According to the latest Janus Henderson Global Dividend Index* there is both good news and bad news for income investors. The good news is that the total amount of dividends paid to global shareholders reached a new high during the three months of April to June 2019. The bad news is that rate of increase (1.1%) was the slowest for more than two years.
The deceleration of the world economy, and the consequential impact on corporate profits, has started to take its toll on global dividends. But, for now at least, payouts are still in line with long-term averages.
The impact of the global economic slowdown will be greater in some parts of the world than others. This is why having a global approach to income investing is so valuable – the regional and sector diversification brings significant benefits to investors.
We take a closer look at the report.
While Canada's payouts set a new record, US dividends rose at their slowest pace in two years, with share buy-backs making a noticeable impact. Share buy-backs, as the name suggests, reduce the number of shares in issue and therefore the total cash value of dividends paid rises more slowly than the per-share dividend does. But the money is still being returned to shareholders – just by a different route.
Share buy-backs aside, more than 80% of US companies in the index still raised their dividend payouts. The largest contribution to growth came from the US banking sector, while among the weaker sectors General Electric's cut hit industrial dividends, and a cut from Kraft-Heinz impacted food producers.
A fund to consider: JPM US Equity Income. Despite the naturally lower yielding nature of the US market, it has a long history of dividend payments. This fund invests in a diverse range of established companies and manager Clare Hart has a wealth of experience, along with a huge team of analysts, to help her filter down the whole US market into a portfolio of 85-110 stocks.
Weak dividend growth,combined with falling exchange rates, pushed overall European payouts down over the period. However, some countries fared better than others. France, comfortably Europe's largest dividend payer, saw payouts rise. And booming profits at luxury group Kering – the owner of brands such as Gucci – meant it was the largest single contributor to growth. Three quarters of French companies in the index increased their payouts, with the only cut coming from EDF.
German dividends performed less well. A relatively low three-fifths increased their payments, with the largest contribution coming from Deutsche Telekom - although others such as Adidas grew faster. The car industry put in the weakest performance, with cuts from BMW and Daimler. An industry downturn, exacerbated by global trade tensions and the switch to electric vehicles, is hitting profits hard.
In the UK, payouts were boosted by special dividends from Rio Tinto and Royal Bank of Scotland. Almost three quarters of companies in the index raised their dividends, although there were cuts from Angle-American, Antofagasta and Smith & Nephew. Spain, Netherlands, Italy and Switzerland all beat the regional growth average. Sweden, Finland and Denmark all saw declines.
Belgium's dividends dropped by over a quarter, owing to a halving of Anheuser-Busch InBev's payout. The brewing giant took on huge borrowings to finance its acquisition of SAB Miller and is now taking steps to improve the balance sheet. However, Carl Stick, manager of Rathbone Income fund, said he welcomed the cut. “AB InBev is a terrific business,” he said in a recent interview. “Its management decided it was not being rewarded by paying a high dividend so it reduced it and started to pay down its debt instead. We viewed this as a good move – business and financial risk reduced as a consequence and we think we will get better growth from that lower point, so we topped up our small holding.”
A fund to consider: BlackRock Continental European Income. The manager of this fund, which is on the Chelsea Selection, looks to identify undervalued European companies (or companies with a predominant part of their business based on the Continent) that offer reliable, sustainable dividends; potential dividend growth; and protection against inflation.
For seasonal reasons, Hong Kong dominates the second quarter of each year – it's when most companies pay their dividends. The biggest impact came from China Mobile, which cut its final dividend after profits in the second half of the year underperformed. Elsewhere, Hong Kong's large property and financial sector led payouts higher.
In South Korea, dividends fell, hurt by Samsung keeping its payout steady. The company has contributed most to the country's dividend growth in recent years, but is having to combat lower chip prices and slack demand for smartphone components.
Indonesia and Japan experienced new record highs. Almost three quarters of Japanese companies in the index raised their dividends, reflecting rising profitability and expanding payout ratios. The biggest contribution came from Takeda, the pharmaceutical group that acquired Shire in the UK. Japanese dividend growth has been outperforming the rest of the world for four years, reversing a long period of relative stagflation.
A fund to consider: Baillie Gifford Japanese Income Growth has just marked its third anniversary. It aims to benefit from the improving corporate governance in Japan, as more and more businesses move towards a progressive dividend-paying policy.
For those looking for a fully global option, Fidelity Global Dividend, which is on the Chelsea Selection, is worth a look. Dan Roberts has been managing this fund since its inception in January 2012. He targets business models with predictable, resilient returns and is happy to pay a fair price for a good company.
For more income-producing fund ideas, visit the Chelsea Selection.*All data sourced from the Janus Henderson Global Dividend Index, edition 23, August 2019.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.