over 2 years ago • 3 mins
Fresh data out on Monday showed economic activity in the US and the eurozone lost traction in August, and some investors reckon the slide’s only just begun…
What does this mean?
Monthly business activity surveys ask company managers how busy they’ve been compared to the month before, providing a near real-time snapshot of economic performance. And while the eurozone followed up a record-breaking July with another uptick in activity in August, that activity – across both manufacturing and services industries – fell short of economists’ forecasts. The story was the same in the US: economic activity’s on the up, but not by quite as much as expected. And this, if some analysts are to be believed, could just be a sign of things to come.
Why should I care?
The bigger picture: A potential Greek tragedy.
Investors are paying more and more attention to the Delta variant, which is driving a rise in cases even among fully vaccinated people. That brings with it two major risks to economic growth: even more lockdowns – which might lead to less spending and hamstrung businesses – and even more disruptions to supply chains. If, after all, there are more people in isolation, parts won’t get to where they need to be, and there’ll be fewer products available to drive the recovery.
For markets: Traders are on the money.
Traders right now are effectively betting that the European Central Bank won’t increase eurozone interest rates for another three years – and even then, it’ll be by just 0.1%. What’s notable, though, is that they were expecting a 0.3% hike back in May, suggesting they’ve been quick to adjust as new European data takes on a slightly less optimistic color.
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Dividend payouts are on course to hit $1.4 trillion this year, as – cue the wavey camera effect – companies and investors are reminded what it was like back in the good old days.
What does this mean?
Companies paid out $472 billion worth of dividends in the second quarter of 2021, up 26% from the same time last year. And sure, the jump was always going to look big given that companies were clinging onto as much cash as they could a year ago. But even if you block out the last twelve months (and we often try), payouts were only 7% lower last quarter than they were at the same time in 2019. In other words, we’re edging closer and closer to pre-pandemic levels. That gap’s only set to close too: research out on Monday from Janus Henderson showed that 84% of companies are planning to maintain or increase their dividends this year. That would bring total shareholder payouts this year to $1.4 trillion – just 3% below the beforetimes.
Why should I care?
For markets: Who are the big payers?
If you’re looking for the biggest dividend-payers, mining companies – whose earnings came back swinging with commodity prices earlier in the year – could be a good bet, along with industrials, banks, and consumer discretionaries. “Defensive” sectors like consumer staples and telecoms, meanwhile, are lagging behind, while the pandemic-battered travel and leisure industries need every dollar they have right now.
The bigger picture: Where are the big payers?
As for where in the world to look, the UK and Europe – whose second-quarter payouts were up 61% and 66% respectively – are good leaping-off points, while Canada helped drive North American payouts to a record high. Asia’s 45% dividend growth looks good too, with Korean giant Samsung even poaching the title of world’s biggest dividend payer from Switzerland’s Nestlé. You’d do well to avoid emerging markets, though: the pandemic’s still giving their economies a particularly hard time, and their payouts fell 3% versus the same time last year.
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