• Dividend payouts have continued to grow, with Q2 marking the strongest quarterly distributions on record.

• Companies in Europe and emerging markets have led payout growth, with the financials, energy and consumer discretionary sectors in particular showing strength.

• Amid this strong showing, we continue to see a case for exposure to dividends as a way to enhance total returns and diversify portfolios.

Q2 dividend distributions show healthy year-on-year growth

Europe’s Q2 windfall was underpinned by a more than doubling of global payouts compared with Q1. European firms distributed a combined $278.6 billion in Q2 and $347 billion in H1; relative to the same period last year, that’s a rise of 7%. 

Of the top 20 largest payouts in Q2, 13 came from European companies, predominantly in the financials and consumer discretionary sectors. At the company level, Saudi Arabian oil group Aramco retained its position as the world’s largest dividend payer. Financial services group HSBC had the next highest payout at $11.8 billion, which included a special dividend of $0.21 per share on top of the interim $0.10 per share.

Q2 dividend distributions globally rose 7.5% year on year (y/y) to $792 billion, with 12-month payouts expanding 5.1% year on year to $2.1 trillion as of end-June 2024. The gradual strength of seasonally adjusted payouts since Q3 2023 suggests an emerging normalisation, as base effects of the 2020 Covid-19 pandemic have dissipated and growth has reverted back closer to its trend. To date, this recovery in dividend payouts has not been affected by macroeconomic headwinds, geopolitical tensions or the higher interest-rate backdrop. 

Europe and emerging markets (excluding China) led global payout growth of $55 billion in Q2, contributing $18 billion (+8% y/y) and $18 billion (+13% y/y), respectively. The financials and energy sectors served as the dominant contributors to growth for the period. In contrast, Pacific ex-Japan’s payout declined $2 billion (-6% y/y). Firms in the basic materials sector saw payouts decline sharply, by $16 billion (-28% y/y), as emerging markets firms across the board slashed their dividends – notably companies in Brazil, India and Qatar. A major headwind for the dollar payouts was the more than 14% devaluation of the Brazilian real versus the US dollar y/y to the end of June 2024.

Europe’s cumulative payouts show continued growth in 2024

Past performance is not a reliable indicator of future returns.

Source: FactSet, Vanguard. Data as of 28 June 2024 and based on FTSE All-World Index constituents.

A look ahead

We expect that emerging market payouts will feature prominently in Q3. Looming large, though, could be challenges for key industries affected by China’s domestic economic issues, most notably in the real estate sector. After Agricultural Bank of China’s June distributions ($11 billion) rose 5% compared with August last year, all eyes will be on the other three “big 4” Chinese lenders when they distribute in August. Importantly, how the payouts from ICBC, Bank of China and China Construction Bank compare with mid and small-sized lenders, and with the basic materials industry globally, could serve as a gauge for the overall strength of China’s domestic economy and how it may impact distributions globally further out.

The case for dividends

We recently laid out the case for investing in dividends given the current market landscape. Importantly, following strong performance from growth equities, we believe investors may want to diversify their core beta holdings with dividend exposure. In addition, dividends can afford portfolios a buffer against inflation and recession, which could help in the face of uncertainty. Exposure to global dividends, in particular, can allow investors to counteract the seasonality of distributions while reducing the risk associated with relying on specific markets.