Dividend payments around the world soared in 2017, with 11 out of 41 countries breaking records, according to the latest Global Dividend Index report from Janus Henderson. A huge $1.252 trillion was paid out to global shareholders last year, with underlying growth of 6.8%* and every region of the globe seeing dividends increase on aggregate.
Amongst individual countries there were winners and losers, as you would expect. After a difficult 2016, the picture in the UK was also brighter with dividends growing by an impressive 10%*. this was on the back of mining companies having restored the dividend payments they cut or cancelled in the leaner years for commodity prices.
On the continent, while France showed no growth and Spain posted a third consecutive year of declines, records were broken in the Netherlands and Sweden.
Further afield, Canada – often overlooked by income investors – was the ninth largest producer of dividends last year, with underlying growth of 9.4%*. It outpaced the US where growth was 6.3%*. It may come as a surprise to learn that North American dividends account for more than two-fifths of the global total, and have doubled since 2009 when the survey was first published.
Asia and Japan also fared well. Hong Kong, Taiwan and South Korea all posted new annual records, while buoyant corporate profits in Japan also pushed its dividends to a new high. Toyota Motor, the country's largest payer, accounted for $1 in every $11 paid*.
With strong earnings growth around the world continuing to support dividend payments in the coming year, Janus Henderson expects underlying dividend growth to be in excess of 6% in 2018.
We take a look at six income-producing global equity funds from the Chelsea Selection.
This fund offers investors access to a portfolio of global equities, with Jacob de Tusch-Lec providing an income at least in line with other UK-focused, equity income funds. Jacob's process is well defined, but allows some flexibility for him to express his views. His slightly atypical approach to identifying stocks, namely by avoiding mega-caps, has served the fund well and is a distinguishing feature.
This fund invests in transparent and sustainable businesses. It aims to pay a regular and growing income while preserving capital and is unconstrained in terms of where it can invest, avoiding some countries or sectors altogether. The value influence means he is less likely to overpay for a stock, which can help to protect against price falls in down markets.
This fund is run by the same manager as Fidelity Global Dividend and with the same investment process. The difference is that it aims to provide a much higher income. This is achieved by using 'covered calls'. When you sell a covered call, you already own shares of the underlying stock and you are giving someone else the right, but not the obligation, to buy that stock at a set price for a set period of time in return for a fee. For example, you offer to sell the option for £100 until the end of the month. In return you get a payment of £2. If the price rises to £101, the buyer gets the share at a bargain price but you are still £1 better off. If the share rises by more you will miss out on the additional growth. If the share price falls, the buyer does not have to buy the share but you still get the fee.
This portfolio typically consists of around 35 equal-weighted stocks, which means that investments are very different from the benchmark index. We believe the managers' focus on first choosing the right companies, rather than filtering by dividend yield, gives them a greater chance of finding hidden stock gems. They look for growing, rather than high, income. The one-in, one-out philosophy means the fund stays up to date with the managers' best ideas.
The fund offers welcome diversification for those investors concerned that they are over-reliant on UK companies for their dividend yield. Although the manager is one of the youngest managers we rate, he is supported by a strong team and a sound process. 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.
The manager of this fund takes full advantage of Newton's impressive research resource to exploit macroeconomic themes and pricing anomalies at the company level. Portfolio holdings must yield at least 25% more than the FTSE World Index, which ensures the fund has an attractive yield.
*Janus Henderson Global Dividend Index, Edition 17, February 2018. Underlying growth figures adjust the numbers to take into consideration exchange rate movements, unpredictable one-off special dividends, changes in the list of companies featuring in the global top 1,200 and changes in the timing of payments.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Darius's views are his own and do not constitute financial advice.