The U.S. dollar‘s recently-halted bull-run has weighed heavily on company dividends across the world this year, with full-year expectations for payments dramatically cut by Henderson Global Investors on Monday.
At its peak in March, the dollar was up 11 percent against a basket of currency year-to-date. However, it has since declined, partly as a result of gains to the euro, and is now up around 3 percent on the year.
As a result of the volatility, Henderson forecasts that dividends will decline by 3 percent this year, having previously expected growth of 0.8 percent. The revision would take total dividend payments around the world to $1.134 trillion, some $42 billion less than forecast by the firm in January.
“The effect of the strong dollar is set to be even greater in the second quarter when Europe and Japan pay a large share of their annual dividends. In fact, if the current exchange rates persist, the impact could be as much as $40 billion,” said head of global equity income at Henderson, Alex Crooke.
“In any given period, exchange rates can have a very large effect on dividend payments, but our research shows that over time they even out almost entirely, so investors can largely disregard them if they take a longer-term approach,” he added.
Global dividends fell more than 6 percent to $218 billion in the first quarter of 2015 compared with the same time last year, marking the second consecutive quarterly fall, according to Henderson.
However, underlying growth, which strips out special dividends and the impact of exchange rates, is still expected to come in at 7.5 percent for 2015, slightly stronger than the 6.9 percent originally forecast.
The euro has rallied against the dollar since mid-April, as investors speculate on the length of the European Central Bank’s bond-buying program.
Weaker than expected U.S. data last week has also weighed on the dollar, pushing it to fall against a basket of currencies for a fifth consecutive week—its longest stretch of declines in four years according to Reuters.
However, longer-term, many investors are still banking on the dollar to return to strength from current levels of around $1.14 against the euro. Indeed, some analysts still forecast euro-dollar parity, or a one-to-one exchange rate.
Henderson said strong growth in the U.S. made a “disproportionate contribution” to dividends, with payouts reaching an all-time record of $99 billion in the first quarter of 2015, owing to the large share of dividends the U.S. tends to pay at the start of the year.
Dividends in the U.K. tumbled a huge 60 percent to $19 billion, after a $26 billion special payment from Vodafone went unrepeated. This was the single largest factor affecting the growth rate, Henderson said.