The latest Henderson Global Dividend Index (HGDI) was released this morning. The HGDI, if you’re not familiar, measures dividend trends across global markets. It gives us an insight into quarterly dividend movements. The index offers investors a guideline for the future direction of dividend policies.
What it said about the trend for the latest quarter is revealing.
The main thing to note is that dividend payouts are rising on a global scale. The HGDI shows stock listed companies increased payouts for the June quarter.
It won’t surprise you to learn that payouts are rising if you invest on the ASX. Aussie listed companies, led by the major banks, have prioritised dividends amid flatter earnings. But that trend is taking place right around the world.
Yet there is a catch.
Despite rising global payouts, the total amount of payments is actually falling. If that sounds confusing to you, you’re not alone. While it appears contradictory at first, it does make sense on closer inspection. I’ll explain.
Total payments fell in the June quarter on the back of turbulent currency markets. In fact, payments fell for no other reason than a strong US dollar. The greenback’s performance against major currencies was biggest culprit for declining payments. To illustrate how this happened, let’s use the Aussie dollar as an example.
ASX listed companies use Australian dollars to pay out dividends. That matters when we’re looking at the total level of global dividend payments. Put simply, a weaker Aussie dollar results in lower total payments. In other words, the higher payouts are offset by a weakening in the local currency.
The same is true elsewhere. No stock market can escape the effects of a strong US dollar. It explains why total payments are down for the quarter. But it’s not just the past quarter where total payments have dropped. This trend is now in its third consecutive quarter. And almost all of it is down to the USD’s strength against major currencies.
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Dividend payments fall by half a trillion dollars
Compared to this time last year, dividend payments fell 6.7% to $551 billion. The ASX saw dividends dropped by 15%, to $10.4 billion. Again, this happened as a result of the Aussie dollar’s poor performance against the greenback.
But there is another way we could look at the HGDI data. We could remove all currency related factors from the equation. If we do, then the HGDI shows dividends actually rose 8.9% globally.
That’s why ASX dividend yields remain attractive. If you judge it solely on the local currency, the dividend payouts look healthy.
For the most part, Australia is keeping pace with global markets. If we isolate payouts from the US dollar, ASX dividends are up by 8.9%. That’s exactly in line with global markets. And that’s still the case despite the ASX’s higher starting point.
What does that mean? It shows that ASX listed companies continue to pursue aggressive dividend policies.
The biggest contributors on the ASX are the banking and materials sectors. Yet even that’s down to a select few companies. The Commonwealth Bank [ASX:CBA] makes up just under half of total dividend payouts on the ASX.
Despite this, no Australian company made the top 20 global list. US listed companies dominate the list of most generous payers. The S&P500 has the most progressive dividend policy in the world. Of course, the strength of the US dollar helps its cause.
Finally, in case you’re wondering, Nestle SA [VTX:NESN] came out on top. The Swiss-based company was the most lavish dividend payer during the June quarter.
ASX starts the week on a positive note
The local stock market has started off on a positive note this week.
Over three quarters of ASX200 listed companies recorded gains in early Monday trade.
The big loser among blue chip stocks was CBA. The Big Four bank is down 1.02% since resuming trade this morning. CBA had suspended trade following its decision to raise new capital last week.
Yet the other three big banks helped push the ASX200 up to 5,379.3. That’s aided the ASX in edging 0.4% higher since Friday.
The All Ords, too, is seeing similar gains, up 0.4% to 5,382.3 points.
Looking beyond the banks, the big miners are all up today.
Fortescue [ASX:FMG] stock rose 3.4%, at $1.85 a share. Meanwhile, BHP Billiton [ASX:BHP] is up 0.47% to $25.44. Rio Tinto [ASX:RIO], too, rose 0.42%, trading at $38.60 a share.
But we can’t say the same about oil producers.
Woodside Petroleum [ASX:WPL] is down 0.75%, at $32.59 a share. Oil Search [ASX:OSH] is also down over 1.49%, trading at $6.60. The oil industry is holding out for a rebound in prices. But they might be waiting for some time yet.
This week should bring more stability on the markets. There’s nothing major on the horizon that could weigh down stock prices. But the long term outlook remains in the balance, amid global economic uncertainty.
If nothing else, at least dividend payouts are rising. But you’ll just need to look beyond the US dollar to feel any benefits from it.
Contributor, Markets and Money
PS: Markets and Money’s Vern Gowdie believes the ASX is set for a catastrophic crash.
Vern is the award-winning Founder of the Gowdie Family Wealth advisory service. He’s ranked as one of Australia’s Top 50 financial planners. Vern’s convinced the ASX could lose as much as 90% of its $1.8 trillion market cap. And that’s why he’s written, ‘Five Fatal Stocks You Must Sell Now’ for you.
In this free report, Vern identifies the five companies which could destroy your wealth. It’ll surprise you to learn which blue chip stocks made his blacklist. And he’s identified one major commodity stock that could catch you by surprise. To find out how to download the report, click here.