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US dividends to hit record high in 2020

21 January 2020

Ordinary dividends in the U.S. are forecasted to grow 7.2% and hit a record high of $663bn in 2020

• Pace of dividend growth is expected to remain steady in 2020, despite a flat earnings growth outlook and ongoing US-China trade woes

• Technology, Oil and Gas and Industrial Goods and Services are expected to lead in aggregate payout

• Construction and Materials and Financial Services pave the way in dividend growth

• Insurance sector to see the largest dividend growth deceleration in 2020

Aggregate dividends in the U.S., excluding specials, are expected to deliver a steady growth of +7.2% in 2020. Our forecasted dividend growth rate for 2020 is in line with the 2019 growth of 7.9% and falls short of the 2018 growth of 10.6%.

The deceleration in dividend growth realized this year is mainly attributed to a slowdown in earnings growth when compared to 2018 earnings growth, which was boosted by tax cuts. Looking ahead, we expect 2019 dividend growth to carry over into 2020, as sluggish earnings and an unsettled trade war limit growth. Considering the gloomy outlook, we expect aggregate dividends to expand at a moderate 7.2%, forging a record payout of $663bn in 2020.

The top five sectors anchoring the dividend payout in 2020 are Technology, Oil and Gas, Industrial Goods and Services, Healthcare and Banks. We are forecasting that these five sectors will maintain a steady dividend payout which accounts for 51% of forecasted U.S. aggregate dividends, or $340bn, up 8.5% YOY. Conversely, we foresee substantial deceleration in aggregate payout growth for the Insurance sector, from 11% to 4% in 2020, on the back of Progressive Corp's dividend policy change.

U.S. ordinary dividends have experienced robust growth over the past years, and we expect the momentum to continue in 2020. While the uncertainties centered around the trade war and the upcoming 2020 election could hamper growth, we are expecting dividend growth to remain unabated at 7.2%. The sectors driving this projected expansion in aggregate dividends for 2020 include: technology, oil and gas, and health care. These sectors are estimated to post payouts of $80.9bn, $74.6bn, and $64.7bn, respectively.


Consistent with previous years, technology companies are anticipated to be the largest dividend-paying companies in 2020, paying a whopping $80bn which reflects a YOY increase of 7.3%. Much of this dividend growth can be attributed to consumer confidence remaining strong through an effort to increase efficiencies by replacing human employees with technology, and the speed at which technological is evolving. On top of this, many of the leading tech payers have relatively large cash balances and low debt profiles, reinforcing the sectors status as top payer.

Going forward, there are two areas of concern for many of the top payers in the technology sector in relation to their dividend sustainability. First, the potential for a sustained slowdown due to continued uncertainty surrounding the trade war between the US and China. The trade war is increasing the cost of doing business and without a resolution, many companies could face the risk of lower profit margins and higher costs pushed onto their customers. Second, many companies are being scrutinized for antitrust laws. Qualcomm came under fire for its monopoly position where they had customers pay excessive fees for the use of its patents. Apple is also in a long-running case surrounding its App Store influence and commission rate, which could change how much power consumers have over digital platforms.

Microsoft and Apple are two of the top expected payers in 2020. For Microsoft, we expect the company to increase their annual payout to $16.1bn (an increase of $1.3bn from FY'19) largely due to continued increases in sales across their 3 segments: productivity and business processes, intelligent cloud, and personal computing. Earnings and FCF growth are also forecasted to support the increases in annual payout. In terms of Apple, we are forecasting the company to increase its dividend payout by $1.3bn, to $15.1bn for FY'20. Despite a slightly softened fundamental outlook due to trade conditions, earnings are still expected to increase 10% and FCF is projected to cover the dividend 4x, influencing our forecast that the usual dividend growth rate of 10% will continue for FY'20.

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