Greater dividends for global equity investors

Global equity investors are enjoying a bumper year for dividends, according to the latest Global Dividend Index from Henderson Global Investors.

Dividend growth

Overall dividend payouts from companies around the world have increased by almost 12% (or $44.6bn) over the past year – a figure equal to a whole year's worth of Japanese company dividends. This is encouraging news for investors looking to diversify their income-paying investments.

Developed markets led the way, with European and Japanese companies in particular driving the strong growth in payments, with dividend payouts increasing by more than 18% in each country.  France, Switzerland and Spain saw the most growth in Europe, while Germany disappointed, up just 3.9%. In the UK, dividends grew by 9.7%, but two-thirds of this growth was due to a strong British pound. The US also continued to see its dividends grow, up 13.8%. Especially encouraging in the US was the fact that each sector of the economy, bar mining, saw dividends increase.

Emerging markets, on the other hand, saw their dividend payouts fall by 14.6%, due to index changes, weak currencies and slowing economic growth. Asia, once special dividends were excluded, saw dividends fall by 5%.

Currency movements and dividends

There has been a major realignment of global currencies in the past couple of years. Emerging market currencies, the Japanese yen and Australian dollar have all fallen against the US dollar, while the euro, Swiss franc and British pound have all gained in strength.

Over the long term, these currency movements have negligible impact on a global portfolio, but they can have a short-term impact on dividend payouts. For example, the strength of sterling in the first half of this year has accounted for three-quarters of dividend growth. So one of the advantages of global investing is that investors are less exposed to short-term currency fluctuations.

Want to invest in a global equity income fund?

If you are considering investing into the global equity income sector, there are currently three global equity income funds, on the Selection:

Artemis Global Income – Chelsea risk rating 6.5*
This fund targets a yield of 4% by investing in a portfolio of global equities, with a focus towards mid-cap stocks. The manager seeks to grow the capital and yield over time. The investment process borrows heavily from the strategy used to manage the successful Artemis Income fund. To that end, free cashflow is of paramount importance, and only companies with a free cashflow yield of 6% are considered. Other more qualitative factors, such as strength of management and macroeconomic themes are then used to select portfolio stocks. Income is paid in March and September.

M&G Global Dividend – Chelsea risk rating 6.5*
The notion that the discipline of paying dividends leads to greater corporate responsibility, which in turn leads to share price outperformance, is the investment philosophy behind this fund. Manager Stuart Rhodes' main aim is to grow dividends over the long term, whilst also maximising total return by investing across a wide range of geographies, sectors and market capitalisations. The fund has around 50 stocks, typically held for three years. Stuart predominantly invests in developed markets, however he is beginning to look towards emerging market stocks as he feels they are becoming increasingly undervalued. Income is paid in March, June, September and December.

Newton Global Higher Income – Chelsea risk rating 6*
The fund is constructed using Newton's thematic approach and research-led investment process. This means that the managers, James Harries and Nick Clay, will position the portfolio in line with Newton's in-house macroeconomic view. Individual stocks are to be reasonably priced and have a sustainable competitive advantage. As there is an emphasis on maximising income, stocks must yield at least 25% more than the benchmark FTSE World Index at purchase and are sold when the yield drops below market level. The fund is typically diversified across 60-80 stocks, and up to 30% may be invested in emerging markets. Income is paid in March, June, September and December.

How to invest

           

*This is our proprietary rating to aid you in your fund choice. Our research team assesses the overall risk of a fund by analysing a number of factors including the level of risk involved in the region/sector in which the fund invests; the size of the companies within the fund; the number of stocks held; the risk controls imposed by the manager; the use of derivatives and currency. We then assign a Chelsea Risk Rating to the fund, with 1 as the lowest risk and 10 the highest. However, please note that this does not constitute advice. Our risk rating is on a relative fund-by-fund basis and even a Chelsea Risk Rating of 1 will carry some risk to your capital.