The retirement income problem became more complicated in the first quarter of 2016 as U.S. companies ratcheted down their dividend growth.

According to Chicago-based Henderson Global Investors, U.S. dividend growth slowed to 6.8 percent in nominal terms, and 8.1 percent in real terms for the quarter to $108 billion. By comparison, U.S. dividends grew by 14.1 percent nominally and 10.2 percent in real terms during the fourth quarter of 2015.

Global dividends, the Henderson Global Dividend Study found, grew by 2.2 percent in the first quarter to $218 billion total, buoyed in part by a weaker dollar. Total first-quarter global dividends rose by $4.7 billion, or 3.1 percent, year over year.

In the fourth quarter, global dividends grew by 9.9 percent, but declined by 2.2 percent in real terms because of the relative strength of the U.S. dollar. Since Henderson measures dividend payouts in U.S. dollars, currency fluctuations impact their real value.

"The impact of falling commodity prices is likely to drag on dividends for the next 12 months,” says Ben Lofthouse, co-manager of Henderson’s Global Equity Income Fund. “Over the past few years, we’ve seen 9 percent dividend growth. Now we’re seeing it slow quite a bit, but for perspective, dividend growth is still beating inflation and generating an attractive real return.”

Over the rest of the year, Henderson expects global dividends to rise 3.9 percent to an annual total of $1.18 trillion, an underlying increase of 3.3 percent.

“While the dollar has weakened a bit, the euro is a bit stronger and currency is still a negative impact on dividends year over year,” Lofthouse says. “If currencies remain stable, their impact will become positive by the end of the year and the headline numbers will exceed underlying dividend growth.”

Dividend payments in Japan, North American and Europe were responsible for the bulk of the growth, while Asia, the UK and emerging markets lagged.

Lofthouse says that dividend growth is likely to continue in some international markets regardless of macroeconomic conditions.

 

“Over the past couple of years, we’ve been seeing dividend growth outstripping headline earnings growth in some markets,” Lofthouse says. “That’s partly through the normalization of dividend payout ratios. Companies in Japan have a 20 percent dividend payout ratio — in contexts, the U.S. has more like 40 or 45 percent of earnings paid out as dividends. Japan is the fastest growing region in our report because they’re playing catch up in their payout ratios.”

Lofthouse dismisses the idea of a "dividend bubble" caused by rising valuations in dividend stocks.

“Yields are still unchanged from pre-financial crisis levels,” Lofthouse says. “I don’t think there’s a dividend bubble, I think there’s a securities bubble ranging from the 10-year Treasury, through to growth companies and through to utilities companies, they’re all highly valued right now not because they provide income, but because they’re quite defensive. It’s a premium for defensiveness.”

Yet as equities markets tilt towards value, inexpensive dividend payers like commodities producers and their related industries could become more attractive, says Lofthouse.

“Thus far this year, the oil sector has become a strong sector,” Lofthouse says. “Dividend value as a strategy has worked in energy, to some extent in consumer staples as well. The area that it hasn’t worked out so far is in financials, they’re the biggest laggard.”

Moving forward in 2016, a relatively stable U.S. dollar should allow dividend growth to shine, Henderson says. Positive growth should continue in Japan, North America and Europe ex-the U.K.

The report was less optimistic about dividend growth for the year in the Asia-Pacific region ex-Japan, and expected dividends to decline in emerging markets and the UK.

“Overall, the underlying economic growth is picking up and there’s more topline inflation,” Lofthouse says. “What you’ll see is that earnings growth will pick up, and then dividend growth will also increase because they’re both a function of confidence.”

For its quarterly report, Henderson analyzes dividends paid by the world’s 1,200 largest companies by market share.