The easy money boom is now coming to an end

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For investors that count on income from dividends, 2017 and 2018 were blockbuster years. Payouts jumped 8% and 9.8%, respectively — hitting record highs.

But as the global economy has slowed, dividend growth has come back down to Earth.

“We have been cautioning investors all year that the rapid income growth they have enjoyed over the last couple of years was set to return to more normal levels,” asset manager Janus Henderson said in a report released Monday.

The firm found that softness in the global economy is beginning to hit corporate earnings, and thus dividends. The trend began in the second quarter and seeped into the third. While the firm hasn’t finalized its 2020 outlook, it expects more of the same next year.

“We’ve just got a very low growth, lackluster economic environment,” Jane Shoemake, investment director of global equity income, told me.

Shoemake pointed out that even in this environment, companies “are still generating some decent cash.” Energy companies that restructured their operations when oil prices were lower, for example, have fed recent growth.

The numbers: Janus Henderson expects dividend payouts to rise 3.9% in 2019 compared to last year. They’re still forecast to hit a record $1.43 trillion.

The big picture: In 2017, the world experienced synchronized economic growth, while 2018’s corporate earnings bonanza was fed by the sugar high of US tax cuts. That wasn’t going to last forever. Economic growth may continue to grind higher, but the easy returns of recent years are getting harder to come by. Stock buybacks are also slowing.

Aramco’s more modest IPO could still dethrone Alibaba

Saudi Arabia thinks its massive oil monopoly is worth as much as $1.7 trillion — below the $2 trillion price tag said to be sought by Crown Prince Mohammad bin Salman, but high enough to pave the wave for a record IPO before the end of the year.

On Sunday, Saudi Aramco said it was aiming to sell 1.5% of its 200 billion shares in a partial privatization for between 30 riyals ($8) and 32 riyals ($8.53) each.

At the higher price, Aramco would notch the largest IPO on record. It would raise more than $25 billion, taking the crown from Alibaba’s public debut in 2014.

That’s not all. At a valuation between $1.6 trillion and $1.7 trillion, Aramco would be the most valuable company in the world. Right now that title belongs to Apple, worth $1.18 trillion.

That victory, however, is overshadowed by the fact that the IPO is more modest than initially advertised. Low oil prices, the climate crisis and geopolitical risk have raised skepticism among international investors, and could force the Saudi kingdom to rely on rich local families, sympathetic sovereign wealth funds or major customers such as China signing up for shares.

Up next: The share price will be set on December 5, with trading on the Saudi stock exchange expected to start later that month.

Stocks are in vogue once again

In August, the world’s largest wealth manager told clients it was time to sell stocks — the first time since the eurozone crisis that it had given this advice.

Now UBS is backing off its bearish warning. It’s further evidence of the recent mindset among investors that slowing economic growth doesn’t indicate a looming recession, giving stocks more runtime to push higher.

The bank now thinks equities should make up a standard proportion of investors’ portfolios. That’s not exactly a bullish position, but it’s far less gloomy.

Mark Haefele, UBS Global Wealth Management’s chief investment officer, pointed to four reasons the bank is more optimistic in a recent note to clients: 1) Progress in US-China trade negotiations, 2) increased stimulus from central banks, 3) more reasonable expectations for corporate earnings, and 4) tentative signs that the economy is stabilizing.

Preventing an outright bullish stance is uncertainty on trade. “Of course we need to acknowledge that geopolitical gains can swiftly evaporate,” Haefele wrote, noting that President Donald Trump claims that he hasn’t “agreed to anything” with China.

Up next

US capital flows data for September arrives at 4 p.m. ET.

Coming tomorrow: Fresh data on the US housing market.