BHP leads the way in record dividend payout year

Thanks to China and its appetite for Australian iron ore, as well as our big four banks, 2021 saw a surge in global dividend payments to shareholders to record levels after they had sagged in the first year of the pandemic in 2020.

Even though it is now historical, the annual global dividend survey from fund managers Janus Henderson shows that 2021 was the best year ever for the world’s 1,200 biggest companies (by market value) and other listed groups and shareholders, large and small.

And sitting on top of the list of dividend payers was BHP which paid out more to its shareholders in 2021 than any other group around the world.

BHP was joined in that top 10 payers in 2021 by Rio Tinto and Fortescue made it into the top 10 list – Rio at No 3 and Fortescue at No 10 – further emphasising the influence of iron ore sales to China last year.

That’s not only the first time an Australian company topped the list, but the first time we had three companies in the top 10.

To give some context, BHP’s payments of $US12.5 billion topped payouts from giants like Apple, Microsoft, Exxon Mobil, Samsung and China Construction Bank.

And to further underline how profitable 2021 was for Australian companies and shareholders and superannuants, Janus Henderson pointed out that (with the help of exchange rates) “Australian dividends reached a new record in 2021 of $US63.3bn, the third largest total in the world after the US and UK.”

That was up from just $US33.9 billion in pandemic hit 2020 which was the lowest going back to 2015.

2021’s record figure was up 68% last year for ordinary dividends and more than 86.5% when special payments, exchange rates and other adjustments are included.

“The rapid rebound continued in the fourth quarter; the $US29.4bn quarterly increase in the headline total for Australian dividends was larger than any other country, just outperforming the UK,” the Janus Henderson report noted.

All up total dividends paid in 2021 by the world’s companies was $US1.47 trillion, up 16.8% from 2020’s depressed level thanks to the impact of the pandemic which saw central banks and other regulators in major economies suppress bank capital management to force them to conserve cash in uncertain circumstances. Underlying growth last year from 2020 was estimated at 14.7%.

The top 1,200 companies paid out $US1.306 billion in 2021 from $US1.118 trillion in depressed 2020. Companies outside this group paid out a total of $US166 billion, up from $US142 billion the year before.

90% of companies on the list lifted dividends in 2021, the highest so far.

To further underline the boost from China’s demands for foreign iron ore, Vale, the big Brazilian miner and iron ore exporter came in at No 8 globally in 2021. US telco and media group, AT&T was the other company in the global 10 10 last year.

And making BHP’s performance last year even more astonishing is that it didn’t feature in the 2020 top 10 but it was 6th in 2019.

The top 10 companies paid out $US149.9 billion in 2021, up 16.6% from the $US120 billion in 2020.

Janus Henderson said in commentary:

“Australian payouts slumped during the pandemic’s first year in 2020, joining France and the UK at the bottom of the world rankings, as its important banking sector faced regulatory constraints on distributing cash to shareholders.

“This resulted in a strong rebound, as those payments were reinstated in 2021 – banks accounted for a third of the headline increase.

“Almost all the rest came from Australia’s mining groups which distributed record amounts of cash in a mix of regular and special dividends as a result of booming profits driven by soaring commodity prices.

“BHP paid the world’s largest ever mining dividend at $US12.5bn for the year, with Fortescue Metals not far behind at $US11.6bn. Rio Tinto and Newcrest also made very large increases. Nine Australian companies in ten raised payouts last year.”

Janus Henderson said that if you examine the $US212 billion 2021 increase in total dividends, one-third came from just two countries, Australia and the UK, where a combination of surging mining payouts and restored banking distributions made the biggest contribution to growth.

The survey shows that besides the rebound from mining and banks, 2021 saw mining payouts almost double their previous record in 2019; banking dividends returned to within a tenth of their pre-pandemic high and consumer discretionary and industrials meanwhile benefited from the recovering economy.

Payouts reached new records in 2021 in a number of countries including the US, Australia, China and Sweden.

But 2022 will be different with a clear slowing to a lower rate of growth – though the March quarter saw a rise of 11% to more than $US302 billion in payouts.

Janus Henderson estimates 2022 growth at 3.1% to a total of $US1.52 billion. Underlying growth is estimated at 5.7%.

“The big unknown for 2022 is what will happen in the mining sector, but it is reasonable to assume that dividends here will be lower than the record levels of 2021 given recent trends in iron ore, other metals and coal markets. “

2022 might, however, be better than Janus Henderson thinks. Higher oil and gas prices, as well as near record prices for coal – especially thermal coal – in the wake of the Russian invasion of Ukraine in late February, and higher metal prices will give mining and energy companies another good year.

Don’t be surprised if Chevron returns to the top 10 this year. Shell, BP, Exxon Mobil and a host of other companies – especially banks – will suffer write downs and losses from quitting their Russian businesses after the invasion.

Fund managers nonetheless warned that the prospects for dividends — which are a key source of income for many retirees, pension funds and charities — face considerable uncertainty and are particularly vulnerable to a downturn in the commodities sector.

“Growth came through on a very broad basis, across different sectors and geographies,” said Jane Shoemake, portfolio manager for global equity income at Janus Henderson said in commentary released with the report.

However, she warned that “the world economy is beset by a number of challenges at present — the war in Ukraine, rising geopolitical tensions, high energy and commodity prices, rapid inflation and a rising interest rate environment . . . These challenges also mean much greater uncertainty is likely to affect corporate decision making.”

And there’s one other potential problem – the slowdown in China and the growing possibility the economy will slip into an extended period of stagflation, which will suppress returns to shareholders in particular.