Dividends scale to new heights as companies shake off pandemic hangover

Companies are rewarding shareholders with record levels of dividends as corporate balance sheets shake off the hangover of the Covid-19 crisis.

Firms paid shareholders $403.5bn in dividends in the third quarter of the year, the highest total ever recorded for the three months to September, research by Janus Henderson has found.

Dividends are 22 per cent higher than they were over the same period a year ago and are now just two per cent below their pre-pandemic peak in the first quarter of last year.

The surge in shareholder payouts has been driven by soaring commodity prices boosting miners’ bottom lines, allowing them to flood investors with cash.

More than two thirds of the annual growth in dividends came from the mining sector, Janus Henderson said.

Prices for copper, iron ore and other key raw materials have sky rocketed in recent months due to the rapid rollout of vaccination programmes around the world allowing countries to lift Covid-19 restrictions, triggering a sharp rebound in economic activity.

The pandemic unlocking has fed demand for raw materials, lifting prices sharply.

The likes of BHP, Anglo American and Glencore have ridden the wave of the commodity rally, so much so that BHP will be the world’s largest dividend payer in 2021, according to Janus Henderson.

Banks also contributed to the historically high dividend reading, caused by global regulators ending a blockade on shareholder reimbursements in the sector. Weaker than forecast loan loss reserves also allowed banks to reward shareholders by more than expected.

Jane Shoemake, client portfolio manager at Janus Henderson, said: “Mining companies all around the world have benefited from sky-high commodity prices. Many of them delivered record results and dividends followed suit.”

“Banks took quick advantage of the relaxation of limits on dividends and restored payouts to a higher level than seemed possible even a few months ago.”

As a result of the unexpected record dividend print, Janus Henderson hiked its forecasts for the total value of shareholder payouts this year to £1.46 trillion, a record high, and expects global dividends to surpass their pre-pandemic peak by the end of this year.

However, dividend growth may slow due to commodity prices pulling back from historic highs.

“A big driver for 2022 will be the ongoing restoration of banking dividends, but it seems unlikely that mining companies can sustain this level of payouts given their reliance on volatile underlying commodity prices – some of these have already fallen,” Shoemake added.