U.S. Dividend Growth Decelerated Once Again in Q2

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U.S. dividend growth continued its "steady deceleration" during the April through June period to mark a sixth consecutive quarter of slower dividend increases, according to a study by the Janus Henderson Global Dividend Index.

Although the latest data might sound somewhat alarming, note that difficult comparisons against prior-year periods of unusually robust growth are partly to blame for the deceleration in dividend increases. While many of their global counterparts were enacting steep dividend cuts during the pandemic, U.S. companies managed to grow their payouts with "exceptional resilience," writes Ben Lofthouse, head of global equity income at Janus Henderson Investors.

On a headline basis, second-quarter U.S. dividend growth rose 2.6% year-over-year to $148 billion. Excluding lower one-off special dividends, the underlying growth rate came to 4.6% in Q2. While investors certainly would have preferred to see stronger year-over-year dividend growth, the figures still represent a "creditable increase," Janus Henderson reports.

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"Notably, 98% of U.S. companies in our index either raised payouts or held them steady, well above the global average," Lofthouse says.

On a global basis, dividends rose 4.9% to a record $568.1 billion in Q2, per Janus Henderson. Underlying growth, which adjusts for lower one-off special dividends and other minor factors, came to 6.3%.

Healthcare leads U.S. dividend growth

Looking at the U.S., companies in the healthcare sector were the biggest contributors to second-quarter dividend growth, led by Eli Lilly (LLY) and UnitedHealth Group (UNH). UNH happens to be Wall Street's top-rated name among all 30 Dow Jones stocks.

U.S. real estate companies also helped boost domestic dividend growth, with logistics property specialist Prologis (PLD) being the sector standout. Real estate investment trusts, or REITs, are especially valued by equity income investors for their typically generous disbursements.

Pulling in the other direction on U.S. dividend growth were Intel (INTC) and Blackstone (BX), both of which cut their dividends in bids to preserve or redirect cash. Intel, a member of the Dow, may have returned to profitability in Q2, but this blue chip stock has been a poor investment over the past 20 years.

Although economic growth around the world is moderating amid higher interest rates, Janus Henderson expects dividend growth to continue in 2023.

"One of the reassuring features of dividend income is that it is typically much less volatile than earnings," Lofthouse adds. "Payouts lagged behind profit growth last year and so can therefore exceed it this year."

For all of 2023, Janus Henderson forecasts global dividends to increase 5.2% on a headline basis to $1.64 billion. Underlying growth is expected to hit 5.0% vs 2022.

While accelerating dividend increases would be the preferable state of affairs, the data remain indisputably good news for buy-and-hold dividend growth investors. Shares in companies that raise their payouts like clockwork decade after decade can produce superior total returns (price change plus dividends) over the long run, even if they sport apparently ho-hum yields to begin with.

Fears of an economic slowdown or outright recession are likely to keep a lid on the rate of dividend growth for the foreseeable future. Be that as it may, loads of stocks can be counted on to hike their dividends regardless of economic conditions. Investors looking to add such names to their portfolios will find plenty of candidates among the best dividend stocks for dependable dividend growth.

Dan Burrows is Kiplinger's senior investing writer, having joined the publication full time in 2016.

A long-time financial journalist, Dan is a veteran of MarketWatch, CBS MoneyWatch, SmartMoney, InvestorPlace, DailyFinance and other tier 1 national publications. He has written for The Wall Street Journal, Bloomberg and Consumer Reports and his stories have appeared in the New York Daily News, the San Jose Mercury News and Investor's Business Daily, among many other outlets. As a senior writer at AOL's DailyFinance, Dan reported market news from the floor of the New York Stock Exchange.

Once upon a time – before his days as a financial reporter and assistant financial editor at legendary fashion trade paper Women's Wear Daily – Dan worked for Spy magazine, scribbled away at Time Inc. and contributed to Maxim magazine back when lad mags were a thing. He's also written for Esquire magazine's Dubious Achievements Awards.

In his current role at Kiplinger, Dan writes about markets and macroeconomics.

Dan holds a bachelor's degree from Oberlin College and a master's degree from Columbia University.

Disclosure: Dan does not trade individual stocks or securities. He is eternally long the U.S equity market, primarily through tax-advantaged accounts.