“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.