Nunc Est Dividendum

Dividend growth leaves UK behind

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What's going on?

Global dividend payments hit a record high in the first quarter of 2019 but UK companies are proving the ghost at the feast.

What does this mean?

Analysis of the worlds largest 1,200 companies out on Monday showed that dividends the portion of profit companies pay out to their shareholders shot up by 8% last quarter compared to a year before. A total of $263 billion was distributed to investors, with almost 90% of US companies increasing their payments particularly banks. And global dividends are predicted to climb 4% overall this year to an eye-watering $1.4 trillion.


But not everybodys pulling their weight. UK companies posted only 4% dividend growth on average last quarter, compared to 10% at US firms. At least some grew; last week British-headquartered telecoms giant Vodafone slashed its dividend 40%, the first cut since 1990.

Why should I care?

For markets: Dividend growth isnt necessarily a good thing.


Some investors consider dividends to be an indicator of a companys health, but perhaps not how you might think: choosing to distribute rather than reinvest profit may be a sign that there are few growth opportunities for the business. Indeed, many American executives now believe a US slowdown is on the way and further untoward trade developments could still see Januarys recession fears reappear.



The bigger picture: Dividends have drawbacks.


Companies can reward shareholders in several ways by their stock price rising, by paying a dividend, or by buying back shares. While dividends provide a nice cash payout, theyre typically subject to immediate taxation. Buybacks, which reduce the number of shares in circulation, often lead to a higher share price for those remaining and those gains arent taxed until the shares are sold. That may be one reason why buybacks are even more popular than dividends: US companies alone spent over $800 billion buying back almost 3% of their shares last year. Then again, the tendency of US executives to have their bonuses linked to earnings per share growth may play a part…

Originally posted as part of the Finimize daily email.

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