Dow Jones Industrial Average (DJIA) futures rocketed 112 points higher before the bell on Tuesday, pointing to yet another record day on the stock market. But while investors bask in the all-time highs, one investment firm is sounding the alarm on future dividend payouts.
Janus Henderson warned investors that the juicy dividend rates of the last two years are coming to an end . As corporate earnings wane, investor payouts may take a cut.
“We have been cautioning investors all year that the rapid dividend growth they have enjoyed in the last couple of years was set to return to more normal levels… A softening global economy is beginning to have an impact on corporate earnings and, in turn, on dividends” – Jane Shoemake, Janus Henderson.
In the monster bull run since 2009, dividend rates have risen every single year for a decade. The pace accelerated to record levels in 2018 where total payouts rose 8.5%.
But don’t expect that trend to continue. 2019 will see a slump back to 5.4% and will likely level off in the next year, according to Janus Henderson.
Why? The great untold story of 2019 is that company earnings took a major hit. The US quietly fell into an earnings recession earlier this year (marked by back-to-back quarters of earnings decline) and hasn’t recovered. Masked by reports of “better-than-expected” results, absolute earnings fell for the third-straight quarter in the recent season .
The consolation in Janus Henderson’s report is that US companies are holding up much better than the rest of the globe. US stock dividend growth is expected to come in at 8.6% this year, compared to 5.4% global average.
Among the worst-hit are China and the UK. Half of the Chinese firms cut their dividend payouts in the last three months. But the UK is a particular concern with a meager 0.6% dividend growth this year. That’s a worrying trend given that Britain is typically seen as a dividend haven.
For now, stocks remain at record highs and investors continue to be rewarded via stock buybacks. But the dividend train is slowing down and it could weigh on investors’ passive income going into 2020.