The Chairman of the Federal Reserve of the United States warns that the fight against inflation will be long and will hurt households and businesses. As for the dividend paid to shareholders…
In an expected speech at the central bankers’ meeting in Jackson Hole, Jerome Powell warned that the return to price stability “will take time” and will lead to “a long period of weaker growth” as well as ” a slowdown in the labor market”, obviously avoiding the word “recession”. While the fall in inflation observed in July is welcome, “an improvement over one month is far from sufficient” and will have to be confirmed. Otherwise, the return of the price increase to around 2% will lead to a series of “unfortunate costs”. But giving it up would be even more damaging, he insisted, according to the text of Agence France-Presse.
Mr. Powell reiterated that the Fed was ready for “another exceptionally strong rate hike” at the next meeting of the Monetary Committee on September 21, after already two consecutive tightenings of 75 basis points. He also warned that interest rates would go into “restrictive” territory, adding that the so-called neutral rate bar was no longer relevant for the moment. Since the beginning of the year, the Federal Reserve has taken the overnight rate from zero to a range between 2.25% and 2.50%. According to Oxford Economics, the Fed is on track for an additional 125 basis point hike by the end of the year.
Wall Street took the harshness of Jerome Powell’s remarks rather badly. The Dow Jones fell 3% and erased over 1000 points. The Nasdaq fell 3.9% and the S&P 500 fell 3.4%.
Good year for dividends
Nevertheless, a little earlier this week, the British management firm Janus Henderson published its Global Dividend index, which points to an 11.3% jump in global dividends between the second quarters of 2021 and 2022, and this, much to the relief of shareholders and institutional investors, whose portfolios are otherwise battered by the stock market gloom. The so-called underlying growth comes out at 19.1% once the interplay of exchange rates is taken into account, the composition of the index implying a conversion into US dollars.
Dividends paid set a new record of US$544.8 billion, and 94% of the 1,200 companies in the index increased or maintained their dividend. “It is amazing to see that, despite the enormous economic disruption caused by the pandemic, global dividends are now higher than the record level they reached before the pandemic,” remarks Janus Henderson.
In Canada, they also reached a record, up 12.7% on an underlying basis, thanks to oil producers and banks. Thus, 97% of American and Canadian companies have increased or maintained their dividends, with the oil companies claiming 40% of the growth. Statistics Canada calculated that non-financial industries saw their pre-tax profit jump 30.7% between the second quarters of 2021 and 2022, compared to a 3% increase for financial industries. In the first camp, companies engaged in the manufacture of petroleum products reaped a pre-tax profit up 313% and those active in oil extraction, 212%.
There will be a slowdown, given the economic situation. Janus Henderson still raises its forecast for global dividend payments to 1.56 trillion in 2022, representing overall growth of 5.8% year-on-year, or underlying growth of 8.5%.