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Henderson International Income Trust (HINT) – dividends have remained firm amid rising rates

The Henderson International Income Trust (HINT) was created with the aim to provide investors with both a growing dividend and capital growth from international equity exposure. It is designed to complement UK equity income holdings and as such does not invest in UK-domiciled companies.

Telescope in Paris
Ben Lofthouse, CFA

Ben Lofthouse, CFA

Head of Global Equity Income | Portfolio Manager


5 Jan 2024
5 minute read

Key takeaways:

  • Dividend growth remained strong throughout 2023 despite several significant challenges, and the outlook for 2024 dividends is positive – dividend growth is key to helping investors offset inflation over the long term.
  • Interest rate increases were faster and greater than anticipated but companies, consumers and economies have weathered them better than expected
  • There are longer-term drivers of growth, including technology and decarbonisation investment, that are driving earnings, and dividends.

Despite multiple challenges in 2023, including multiple interest rate increases fuelled by stubbornly-high inflation for much of the year, fears of a recession in developed markets proved to be unfounded. Economic growth has generally been better than expected, with Europe surviving the energy crisis and the US economy tolerating rising rates well – despite a mini-crisis in the banking sector at the start of the year.

Improving income quality

Companies have ridden out these challenges, and dividend growth has remained strong across many sectors and regions, except for commodity-related areas such as mining, some energy stocks, and chemicals. We were also pleased to see better quality dividend growth, with less reliance on the one-off special dividends and exchange rate effects that were characteristic of 2022.

It has not all been smooth sailing. In Asia, China’s post-pandemic recovery did not provide the economic boost many had hoped for. Economic momentum has fizzled out, as has investor sentiment, dragging down the wider region. China continues to face challenges in property and banking, prompting the central bank to cut interest rates amid other measures to support lending. If these measures succeed the Asia-Pacific region may be the one to watch in 2024.

We expect total global dividends to reach $1.63 trillion in 2023 (as measured by the Janus Henderson Global Dividend Index), an increase of 4.4% year-on-year. This total is slightly less than our initial forecast of $1.64 trillion, largely due to a decrease in special dividends and the disappearance of windfall profits in sectors such as mining and energy. We do not think this is a cause for concern as it represents sustainable growth because the underlying quality of payouts has been better than expected.

Tempered payout expectations

According to the Janus Henderson Global Dividend Index, so far this year more than 85% of companies have either increased their dividends or held them steady. However, there was also some moderation of dividend ‘normalisation’, whereby companies have reinstated dividends having cut or stopped them during the pandemic. As this effect has now fully worked through the system, what we see now is more representative of the underlying earnings growth of companies.

For next year, our outlook for global dividends is positive but growth is likely to be more modest than in recent years with fewer special dividends and big jumps in payout ratios. There will be exceptions. Sectors without pricing power – commodities and chemicals, for example – may experience weakness as global supply chains become fully operational.

Long-term dividend drivers

Dividends are less volatile than earnings over time, with the majority of companies increasing dividends most years. Additionally, dividends are less cyclical than many investors assume, meaning they are generally maintained through periods of economic weakness if the company has good cash flow to support payouts. The dividend growth provided by companies is essential to help investors maintain their purchasing power in real (inflation adjusted) terms.

Sectors such as consumer staples, utilities, pharmaceuticals and telecommunications are dividend stalwarts, providing a buffer to those sectors that are more sensitive to the ups and downs of the economic cycle, including banks, energy companies and miners. An active, diversified approach to income investing across regions and sectors can provide some comfort in times of market uncertainty and support the building of long-term wealth.

Over a longer time horizon, there are several important trends we believe will drive earnings in certain sectors at a more rapid growth rate than seen in the past decade. These include reshoring or ‘near-shoring’, as companies bring manufacturing facilities closer to core markets, as well as decarbonisation and the security of supply chains and energy sources.
Another driver is the acceleration in the use of artificial intelligence (AI). This technology is being used in myriad ways in the private and public sectors, and companies will likely spend a significant amount to support its implementation. We have seen AI technologies in development in sectors such as industrials, agriculture, healthcare, education and local government, as its application can improve efficiency, society, products, services and customer experiences.

Cyclical stocks
Companies that sell discretionary consumer items (such as cars), or industries highly sensitive to changes in the economy (eg. mining).

Diversification
A way of spreading risk by mixing different types of assets/asset classes in a portfolio, on the assumption that these assets will behave differently in any given scenario. Assets with low correlation should provide the most diversification.

Dividend
A variable discretionary payment made by a company to its shareholders.

Free cash flow (FCF)
Cash that a company generates after allowing for day-to-day running expenses and capital expenditure. It can then use the cash to make purchases, pay dividends or reduce debt.

Inflation
The rate at which the prices of goods and services are rising in an economy. The Consumer Price Index (CPI) and Retail Price Index (RPI) are two common measures. The opposite of deflation.

Volatility
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. The higher the volatility the higher the risk of the investment.

Disclaimer

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.

Not for onward distribution. 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. 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. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change. Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment. We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which investment products and services are provided by Janus Henderson Investors International Limited (reg no. 3594615), Janus Henderson Investors UK Limited (reg. no. 906355), Janus Henderson Fund Management UK Limited (reg. no. 2678531), (each registered in England and Wales at 201 Bishopsgate, London EC2M 3AE and regulated by the Financial Conduct Authority) and Janus Henderson Investors Europe S.A. (reg no. B22848 at 2 Rue de Bitbourg, L-1273, Luxembourg and regulated by the Commission de Surveillance du Secteur Financier).

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.

 

Marketing Communication.

 

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Important information

Please read the following important information regarding funds related to this article.

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.
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