For financial professionals in the UK

The quest for income

Ben Lofthouse, CFA

Ben Lofthouse, CFA

Head of Global Equity Income | Portfolio Manager

25 Nov 2021

Essential to your returns

As an equity investor, the total return you receive comes from both capital appreciation and dividends paid. For those seeking income, dividends are attractive because they are regular, usually paid in cash, and as companies – in normal times – can quickly and easily pass on any rising costs to their business, they tend to keep up with or outpace inflation. This contrasts the income profile of cash and bonds which generally have fixed payouts – assets looking decidedly unfavourable given the current economic environment of low-interest rates and rising inflation. What is more, if you’re an investor who is happy to roll up their dividends and buy more shares (known as reinvesting), this puts a fire under your returns thanks to the power of compounding – a force the great Albert Einstein famously described as the “eighth wonder of the world”.

There is a problem, however, for those seeking dividends. With their distribution at the mercy of a company’s management team: dividends are not guaranteed and can be cut if a company faces financial difficulties. This could be due to company-specific factors (e.g., operational issues), broader issues such as macroeconomic or regulatory changes, or unexpected events such as the Covid-19.  Each will impact dividends differently across companies, sectors or regions, with last year a prime example.

A polarised impact

As visceral and gloomy as the pandemic likely felt for most of us, most companies survived, aided by strong fiscal and monetary responses from governments and central banks across the globe, and technological innovation that allowed them to adapt to the significant challenges that arose. Historically, dividends have tended to be less volatile than earnings and 2020 was no different in the end. While profits were impacted, many companies used their balance sheets to shield dividend cuts to investors: even though global profits received a haircut of 24% in 2020, dropping to £1.62 trillion in sterling terms, dividends fell by just 8%, to £906 billion.1 Behind the headline figures, however, the picture was extremely mixed.

Regionally, UK and European pay-outs fell sharply and the furthest, while dividends from the US, Canada, Japan, China and Hong Kong rose year-on-year. Why was there such a difference between regions? Amongst the factors driving this disparity were the severity of Covid breakouts and the extent of government-imposed lockdowns. These factors were particularly relevant in Europe and the UK – responsible for more than half of global dividend cuts in 2020 – with Covid running riot across the bloc. Although the pandemic wrought equal chaos in the US, less draconian lockdown measures resulted in a far lower impact for dividends. Meanwhile, countries in the Asia Pacific region reacted swiftly – containing the pandemic faster – meaning dividends in the region were more resilient compared to elsewhere in the world.

Regulators also impacted regional differences. In the UK, Europe, Australia, and Singapore, financial regulators forced banks to slash dividends to conserve cash, even though many were willing and able to pay. As a result, banks bore one-third of global dividend cuts. These harsh measures were not implemented by regulators in Canada or the US, which saw new dividend records being set in some areas, aided by companies choosing to curtail share buybacks ahead of dividends.

The divergence in performance was also evident across sectors. Dividends in the financials, consumer discretionary, retail & leisure, mining, energy and industrials sectors were heavily impacted. In contrast, classic defensives such as consumer basics, utilities, and healthcare increased their dividends. Technology companies also increased their dividends because of strong secular growth drivers and minimal interruption from the pandemic: many workers adapted to working from home, demand for services rose, and there is often no need for physical locations when selling and interacting with customers

Finally, differences in the sector make-up of regional markets played a part too in the profit story. For example, in the US, £1 in every £5 of pre-pandemic profits was earned by technology companies, compared to just £1 in every £16 across the rest of the world. In the UK, £1 in every £5 was earned by oil & gas, which declined strongly alongside dividends, compared to £1 in £14 in the rest of the world.

The pandemic demonstrated the endless complexities in seeking consistent and stable dividends. More importantly, however, it highlighted that diversification is extremely important – by sector, region, and company. While the UK market stock market is a significant contributor to the global dividend pot, it has drawbacks that can be solved by adding an international dimension to the income mix.

A decade of delivering rising income

The Henderson International Income Trust (HINT) provides UK income-seeking investors with a growing total annual dividend, as well as capital appreciation through a diversified portfolio of securities outside the UK. Since its inception (2011), HINT has successfully provided investors with a growing dividend every year, as highlighted in the chart below.2 Despite the volatility and disparity in global dividends over the past 18-months, the Trust’s dividend increased by 5% year on year.3 The Trust’s board has reaffirmed its commitment to paying attractive, progressive dividends going forward, and has recently increased the dividend by 20%.

In the event that dividends are not covered by underlying revenues, the board will utilise distributable reserves – a key feature of investment trusts – to ensure that investors achieve their investment goals. This should provide investors who rely on income received from their investments with confidence surrounding future distributions. This contrasts with open-ended funds, which have no option but to pass on the dividend reductions to investors.

Source: Henderson International Income Trust, as at 31 August 2021

HINT’s Portfolio Manager, Ben Lofthouse, also strongly believes that diversification is critical in smoothing out the impact of crises or different regional/sector dynamics on dividends, a point well made during the pandemic. For example, UK investors who took an international approach fared better than those focused entirely on the domestic market. As such, the Trust invests across three regions: Europe, Asia Pacific, and North America, to tap into a spread of dividends from around the globe. The flexibility to invest in these regions across different sectors provides Ben with access to the best opportunities globally. In addition, it enables him to take advantage of the short-to-medium trends in various markets/sectors whilst remaining positioned to benefit from innovation unfolding over the longer term.

As the Trust does not invest in the UK, this offers domestic investors with the opportunity to diversify their income stream with a complimentary profile that won’t overlap commonly held UK based investments. In addition, this scoots around the UK’s issue of dividend concentration risk, given the market is skewed towards a handful of large dividend-paying stocks.

Finally, Ben’s active management approach remains a crucial component in finding reliable sources of dividends. He can steer the Trust clear of yield traps – where companies with seemingly high yields turn out to be those with unsustainable dividends, which are then promptly cut. Furthermore, it also enables him to take advantage of the ever-changing market dynamics. Value and income strategies have lagged behind the ‘growthier’ segments of the market over the past decade, and the dividend news last year certainly did not help that. As a result, this disconnect has created enormous value discrepancies across the market, leaving plenty of opportunities for active managers such as Ben to take advantage of.

Encouraging road ahead

The events of the last year have been a reminder that change is inevitable, and that different regions of the world, economies, business sectors, and companies can be impacted in different ways. Therefore, investing globally for dividends offers investors exposure to different sectors and trends they might not find in their home market, and more importantly, the benefit of diversification to their income in the event that things don’t go as planned.

Fiscal Policy Expand

Government policy relating to setting tax rates and spending levels. It is separate from monetary policy, which is typically set by a central bank. Fiscal austerity refers to raising taxes and/or cutting spending in an attempt to reduce government debt. Fiscal expansion (or ‘stimulus’) refers to an increase in government spending and/or a reduction in taxes.

Income investing Expand

Income investing means selecting investments designed to deliver a steady stream of income over a certain period. It’s a popular way to chase decent returns – and to potentially beat inflation.

Inflation Expand

The rate at which the prices of goods and services are rising in an economy. The CPI and RPI are two common measures.

Monetary policy Expand

The policies of a central bank aimed at influencing the level of inflation and growth in an economy. It includes controlling interest rates and the supply of money. Monetary stimulus refers to a central bank increasing the supply of money and lowering borrowing costs. Monetary tightening refers to central bank activity aimed at curbing inflation and slowing down growth in the economy by raising interest rates and reducing the supply of money.

Value investing Expand

Value investors search for companies that they believe are undervalued by the market, and therefore expect their share price to increase. One of the favoured techniques is to buy companies with low price to earnings (P/E) ratios.

Volatility Expand

The rate and extent at which the price of a portfolio, security, or index, moves up and down. If the price swings up and down with large movements, it has high volatility. If the price moves more slowly and to a lesser extent, it has lower volatility. It is used as a measure of the riskiness of an investment.

Yield Expand

The level of income on a security, typically expressed as a percentage rate. For equities, a common measure is the dividend yield, which divides recent dividend payments for each share by the share price. For a bond, this is calculated as the coupon payment divided by the current bond price.

Yield trap Expand

A yield trap, sometimes referred to as a dividend trap, is when a stock’s yield is too good to be true when compared to similar companies or to the wider market.

1 Source: Henderson International Income Trust, Global Dividend Cover Report 2021

2 Source: Henderson International Income Trust, Annual Report 2021

3 Source: Henderson International Income Trust, Annual Report 2021

4 Source: Janus Henderson Global Dividend Index, November Edition

5 Source: Henderson International Income Trust, Global Dividend Cover Report 2021

These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.


Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.


The information in this article does not qualify as an investment recommendation.


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Important information

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Before investing in an investment trust referred to in this document, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser. This is a marketing communication. Please refer to the AIFMD Disclosure document and Annual Report of the AIF before making any final investment decisions.
    Specific risks
  • Higher yielding bonds are issued by companies that may have greater difficulty in repaying their financial obligations. High yield bonds are not traded as frequently as government bonds and therefore may be more difficult to trade in distressed markets.
  • The portfolio allows the manager to use options for efficient portfolio management. Options can be volatile and may result in a capital loss.
  • Global portfolios may include some exposure to Emerging Markets, which tend to be less stable than more established markets. These markets can be affected by local political and economic conditions as well as variances in the reliability of trading systems, buying and selling practices and financial reporting standards.
  • Where the Company invests in assets that are denominated in currencies other than the base currency, the currency exchange rate movements may cause the value of investments to fall as well as rise.
  • This Company is suitable to be used as one component of several within a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested in this Company.
  • Active management techniques that have worked well in normal market conditions could prove ineffective or negative for performance at other times.
  • The Company could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Company.
  • Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
  • The return on your investment is directly related to the prevailing market price of the Company's shares, which will trade at a varying discount (or premium) relative to the value of the underlying assets of the Company. As a result, losses (or gains) may be higher or lower than those of the Company's assets.
  • The Company may use gearing (borrowing to invest) as part of its investment strategy. If the Company utilises its ability to gear, the profits and losses incurred by the Company can be greater than those of a Company that does not use gearing.
  • If the Company seeks to minimise risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or negative for performance.
  • All or part of the Company's management fee is taken from its capital. While this allows more income to be paid, it may also restrict capital growth or even result in capital erosion over time.