Income Investors Rejoice

Income Investors Rejoice  The past decade hasn't been friendly to investors who prioritize income over capital appreciation. Central banks' rock-bottom interest rates have kept a lid on bond yields, bank accounts have paid little to no interest on deposits, and many companies have prioritized share buybacks over dividend hikes. The pandemic shock to the global economy forced many companies dramatically cut or suspend entirely their dividend payments in 2020 as managements chose to save cash. The income-investing landscape is rather different today. Central banks around the world have been increasing benchmark interest rates, and bond yields have moved even higher. And dividend payments are at record highs. According to the Janus Henderson Global Dividend Index, dividend payments by some 1,200 companies around the world rose 11% year over year in the second quarter, to a record $545 billion. That includes more than $144 billion paid out by U.S. companies in the second quarter—up 8% and also an all-time high. The path forward for continued dividend growth from here is more challenging, however. Barron's Lawrence Strauss explains: That trend has mostly run its course. “Many of the easy gains have now been made as the post-Covid-19 catch-up is almost complete,” Ben Lofthouse, head of global equity income at Janus Henderson Investors, observed in the latest installment of the dividend survey. Still, even though global dividends set a quarterly record, there’s some caution about payout growth next year owing to concerns about a recession and, particularly in Europe, the lingering conflict in the Ukraine. “Dividends are a little bit of a laggard,” Matthew Peron, director of research at Janus Henderson, tells Barron’s. Looking ahead to 2023, Peron adds that he expects dividend increases “to be more muted,” especially if there’s a mild recession. The fastest dividend growth came from U.K. and European companies—each up about 29% year over year. That generally reflects their larger cuts during the pandemic, and thus sharper rebound now. Second-quarter emerging-market dividends rose 23% year over year, 15% in Japan, and 17% in the rest of Asia. On a sector level in the U.S., the fastest dividend growth came from financial firms and energy companies. Read more from Lawrence on global dividend growth here.