Wake-Up Call

Image source: shutterstock - Olena Kryzhanovska

What's going on?

The years dividend payouts are on course to pass pre-pandemic levels by the end of 2021, so you can relax: the last couple of years was all just a bad dream.

What does this mean?

Companies across the board cut their dividend payouts last year, nervous that they wouldnt have enough cash on hand to outlast the pandemic. This year, though, theyve been feeling more confident about sharing their profits with investors. Case in point: 90% of all companies either raised dividends or kept them steady last quarter, paying out $404 billion in total up 22% from the same time last year. And that along with strong analyst predictions for this quarter suggests global dividend payouts this year are on track for a new annual record.

Why should I care?

Zooming in: Winners become losers.
The uptick in dividends last quarter was driven primarily by both the mining sector which benefited from strong commodity prices and the banking sector, which was released from tight pandemic-induced restrictions (tweet this). But the two sectors might have very different outlooks going forward. Miners profits and, by extension, their payouts are at risk from falling commodity prices, which are looking increasingly likely as supply bottlenecks start to clear. Banks loans businesses, meanwhile, look set to profit from higher interest rates, not least because the head of the Federal Reserve who is planning to hike rates next year was re-appointed on Monday.

The bigger picture: Back to old faithful.
The absence of dividend income has been felt keenly by everyone from pension funds to charities those that rely on a steady influx of cash to fund their commitments. Theyve instead been having to rely on bonds, whose rock-bottom yields have made it seriously difficult to generate a stable income. This bounceback, then, will come as welcome news going forward.

Originally posted as part of the Finimize daily email.

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