Global dividends hit by oil and mining sector cuts

Dividend cuts in the oil and mining sectors dragged down global payouts in the third quarter as companies contend with swinging commodity prices.

According to Janus Henderson’s global dividend index, dividends overall experienced a minor decline, falling 0.9 per cent globally on a headline basis. However, on an underlying basis — taking into account factors such as currency movements and special dividends — payouts rose by 0.3 per cent.

Nine companies out of 10 raised or held payouts steady. Two outsized dividend cuts depressed the overall rate of underlying growth, which would otherwise have hit 5.3 per cent.

Brazilian oil producer Petrobras paid $9.6bn less year-on-year, the biggest dividend cut in the world for the second quarter in a row.

Australian miner BHP cut its payouts by $6.9bn, due to sharply falling profits as a result of lower commodity prices. BHP was the world’s largest dividend payer in 2021 and 2022. Other Australian mining companies, including Rio Tinto and Fortescue Metals, also slashed their payouts.

More than half of all mining companies reduced dividends, with some moving away from “progressive” dividend policies, under which they commit to expand their payouts each year.

“Dividend growth from companies generally remains strong across a wide range of sectors and regions, with the exception of commodity-related sectors, such as mining and chemicals,” said Ben Lofthouse, head of global equity income at asset manager Janus Henderson. “It is quite common and well-understood by investors that commodity dividends will rise and fall with the cycle, however.”

Headline growth is the amount paid in any quarter compared with the previous year. It can be inflated by one-off payments when companies make unusually high profits or dispose of assets. Since the Covid-19 pandemic, companies have paid them to catch up on payouts they missed during the period.

Underlying growth takes into account currency movements, special dividends, timing changes and index changes.

In the UK, underlying payouts rose by 1.5 per cent. Though growth was held back by severe cuts in the mining sector, Glencore was an exception. Over half of the non-mining companies delivered double-digit returns, driven by banks, oil companies and utilities.

Banks, which have boosted profits amid high interest rates, were the biggest contributor to dividend growth in the third quarter, adding $5.8bn or 9.3 per cent year-on-year.

Janus Henderson’s Jane Shoemake, a client portfolio manager, said that banks have been “playing catch-up post regulation and the pandemic,” and that regulated, inflation-linked sectors like utilities “don’t grow particularly” but “are steady players.”

China’s oil and gas sector pushed the country’s dividends to record highs in the third quarter, despite remaining sluggish in other sectors.

Chinese payouts rose 7.8 per cent on an underlying basis, reaching $38.2bn. The growth was led by PetroChina, which more than doubled its year-on-year dividend to $6.5bn. However the oil and gas sector’s growth masked weakness elsewhere, with cuts at China’s biggest dividend payer, China Construction Bank, along with distressed property companies like Country Garden Holdings.

Janus Henderson’s overall forecast for the year has dropped from $1.64tn to $1.63tn. The new estimate would represent a 4.4 per cent increase on dividends for 2022. The US, France, Canada, Switzerland and China are on track to deliver record payments this year.