There’s no doubt that stock investors are facing their toughest challenge since the meltdown in global markets of a decade ago. Market commentators have long claimed that we’re overdue a stock market correction and there’s a growing amount of evidence that we’ve finally arrived.
The FTSE 100 has fallen 7% in less than three weeks, and whilst we’ve seen a relief rally since the index almost toppled below 7,000 points last week, there’s reason to expect it to keep toppling as key global economic indicators worsen and US-Chinese trade tensions weigh, putting earnings across all of the world’s major equity bourses under pressure.
Global dividend growth slows In reflection of recent profits slowdowns dividend growth has slowed globally in recent months, as research by Janus Henderson perfectly illustrates.
First the good news: global dividends between April and July totalled $513.8bn, a record amount for any second quarter in history. The bad news: headline payout growth clocked in at just 1.1% from the same quarter last year, with returns impacted by a stronger dollar.
Growth was more encouraging on an underlying basis, global dividends rising by a chubbier 4.6%. However, this was still the slowest rate of expansion for two years.
“At this stage in the economic cycle, we are seeing a moderation of dividend increases across a broad range of companies, and the number of cuts is on the rise too,” Ben Lofthouse, head of global equity income at Janus Global, commented.
He did note, however, that “dividends have been growing very quickly over the last two years, however, so the slowdown we are now seeing is not a cause for concern.”
… but UK dividends are thriving! There was more to smile about for UK investors, though, with news that underlying dividends rose by 5.2% in quarter two. And payout expansion was even more impressive on a headline basis, with special dividends from the likes of Rio Tinto (LON:RIO) and Royal Bank of Scotland (LON:RBS) driving the annual growth rate to 8.6%.
Indeed, the standout performer in that second quarter was the banking sector thanks to that supplementary payment from RBS and Barclays (LON:BARC) doubling the dividend. In total, three-quarters of all Footsie companies on the Janus UK index raised payouts in the last quarter, moves that more than offset small cuts from the likes of Antofagasta (LON:ANTO), Anglo American (LON:AAL) and Smith & Nephew (LON:SN).
To quote author LP Hartley, though, the past is a foreign country, and it’s possible that the worsening global economy could hamper payout growth from UK blue-chips further down the line. But there’s no reason to pull up the drawbridge and stop investing, I say.
After all, there remains a broad spread of Footsie shares in great shape to keep growing dividends at a stratospheric rate, irrespective of current stress in the global economy. Whether they be firms with meaty exposure to faster-growing developing markets like Coca-Cola (NYSE:KO) and InterContinental Hotels or stocks whose products carry supreme brand power like Unilever (LON:ULVR) and Reckitt Benckiser, there’s still plenty of opportunity to make a fortune. So make the most of the FTSE 100’s recent dip and go hunting for some income heroes, I say.
Royston Wild owns shares of Unilever. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Barclays and InterContinental Hotels Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019