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Globally dividends are ‘rocking’

‘I think the unprecedented stimulus we’ve seen from both monetary policy and fiscal stimulus combine to make a very positive environment for corporates’: Jane Shoemake – client portfolio manager at Janus Henderson Investors.

SIMON BROWN: I’m chatting now with Jane Shoemake [is a] client portfolio manager [for] Global Equity Income at Janus Henderson. Jane, I appreciate the time again. We chatted I suppose a quarter ago around in your then quarterly dividend update, looking at global dividends. You’ve now got the third-quarter update. The short version is that globally dividends are absolutely rocking, and you’re expecting them back at pre-Covid levels by the end of this year.

JANE SHOEMAKE: Yes, absolutely. We’re now forecasting $1.46 trillion, which is an upgrade to our forecast from three months ago. That’s going to be 2% above the pre-pandemic peak that we saw in the first quarter of 2020. So really encouraging.

SIMON BROWN: And astounding, I’ve got to say. At the middle of last year I wouldn’t have expected that. It’s boosted in part by profits coming back, but we are also seeing – and I see, looking at individual companies locally and globally – balance sheets are a lot stronger and some companies have come out of the pandemic well, and profits are back and rewarding shareholders.

JANE SHOEMAKE: Yeah. A number of countries during this period have taken the time to re-issue debt at very low interest rates. We saw some equity issuance as well out of a number of companies. So they took the opportunity to raise capital.

But I think earnings have been incredibly strong. We’ve just been through a really good earnings season in the US – over 80% of companies in the US beat [earnings]. Revenues were up about 18% on average, earnings up around 40%. So I think the unprecedented stimulus we’ve seen from both monetary policy and fiscal stimulus combine to make a very positive environment for corporates.

SIMON BROWN: Yeah. It’s a great point. It has been, as you say, unprecedented. We saw stimulus in 2008, but not on this level. Globally 2021 has been about mining. We see that down here in South Africa. Of course we are a mining economy, but globally it’s been the miners who’ve really led the charge – and BHP is expected to be the biggest dividend payer in 2021.

JANE SHOEMAKE: Absolutely. We’ve seen some extraordinarily strong profits from these companies over the last few months. That’s no surprise, given the incredibly buoyant commodity price cycle and environment we’ve seen. Clearly I think three-quarters of the miners in our dividend index more than doubled their dividends compared to this time last year – so an incredibly strong picture from them. What they’ve done is they’ve given us regular dividends; they’ve given us some special dividends as well. I think it’s unlikely we’re going to see that completely repeated next year.

Some of the commodities – iron ore, for example – have already come off a little bit, so I think there’ll be slightly more headwinds to that picture for the commodity companies going into 2022.

SIMON BROWN: Certainly headwinds for the commodities and, as you say, the commodities are down. PGMs (platinum group metals) are down, ore is coming off a bit, as are many others. They’ll still be paying next year – perhaps not a record year, perhaps a second- or a third-best year. It’s still going to be good, just not a record for the miners.

JANE SHOEMAKE: Yeah, absolutely. I’m not going to start trying to forecast commodity prices. That’s a fool’s game. But clearly it’s about how much demand we are going to get, how much supply there is, and what is going to happen to the global economy. We’ve got different parts of the world experiencing different things at the moment. We’ve got some parts of Europe planning to lock down; China’s battling with some of the Delta variant in places as well. So it’s quite a mixed picture still. I think it’s very unlikely we’re just going to see those extraordinary results that we’ve witnessed from those commodity companies over the last 12 months.

SIMON BROWN: You mentioned China – a bit of a mixed bag. Payouts rose, yet a number of companies, up to a third of them, actually cut dividends, which says that those that were increasing dividends did so significantly, offsetting the cuts.

JANE SHOEMAKE: Yeah. It was quite a mixed picture in China. I think, again, some of that impact of the pandemic has caught up with some of those companies into 2021 in terms of their profitability. That just meant that they’d had a challenging time and they’ve not had the profits there. Therefore they’ve not had the dividends there.

But, as you said, overall China was up 16% in dividends during the third quarter, so it’s still an overall positive picture.

SIMON BROWN: We chatted last time as well about banks – and they’ve really come to the party in terms of those dividend payments. That should continue into 2021. That’s partly regulatory. I know some bank authorities around the world last year said be careful, if not [to] scrap dividends altogether. And banks generally are looking better.

JANE SHOEMAKE: Yes. Those regulatory restrictions that we saw put in place in some parts of the world have now been broadly lifted. The capital positions look strong for these banks. Post the global financial crisis these banks were in a real mess. The situation they found themselves in, going into the pandemic, was very different. Their capital positions were a lot stronger and, although they were sometimes forced to stop paying dividends because of the regulatory restrictions, they’ve come out of that period now with decent capital positions. That’s allowed them to start paying back their dividends and, in a number of cases, announcing share buybacks – which, given that some banking stocks are very cheap, makes sense to me.

Over the quarter our banks’ dividends were up about 33%. I think we’re going to continue to see them return to the dividend list, albeit at below pre-pandemic levels.

They are not going to go back to the level of payments they made prior to the pandemic while we still navigate our way through the next year or two years to see what happens to the global economy.

SIMON BROWN: As you mentioned a moment ago, the pandemic is not at the end; we may be close to the end, but there’s still a bit to go. Jane Shoemake [is a] client portfolio manager [for] Global Equity Income at Janus Henderson, I really appreciate your time today.

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