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Dividend growth ‘icing on cake’ for global income investors in 4Q24
Tech and financials are poised to deliver several global “dividend darlings” this year, an investment manager has highlighted.
In the December quarter, global developed market companies paid out $485 billion in dividends, an 8.3 per cent increase (or 8.5 per cent in Australian dollar) from 4Q23, according to new data from Plato Investment Management.
Daniel Pennell, senior portfolio manager of the Plato Global Shares Income Fund, described the increase as the “icing on the cake” for Australians who have global equities in their income portfolios.
What’s more, the investment manager’s data indicates that the number of dividend-paying companies that cut their payouts to zero remained low during the quarter, at 5 per cent. Meanwhile, over half (57.1 per cent) of companies increased or initiated dividends when compared to the prior corresponding period.
“This supports our ongoing house view of continued dividend strength from global equities and highlights the importance of the asset class in diversified income portfolios,” Pennell said.
Over the period, large and mega caps were one such segment that saw a significant rise in the number of companies initiating or increasing their dividend payouts.
“Notable regular dividend payers, including Microsoft and Exxon Mobil, increased their DPS in 2024, while businesses like Broadcom used strong earnings to pay substantial dividend Increases,” Pennell said.
“2024 also saw technology giants, including Meta Platforms and Alphabet, pay dividends for the first time, while higher interest rates increased net interest margins leading to very strong dividend growth for financials, with large yields from JPM Chase, BoA and HSBC.”
The portfolio manager also said that, while US bank yields are generally lower than those in Australia, the gap between CBA and its global counterparts is rapidly shrinking.
“In fact, for some banks like US Bancorp, investors can actually achieve a higher net yield by investing overseas compared to CBA,” Pennell said.
And according to Pennell, Europe’s yield story is becoming even more compelling. Banks like Intesa Sanpaolo, Nordea Bank, Lloyds Banking Group, and UniCredit are offering significantly higher income, coupled with much stronger recent dividend growth rates.
“So, with strong earnings and solid balance sheets likely to endure in the technology sector, and highly attractive valuations and earnings growth in international banks, we expect both the tech and financials sectors to deliver several global dividend darlings in 2025,” Pennell said.
At the same time, Pennell said that while overall dividend risk is low, the risk in certain sub-industries over the next 12 months is considered “above average”.
“Our dividend cut modelling shows the chance of cuts in the diversified metals and mining sector remains elevated, reflecting negative dividend growth and challenges to commodity prices,” Pennell said.
Some segments of the real estate investment trust sector are also still showing signs of elevated risk, such as real estate development and operating companies.
On the back of fuel prices, economic uncertainty, and geopolitical tension, some areas of transportation have additionally been flagged as displaying elevated risk.
“Much like in our domestic market, we are seeing a large divergence in dividend payouts within sectors globally. This highlights the continued importance of active portfolio management when it comes to income generation,” Pennell said.
AUTHOR
Jessica Penny
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