Despite the significant economic disruption caused by the pandemic, global dividends exceeded pre-pandemic levels. Furthermore, the recovery is so strong that dividends are now just 2.3% below long-term trend, although this marginal shortfall can be attributed to recent dollar strength.
Strong Q2 figures follow a very profitable 2021, in which companies enjoyed increased sales and widening profit margins thanks to increased demand after the pandemic.
94% of companies increased payments or maintained them in the second quarter. Petrobras outperformed giant competitors in its field to become the world’s leading dividend payer in the second quarter, with $9.7 billion.
Argentina, hoping for energy
“In Argentina, the high level of inflation, together with the devaluation of the currency, causes companies to pay significantly higher dividends in local currency terms. However, when adjusted in dollars, dividends barely rise as companies hold more cash due to the uncertainty these factors bring.”, he analyzed Ales KoutnyPortfolio Manager Janus Henderson.
And he described the country’s industrial panorama in this context: “Argentina’s main exports are focused on the agricultural sector. While commodities have risen steadily this year, they appear to have peaked in the second quarter and are now consolidating. This implies that dividends should remain relatively stable, but with limited upside.”.
Likewise, the data collected from the Janus Henderson Quarterly Report indicates that Latin American companies had an excellent performance compared to the global average. In fact, he highlighted that of all the increases in payments from emerging markets, Brazil and Colombia were responsible for the vast majority of them. The main reason was the large increase in the price of oil, which allowed the main producers to obtain significantly higher dividends compared to previous years.
In this sense, he stressed that Argentina suffers from its own instability. According to Koutny, “Due to political, tax and fiscal uncertainty, Argentine companies keep more cash on their balance sheets. The recent example of quotas and tariff changes shows that companies in Argentina always need to have an additional financial cushion to take into account the unpredictability of governments”.
Thinking about the future, Argentina’s hope is placed in energy, according to Janus Henderson’s report. “Energy could be an important growth area for Argentina. Even with the second largest known shale area in the world, Argentina remains an energy importer. Further infrastructure development, together with a solid political framework, could make Argentina one of the leaders in the area”, pointed out the specialist.
Oil companies drive emerging markets
High energy prices have led to a surge in company cash flows in emerging markets, where oil and gas companies typically account for a large share of total company profits, according to the private report.
“In Latin America, in particular, strong oil and gas revenues meant that in key markets such as Brazil and Colombia, oil producers contributed to all of the second-quarter growth in dividend payouts,” the study noted.
In this context, he indicated that banks and other financials accounted for gains, while consumer discretionary sectors, especially automakers, also posted strong dividend growth. And he added that the decline in special dividends and AT&T’s sharp cut held back the technology and telecom sectors, respectively.
On the other hand, he stressed that Brazilian dividends reached US$10.4 billion in the second quarter of 2022, compared to US$4.2 billion in the second quarter of last year. “It is the highest total in the series of studies (going back to 2009). Brazil’s Petrobras became the world’s leading dividend payer in the second quarter, with $9.7 billion.“, he detailed.
Meanwhile, he pointed out that Colombia also registered a large increase compared to 2021, with $4.7 billion in dividends in the second quarter of 2022, compared to $200 million in the second quarter of 2021, led by Ecopetrol (seventh in the ranking of highest payments, with US$4.7 billion).
In the rest of the region, the dividends of the Mexican companies in the ranking also grew, up to US$3.3 billion (compared to US$2.4 billion in the second quarter of 2021). And those of Chilean companies doubled, but from a low base (US$200 million, compared to US$100 million, recorded by Copec).
Latin America is the growth engine of emerging markets in the second quarter
According to the Janus Henderson study, the outperformance of emerging markets – dividends up 22.7% on an underlying basis – “is especially impressive given the wide dispersion of results within this region.”
Cancellations in Russia following the Ukraine attack caused dividends to plummet by three-quarters, wiping out $6.1bn of the total. Meanwhile, rising oil prices fueled increases of $14bn. , more than half of which came from Petrobras in Brazil and much of the rest from Ecopetrol in Colombia (which included a special dividend.) This explains why Brazilian payouts increased 163.6% on an underlying basis, while payments in Colombia, where only Ecopetrol appears in our index, were 22 times higher,” the report analyzed.
He added that seasonal factors also favored Brazilian dividends in the second quarter of this year, thus supporting the emerging market exchange rate mix for the quarter. “Overall, overall growth in emerging markets was held back by 6.8 percentage points due to the strength of the dollar,” he stressed.
Drastic dividend recovery in Europe and the UK
Globally, the main regional drivers were Europe and the UK, which saw a significant recovery from the impact of the pandemic during their peak second-quarter dividend season – each up almost a third on an underlying basis.according to Janus Henderson.
“As many European companies (except UK) only pay once a year, the second quarter of 2022 was the first time we saw normal dividends from many of them since 2019. The lifting of central bank restrictions on dividends bank payments was especially important in both Europe and the UK Very large raises by German automakers also contributed heavily Meanwhile, Swiss and Dutch payments hit a new record, even in US dollar terms “, he remarked.
perspectives
“While Janus Henderson made a modest improvement for the year – and now expects 2022 disbursements to reach $1.56 trillion – or an addition of 1.2 percentage points to the forecast – it translates to overall growth in 5.8% year-on-year, or underlying growth of 8.5%”highlighted in the report.
While, Ben Lofthousedirector of Global Equity Income, said: “The second quarter was a bit above our expectations, but the rest of the year is unlikely to see such strong growth. Many of the easy gains have already occurred, as the recovery from the 19-year crisis is almost over. In addition, we are facing a much slower global economy and a strong US dollar headwind.
“However, we do see some areas that should continue to generate significantly higher dividend payouts than the global average. In Latin America, the continued strength of prices and the boost in earnings in local currency thanks to the strong valuation of the dollar -which is the global currency of all these export industries- should keep local cash flows at historically high levels. high,” he considered.
He concluded: “As we approach 2023, there will be no further boost from post-Covid-19 recovery payments. In addition, the slowdown in global economic growth and the likelihood that mining dividends are now close to reaching their peak will add a further headwind, although exchange rates are unlikely to act as a major drag on overall growth next year, given the impact of currencies seen in recent months. of dividends will be slower next year, given the current economic outlook.
Source: Ambito
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