The UK market is heavily dependent on very few companies to supply the bulk of dividends. This concentration risk is not so good for a global investor.
2013 was a milestone year. The world’s listed companies delivered just over $1trn (£601.8bn) to their shareholders, an increase of $310bn, or 43.2 per cent, since 2009. In that year, which marked a post-financial crisis low point for equity income, they paid $717bn.
The recently published Henderson Global Dividend Index, considers the dividend paying firepower of the world’s listed companies, with no regard for their ownership structure. Usually investment indices will only look at the free float, which can be rather small, particularly in emerging markets where governments or powerful family interests hold huge stakes. This can disguise just how big these firms can be.
Looking at the past five years, the global average annual dividend growth rate has been a brisk 9.4 per cent in US dollar terms, though it has been marked by volatility. Growth of 6.6 per cent in 2010 accelerated to 21.4 per cent in 2011 before slowing sharply in 2012 and 2013.
Different parts of the world are producing different results. The fastest growth initially came from emerging markets. Dividends from these countries have more than doubled since 2009 up from $60.9bn to $125.9bn, an average annual growth rate of almost 20 per cent, though growth slowed sharply in the past couple of years.
The Bric (Brazil, Russia, India and China) countries, which between them make up 55 per cent of all emerging markets dividends, have grown a third faster than their peers in the last five years. Companies in these regions are generating large amounts of income, often because governments with big stakes mandate generous payouts. Minority shareholders benefit when that happens.
This period has been tough for Europe as the financial crisis was followed by the euro crisis and a lack of economic growth. Dividends from Europe excluding UK have moved ahead only 8 per cent since 2009 reaching $199.8bn in 2013. However, it is still comfortably the second most important region in the world. Within Europe, Scandinavian countries have seen a dividend boom, while those worst hit by the euro crisis are returning far less to their shareholders than they did five years ago.
The US has increased its payouts 49 per cent in this period, and is by far the largest source of dividend income ($301.9bn), accounting for one-third of the global pie. Japan is up 29 per cent, though the devaluation of the yen has pushed the 2013 total of $46.4bn below the 2012 level. The UK’s share at 11 per cent is disproportionately large compared to the size of its economy, but UK payouts have grown slightly slower than the global average since 2009, and carry a greater concentration of risk.
Traditionally, investors have tended to stay close to home when looking for dividends, but there is income to be had from all over the world, there is greater scope for diversification and growth rates can be impressive.
