Record dividends reveal a total lack of entrepreneurial spirit
There’s plenty of evidence to suggest the world’s going to hell in a handcart. Whether it be Donald Trump’s unique brand of chaos, Britain remaining paralysed with fears over Brexit, or that the polar ice caps are still melting; it’s hard not to feel decidedly pessimistic.
But amid all this doom and gloom, global capitalism is apparently forging ahead. Dividends in the second quarter of the year hit a new high, according to US investment firm Janus Henderson. A record $513.8bn was handed to investors in the three months to June. The asset manager says shareholders around the world will bask in payouts totalling $1.4 trillion (£1.2 trillion) over the course of this year.
Of course, such generous rewards to shareholders are like a red rag to a bull for Corbynistas. They’re just one more example of the way in which the owners of the means of production are screwing the proletariat.
It’s highly unlikely that the hard Left is going to accept the argument that dividends don’t simply line the pockets of City high-fliers; that they fund tens of millions of retirements. Not to mention that they also quietly top up the financial clout of most trade unions, which invest their financial reserves in all manner of stocks and shares. But if we do assume that everyone benefits in one form or other from dividends, the fact that records are falling surely ought to be celebrated? There’s a number of reasons why not.
First, the rate at which dividends are growing hit a two-and-a-half year low. This, as the boffins at Janus Henderson pointed out, was a product of “the deceleration in the world economy” – a concerning turn of phrase that conjures up thoughts of bubbles bursting.
Then there’s the fact that the numbers have been favourably skewed. One example of this comes from Japan. Historically, Japanese firms have been fairly miserly when it comes to dividends. More recently, however, they’ve changed their tune. Those operating in the world’s third-largest economy have decided that they’d be better off handing cash back to shareholders, instead of sitting on bundles of it in an environment of ultra-low interest rates.
In the US, meanwhile, corporate profits have been turbo-charged by
Trump’s tax cuts. Record dividends are, therefore, a product of one-off changes rather than better operational profitability, per se.
The Janus Henderson figures also highlight an arguably more worrying trend: the propensity for companies to pay big special dividends. As any seasoned director will tell you, sitting on piles of cash makes you ripe for a takeover target. Simplistically put, companies facing such a conundrum have two choices: invest the money or pass it on to investors.
Increasingly so, it feels like the latter option seems more appealing. And in Britain, there are some great recent examples. Anglo-australian mining giant Rio Tinto handed back billions after selling off its coal mines. Royal
‘Shareholders around the world will bask in payouts totalling $1.4 trillion over the course of this year’
Bank of Scotland announced a £1.7bn one-off earlier this month – but it was hardly a cause for celebration.
Chairman Sir Howard Davies complained of “considerable uncertainty and considerable nervousness” and fears of “low growth”. Fine, as a captain of industry, one must be realistic. But the tone was one of a bank that netted a load of lolly and dared not even entertain the idea of using it for anything else. Yesterday’s figures also don’t include share buybacks. And here one can find another recent example of a disturbing lack of corporate ideas and ambition. Whitbread last month completed a £2bn share buyback programme that followed the sale of Costa to Coca Cola for £3.9bn. There was never any doubt that most of the proceeds of the sale would be returned to investors. Surely this gave a company that has transformed itself on more than one occasion the platform to do it again? This is the company whose long and illustrious history has included bringing Heineken to Britain in the Sixties and (for a short time in the early 2000s) making Stella Artois posh. A conglomerate whose portfolio has included Marriott Hotels, Pizza Hut and David Lloyd gyms.
But no. Left with Premier Inn as its only asset of note, Whitbread is now a shadow of its former self.
Big dividends are an important source of income for the world’s investors. But they should not be the only consideration. Indeed, even The Business Roundtable, an influential group of American chief executives, has conceded to this. “Shareholder primacy”, once the only creed across the Pond, now sits alongside workers, suppliers, customers and communities as five key considerations, the business group says.
Nevertheless, that records continue to fall shows the strength of the global corporate balance sheet. This is far from a weak position. Dividend payments are still going up. But scratch beneath the surface and there’s evidence of a more disturbing trend: a certain lack of entrepreneurial spirit; to shun investment in favour of rewarding investors. And that’s a cause for concern.
Red letter day for Greene King investors
A penny for the thoughts of Greene King’s former boss Rooney Anand. After 14 years at the helm, transforming the company from plucky Bury St Edmunds brewer to one of Britain’s biggest pub chains, he stepped down in May.
He had ridden out some really tough times. The smoking ban, the credit crunch, even the acquisition of the Spirit chain of pubs was far from smooth. Short-sellers had been and gone; he was happy in what he was handing over to former Madame Tussauds chief Nick Mackenzie.
He’d done well for shareholders. But wouldn’t it have been good if he’d waved goodbye by handing them a deal worth more than 50pc of Greene King’s current share price?
Yesterday’s takeover was well sign-posted after all, with plenty of chatter in the City both before and after Anand’s exit that Greene King was a takeover target.
As for the deal, the new owners-elect (shareholders must give it the official thumbs up) are making all the right noises. No “material” job cuts. No changes to strategy. Mackenzie will stay in place. Only chairman Philip Yea will go.
Of course, it’s very easy to make all these promises when you announce the deal at ten-to-four on a Monday afternoon and can hide behind the fact that it’s far too late in Hong Kong to front up to the press.
As we’ve seen with Ei’s deal with Slug & Lettuce owner Stonegate earlier this summer and Fuller’s brewery sale to Asahi last year, change of ownership ruffles feathers.
If CK Hutchison is going make big promises that searing cost-cuts are not on the cards, they need to be wise to a couple of things: Britain’s pub landlords will hold people to their word. And if they’re wronged, they’re a noisy bunch.