Global dividend payments are set to jump 13.1% to a record £1.25trn this year, according to Henderson International Income Trust (Hint).
Global profits jumped 78% to £2.85trn last year, and are expected to rise above £3trn by the end of 2022 thanks to booming results from banks and energy companies. Cash flows also rebounded by a third, further strengthening the capacity of companies to distribute dividends to shareholders.
Consequently, Hint said that the record dividend increase was indicative of a healthy global picture. Dividend cover, the ratio of a company’s net profit to its distribution of dividends, reached a 10-year high of 2.6x at the end of 2021, and is projected to remain high this year, dipping slightly to 2.4x.
In the UK, 2021 saw dividend cover climb to 2.0x after averaging an unsustainable 1.0x between 2015 and 2020. Though UK dividend cover sits below the projected global average, it may yet exceed it if the rise in oil profits is matched by increased dividend payments.
While banks and energy companies basked in strong profits, many mining companies have seen their net incomes hit by lower commodity prices, and there are more profit warnings appearing in consumer-sensitive sectors.
Ben Lofthouse, portfolio manager of Hint and head of global equity income at Janus Henderson, said: “Stock markets have been exceptionally volatile in 2022 as investors have attempted to calibrate how the energy crisis, supply-chain snarl-ups, the war in Ukraine, and rising interest rates will impact the world economy.
“In uncertain times investors prize companies that generate plenty of cash in the here and now, as well as those that have more visibility on future earnings. These companies are often more likely to pay dividends to their shareholders. This explains why classic income stocks – companies that pay dividends – have performed so well in 2022.
“During inflationary periods it is important to find companies with good dividend cover, pricing power, cash flow, and modest borrowing, some of the factors used in our dividend trap analysis. If inflation and recession come at the same time, profits may fall, but history shows that dividend income is much less volatile than profits over time as companies flex the proportion of their profits they pay to shareholders. With dividend cover so high at this point in the cycle, we can have some significant confidence for 2023 that overall dividend pay-outs will prove resilient.”