Overall, I’m fairly cautiously positioned at the moment in investment terms, but I might, arguably, be much too risk averse, especially when you look at some key macro data. Recent numbers looking at global dividends, for instance, suggests that cashflows are surging. Maybe that’s why volatility measures have started dropping again?
Starting first with those dividends, recent numbers from Janus Henderson suggests that corporates are awash with cash. According to the most recent report of their Janus Henderson Global Dividend index, dividends pushed 10.2% higher on a headline basis to $244.7bn in the first quarter. The total was a record for the first quarter.
Janus Henderson also reports that all-time quarterly records were broken in Canada and the US, while first-quarter records were broken in one in four of the countries in the index. Asia Pacific ex Japan was the only region not to see an increase, owing to sharply lower special dividends in Hong Kong, and dividend cuts in Australia.
The Janus Henderson Global Dividend Index ended the quarter at a record 174.2, meaning that global payouts last year were almost three-quarters higher than in 2009. Key highlights included :
- 2018 set to see global dividend growth of 6.0% in underlying terms
- Headline growth upgraded to 8.5%, helped by a weaker dollar, with payments expected to reach a record $1.358 trillion
- Q1 headline growth was ahead of Janus Henderson’s forecast, mainly because the US dollar weakened steadily over the course of the quarter, meaning that payments denominated in other currencies were translated at more favourable exchange rates.
- On an underlying basis, growth was exactly in line with Janus Henderson’s expectations, up 5.9% year-on-year and continuing the pace set in 2017.
- Seasonal patterns in dividend payments give North America a greater share of global payouts in Q1, as almost every company makes regular quarterly distributions to investors. US underlying growth was 7.6%, with the total paid reaching an all-time quarterly record of $113.0bn.
- Overall, almost eight in ten US companies paid out more in dividends year-on-year, with technology, financials and healthcare doing best. Canada saw underlying growth of 13.8%, the fastest in the developed world. The $10.1bn total there was also an all-time record, and every company in the dividend index raised or held payouts.
Janus Henderson reckons we’ll see underlying dividend growth of 6.0% this year, with expansion expected to come from every region of the world. The dollar decline in recent months has added to the headline growth forecast and Janus Henderson now expects dividends to rise 8.5% in headline terms for the full year, reaching a total of $1.358 trillion, $10bn more than its initial expectations in January.
The other good bit of news is that measures of stock market volatility are heading sharply lower again, despite all the talk of trade wars and diplomatic blustering. Investors are also clearly not panicking – yet – about increasing US interest rates and a stronger dollar. At the moment the prevailing view seems to be that rates will slowly head north and US Treasury Bond yields won’t shoot past 3.5%. That’ll in turn help flows into the dollar which might continue its recent strengthening. But this recent dollar strength does suggest an alternative narrative which is that investors aren’t fooled by the low levels of volatility and are quietly moving into the dollar because it’s a safe haven asset. In this more bearish narrative, the dollar might continue to strengthen as big global institutional investors slowly start buying back into US Treasury bonds as their yields start to exceed 3.5%.
The story of the next 12 months will be framed by these two narratives – gentle increases in US interest rates and in the value of the dollar indicating a strong global recovery versus the dollar as a safe haven asset. In the meantime, recent numbers for May, from S&P Dow Jones, suggests that markets are buying into the first narrative. Measures of index volatility have crashed to low levels across the board although the index firm notes that “dispersion continues higher than would otherwise be typical; correlations are subdued. The spread between the S&P SmallCap 600 dispersion and index volatility was the second-highest since the early 2000s. Only November 2016 – the month of the Presidential election – displayed a higher spread. Dispersion in the S&P Emerging BMI reached its highest level in two years; rising energy prices acted to boost many of the OPEC nations’ bourses, but triggered crippling strikes in Brazil and weighed on the energy-importing nations more generally. Evolving U.S. trade relations with China, on-off Korean peace negotiations, Middle Eastern tensions and volatility in the Turkish Lira also played a part in producing a noisy month.” The chart below from S&P Dow Jones nicely sums up the situation – if you’re going to bet on stockpickers focus on US Small caps and emerging stocks.