Record growth in dividends and share buybacks outpace profits

privateDividends and share buybacks grew in 2022, expanding four times faster than profits, according to the annual 'Dividend Cover' report released by Henderson International Income Trust (HINT). 

Dividends and share buybacks amassed a record-breaking combined total of £2.29 trillion, growing 25.4% from the previous year, found the report. Specifically, dividends leapt by 20.1% to £1.26 trillion, while share buybacks witnessed a steep ascent, climbing by a third.

Although profits hit an all-time high, they lagged behind dividends in growth, increasing by 5.8%. However, at £3.06 trillion, profits concluded 2022 49% higher than pre-pandemic figures.

Oil producers emerged as the biggest contributors to this global growth, said HINT, with technology, beverage producers, transport companies and banks playing pivotal roles. Geographically, the UK, Asia Pacific, excluding Japan, and emerging markets led the charge in profit growth.

The rise in dividends and share buybacks in 2022, which was more than quadruple the growth rate of profits, caused shifts in the financial landscape, noted the report. The combined cover for these financial instruments dipped to 1.33x from a record high of 1.58x in 2021. However, when viewed in isolation, the dividend cover stood at 2.43x in 2022, which remains above the long-standing average despite being lower than 2021's 2.76x.

Amidst mounting interest rates and a global inflation backdrop, the report said 2023 may not witness any growth in global profits. HINT forecasts a total of £3.05 trillion for the year, marginally below the 2022 figure. Conversely, dividends are expected to rise by 5.1%, reaching £1.33 trillion.

For 2023, the estimated simple dividend cover is projected at 2.31x, a slight decrease year-on-year but surpassing the historical average of 2.26x. The combined cover for dividends and share buybacks is anticipated to recede from 1.33x to 1.31x, aligning with traditional standards.

Ben Lofthouse, portfolio manager of Henderson International Income Trust, said, "2022 was marked by geopolitical turmoil, energy crises and skyrocketing interest rates. However, dividends continued their growth trajectory and are expected to do the same in 2023.

"The volatility of asset prices stands in sharp contrast to the consistent performance of dividends, which remain robustly supported by corporate profits."

© 2023 funds europe

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