Dividends issued in the first quarter of 2023 by the world’s largest listed companies just hit a new all-time record.

According to the latest quarterly report from fund manager Janus Henderson, the 1,200 biggest publicly-traded companies in the world collectively issued $326.7 billion in dividends in the first quarter of 2023—an increase of 12% over the same period a year ago. Per the report, the United States was responsible for close to half of the corporate dividends issued in the first quarter of 2023, with real estate, tech, and healthcare driving growth.

The rise reflects the durability of corporate earnings even as stock markets around the world tumbled in 2022 on the back of Russia’s invasion of Ukraine, as well as high energy prices and rising inflation and interest rates. Here’s how to make sure you catch the biggest dividend checks now and in the future.

Payouts to shareholders in the first quarter were boosted by the largest contribution in nine years from special dividends. A number of large companies, such as automakers Ford and Volkswagen, paid one-off special dividends. Ford pays a regular quarterly dividend of $0.15 per share—its special dividend was $0.65 per share.

Even if you strip out the special dividends and moves in currency exchange rates, Janus Henderson said global dividends rose 3% in the first quarter of 2023. It predicted the total for 2023 would rise 5% to $1.64 trillion. It also forecast that the banking and oil industries are likely to be among the biggest dividend payers in 2023.

Goldman Sachs agrees. In May, it forecast dividends would rise by 5% this year, saying that even in a recession scenario, dividend payouts were only likely to fall slightly, as they are the “stickiest” alongside spending on research and development.

Look to Energy Stocks for Dividends

Mark Donovan, senior portfolio manager focusing on large-cap U.S. equities at Boston Partners, had an interesting take. He suggested to the Financial Times that the rise in dividend payouts by companies reflected a “growing acceptance” that managements have to weigh the benefits of investing profits back into the company alongside returning gains to shareholders. He continued:

"Energy is a great example where for years and years a lot of executives were biased towards putting money back into projects, many of which yielded low returns and ultimately resulted in poor stock price performance. Those executives have figured out that raising a dividend and increasing buybacks is a better way to enrich shareholders and ultimately keep their jobs."

I agree completely with Donovan—energy executives have found a new religion, with a core belief that centers around growth in free cash flow, earnings, and dividends. Long gone are the days of production growth at all costs.

My favorite segment of the energy industry remains the same as my colleague Tim Plaehn’s: the midstream sector. Tim reiterated this in a recent article on its income potential for investors.

A decade of consolidation has resulted in an energy midstream sector that is very financially strong, with excellent investment potential, especially for income-focused investors. Consider these factors that Tim pointed out in his article:

• Midstream revenues come from fee-based, long-term contracts for pipeline, terminal, and processing services.
• Dividends are well covered by free cash flow, and current yields are very attractive. The Alerian Midstream Energy Index has a current yield of 6.5%.
• Energy midstream companies provide economically essential services, allowing them to increase revenue, free cash flow, and dividend rates.

In simple terms, the energy midstream sector offers investors attractive current yields, with dividends that will grow over time. And these growing dividends will eventually generate capital appreciation.

I wrote an article about ONEOK (OKE) last week, so I thought I would mention a different company this week, MPLX LP (MPLX), which stores and transports both natural gas and crude oil.

MPLX LP

I like MPLX’s portfolio of refining as well as Appalachia-based gathering and processing assets, given the propensity for fee-for-capacity and minimum volume commitment contracts, which present a highly secure stream of long-term income. Many of the company’s pipelines are built solely to serve Marathon Petroleum (MPC) assets, locking in fees.

One of MPLX’s long-term goals is the building of a significant asset base at the developing natural gas liquids (NGLs) market hub in the northeastern United States, similar to Mont Belvieu (Texas) in importance.

This includes eventual control over NGL exporting capabilities from the East Coast. MPLX has nearly all of the assets in place to do this, with the exception of direct ethane and propane (or LPG) exporting facilities. Keep in mind that about 60%–65% of Appalachian NGLs are transported to market by rail. That translates to MPLX having an opportunity to make investments in pipelines to capture substantial tariff income.

The company is also expanding its pipeline infrastructure in the Permian basin area. It currently serves this area through the Whistler pipeline, which has a capacity of two billion cubic feet per day.

I expect a lot of its future growth to be led by the Whistler expansion projects, which are due to come online in 2023 and 2024. Once completed, it will let MPLX benefit from Permian gas growth and high export demand. The expansion will raise capacity to 2.5 billion cubic feet per day.

Now, let’s look at MPLX stock. The company has been one of the leaders in buying back units among U.S. midstream peers and is unique in that it is the only midstream entity pursuing a base/variable distribution policy, providing it with ample flexibility to return capital to unitholders as market conditions warrant.

And there is really good news on the dividend front: management indicates that it is likely to focus on increasing the base distribution payout, versus allocating more capital to unit buybacks.

MPLX has an approximately $33 billion market capitalization, and it pays a $0.78 quarterly dividend, giving it a strong 9.15% yield. The stock has gained 2% over the past year and 3.22% year-to-date in what has been a bad year in general for energy-related stocks.

I do expect management to raise its cash dividend even more, making MPLX a buy anywhere in the low $30s.

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