dividends year on year and another 13% held them steady.

Matt Gaden, Head of Australia, Janus Henderson Investors said, “Australia’s dividend recovery has powered ahead in 2022, on the back of strong commodity prices and the return to form of Australia’s big banks, no longer constrained by the dividend pause required during the worst of the pandemic. However, Australia’s result reflects its continued reliance on banking and mining sectors, and that level of relative sector concentration should be cause for pause among investors.”

Growth drivers

While Australian dividends fell more than twice as far as the rest of the world during the worst of the pandemic (-37.2% vs -16.7%, respectively), the nation has been able to rely on the same factors that drove its decline to underpin its record setting rebound, according to a statement by Janus Henderson.

“Yet again, Australia’s dividend performance was largely determined by two sectors – banking, and mining. Historically responsible for more than two fifths of Australian dividends, banking stocks recovered from the regulator-imposed dividend constraints which halted their payouts in 2020, more than doubling in the 12 months to the end of March 2022 to account for a third of the year-on-year increase in total Australian payouts,” it said.  

“Meanwhile, mining – traditionally responsible for 25% of Australian payouts – compensated for its muted pandemic performance by doubling its payouts on the back of sky high commodity prices. The increase saw mining assume responsibility for three fifths of the rebound in overall Australian dividends.

Concentration remains a constant

One dollar in every two paid by Australian companies in Janus Henderson’s index over the last 12 months were distributed by a mining company.

After BHP’s migration to Australia, the Janus Henderson Global Dividend Index has been restated to historically consider BHP’s capital to be listed entirely in Australia, rather than split between London and Sydney. Once franking credits are included, the AUD$31.8 billion BHP distributed between April 2021 and March 2022 made it the largest payer in the world by a comfortable margin.

With another large payment to come later this year, BHP should retain top spot for the whole calendar year. The company’s dividend is so large that it alone made up almost one third (32%) of all the dividends paid by Australian companies in Janus Henderson’s index between April 2021 and March 2022. The next four largest payers accounted for another third. Comparatively, the top five payers in the rest of the world accounted for just 6.1% of dividends between April 2021 and March 2022, while the top ten included companies from six different sectors and five different countries.

Challenges ahead

Janus Henderson is maintaining its expectations for the remaining quarters of the year given the uncertain global economic outlook and rising geopolitical risks. Nevertheless, the inclusion of the robust Q1 numbers increases the forecast slightly for the year.

For 2022, Janus Henderson now expects global dividends to reach US$1.54 trillion (AUD$2.08 trillion), a headline increase of 4.6%, equivalent to a 7.1% increase on an underlying basis.

Jane Shoemake, Client Portfolio Manager for Global Equity Income said, “Global dividends had a good start in 2022, helped by particular strength from the oil and mining sectors. Even so we have seen growth on a very broad basis, across different sectors and geographies. The world’s economy nevertheless faces a number of challenges – the war in Ukraine, rising geopolitical tensions, high energy and commodity prices, rapid inflation and a rising interest rate environment. The resultant downward pressure on economic growth will impact company profits in a number of sectors.

“These challenges also mean greater uncertainty that is likely to affect corporate decision making. The impact on dividends is likely to show up beyond 2022, but it is important to remember that dividends are much less volatile than profits. The latter usually move dramatically over the economic cycle, but dividends tend to be much steadier. Indeed, the fact that dividends have already surpassed pre-pandemic highs is part of a longer-term narrative that highlights how dividends have proved to be a reliable source of income growth over the long term. Moreover, this growth means that dividends provide some shelter against inflation which cash savings cannot do.”