Why global dividends flatlined in 2016

Global dividends flatlined in 2016, driven by subdued profit growth across various markets. It's a trend that has led firms to become less generous in terms of the amount of income they return to shareholders.

The total value of dividends paid across the globe reached a record $1.154 trillion (£930 billion) in 2016, representing just a 0.1% rise compared to 2015. In 2015 global dividends fell by 2.2% versus 2014, which was a record year for global dividend payments.

According to the latest Henderson Global Dividend index there are four main reasons behind the lack of progress.

First, US equities, which account for two fifths of global dividends, had a disappointing year. Dividend growth across the pond slowed progressively during 2016 to end the year up 3.9%.

Pedestrian dividend growth

While they still remained in positive territory in 2016, US equities had notched up double-digit dividend increases in 2014 and 2015. Disappointing profit growth, a focus on bolstering balance sheets and weakness in the energy sector were behind the fall-off in growth.

Other markets posted dividend declines year-on-year, which Henderson attributes as the second driver behind dividend growth overall being pedestrian in 2016. The UK (-2.4% dividend growth) and emerging markets (-14.7%) were both in the red.

However, it is worth pointing out that the Henderson Global Dividend index measures dividends in dollar terms, so it has proved a boon for UK-based investors because so many big blue-chips declare dividends in dollars.

The strong US dollar has also weighed down dividend growth for international investors; finally, reason number four behind the slump was the fact that special dividends were lower year-on-year.

Looking ahead, Alex Crooke, head of global equity income at Henderson Global Investors, says the outlook for global economic growth appears brighter, but the strong US dollar may yet again hold back dividend growth in 2017.

Henderson is forecasting dividends to rise just 0.3% over the course of the year.

"The strong dollar may well disguise this underlying growth in 2017, but over the longer term, exchange rate factors tend to even out, allowing underlying growth trends to exert themselves," says Crooke.

"Moreover, even with dollar-based growth temporarily on hold, we mustn't forget that equities are still generating huge sums of income for investors every year."

This article was originally published in our sister magazine Money Observer. Click here to subscribe.