More Money Flowing to Shareholders: Global Dividend Payouts Projected to Reach $1.72 Trillion in 2024

This growth is adjusted for factors like currency exchange rates, special one-time dividends, and other technical considerations. Tech giants Microsoft and Apple, as well as the fuels and chemicals manufacturer Exxon Mobil led the pack as the world’s biggest dividend payers in 2023.

The banking sector played a starring role in the 2023 dividend surge, contributing nearly half the overall increase, as its payout reached a record $220 billion last year (+15% from 2022). This performance can be attributed to two key factors: banks saw their profitability significantly boosted due to the rise in interest rates, and after pausing payouts during the COVID-19 pandemic, banks are now eager to compensate shareholders and attract new investors. It’s also interesting to note that the growth wasn’t limited to major US institutions, like J.P. Morgan, Morgan Stanley and Goldman Sachs, as emerging market banks also joined the trend.

While the banking sector fueled the surge, significant dividend cuts from major mining companies like BHP, Rio Tinto, and Petrobras dampened overall growth. Lower commodity prices, largely a consequence of the war in Ukraine, negatively impacted mining profits, leading to these companies reducing their dividend payouts. According to the British asset manager that published the survey, the higher dividends payouts in the banking sectors was “almost entirely offset by cuts from the mining sector”.

An impressive 86% of publicly traded companies worldwide either increased or maintained their dividend levels last year, with 22 countries, including the US, major European economies, and emerging markets like Mexico and Indonesia, witnessing record-breaking dividend payouts in 2023.

And the broader picture remains optimistic for 2024. Based on this trend, Janus Henderson forecasts a new record high of $1.72 trillion in global dividends for 2024, reflecting a projected 5% underlying growth.

Navigating the Market for Steady Returns: Strategies for Dividend Investors

Investors with a long-term outlook can benefit significantly from dividend-paying companies, as dividends, a portion of a company’s earnings distributed to shareholders, provide a steady stream of income over time. This is particularly attractive for retirees or those seeking regular income.

Choosing suitable dividend stocks requires careful analysis though.

A comprehensive fundamental analysis is crucial, focusing on the company’s financial health and its ability to sustain future dividend payouts. Scrutinising the company’s earnings history and future growth prospects helps identify firms with consistent profitability, which are more likely to maintain steady dividends. Furthermore, assessing debt levels is crucial, as high debt can hinder a company’s ability to honour future dividend commitments.

It’s also important to note that certain sectors like utilities and consumer staples have a history of offering reliable dividend payouts. In contrast, growth-oriented sectors like technology often prioritise reinvesting profits back into the business for expansion, resulting in limited or no dividends.

Beyond the Yield: A Look at Key Dividend Metrics

Investors often gravitate towards stocks with high dividend yields, which is the annual dividend payout compared to the current stock price. If a company pays out a $2 annual dividend and the stock price is $20, the dividend yield is 10% ($2 / $20 x 100).

A seemingly attractive 10% yield, for example, might entice beginners, but solely focusing on yield can be misleading, firstly because the stock price of a company changes everyday, and also because high yields can sometimes mask underlying financial issues. Companies prioritising short-term payouts over long-term investments might offer unsustainable dividends, potentially jeopardising their future financial health.

Therefore, investors should prioritise companies with demonstrable financial strength and consistent earnings that indicate a sustainable source of cash flow to support future dividends, as well as low debt levels that provide the flexibility to weather economic downturns and maintain dividend payments.

While yield is a popular metric, the payout ratio offers valuable insights, as it reveals the percentage of a company’s profits paid out as dividends. A ratio below 70% generally suggests the company can comfortably maintain its dividend while also reinvesting in growth.

Investors should also focus on companies with a history of increasing dividends over time, as it indicates improving financials, allowing them to share a larger portion of their profits with shareholders.

Volatility & Dividends: Finding Stability in Income Streams

Stock markets are inherently volatile, and individual company performance can fluctuate significantly.

For investors seeking a steady stream of income from dividends, focusing on stable companies is crucial, which means that investors need to focus on businesses with a proven track record of consistent profits, allowing them to maintain dividend payouts even during market ups or (most likely) downs.

This is where beta comes into play, as it measures how much a stock’s price fluctuates compared to the overall market.

A stock with a beta of less than 1 (low beta) indicates its price movements are less volatile than the broader market, which usually translates to smaller price swings, making the dividend income stream potentially more reliable.

For example, if the market falls 10%, a stock with a beta of 0.8 might “only” see an 8% price drop, which suggests the company’s underlying value and its ability to pay dividends are less impacted by market downturns.

Conversely, a stock with a beta higher than 1 (high beta) suggests its price movements are larger than the market. This increased volatility can significantly affect the company’s ability to maintain consistent dividends. During market slumps, a highly volatile stock might be forced to cut dividends to preserve cash flow.

Therefore, for dividend investors seeking reliable income, focusing on companies with lower beta stocks could be pertinent, as lower stock volatility tends to translate to a lower chance of significant price drops, protecting the capital invested. The company’s earnings and, consequently, its dividend payouts, are in that case less likely to be severely affected by market fluctuations.

Conclusion

Dividend investing is a long-term strategy. By prioritising companies with strong fundamentals, a sustainable payout ratio, and a track record of dividend growth, investors can build a robust dividend portfolio for long-term success. It’s also important to have a diversified portfolio to minimise risk. Selecting a small number of dividend-paying stocks concentrates a portfolio and increases risk, that’s why many investors turn to alternative strategies such as ETFs (Exchange-Traded Funds) specifically targeting dividend-paying companies.

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