Global equity income outlook: corporate profitability key to dividend growth

30/11/2016

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Alex Crooke, Head of Global Equity Income, believes that macro political and economic trends are likely to again influence global equity markets in 2017 and that corporate profitability will be the key to generating capital and dividend growth.  

What lessons have you learned from 2016?

What we have learned from 2016 is that investing in different markets has been driven by different characteristics. One overriding theme, however, has been a trend towards reflation, with investors expecting to see inflation coming through and growth picking up in certain areas. That has led to slight underperformance in some more defensive sectors, such as telecoms. Other areas of the market like financials, where a number of the Global Equity Income Team’s strategies have been heavily exposed to, have performed much better. At a county and regional level, local politics have influenced markets and driven stock selection and performance, most notably Brexit and the US Presidential election.

What are the key themes likely to shape the market in 2017?

Looking forward into next year we expect the continuation of some current trends. In particular, we will again be watching US policy and investment plans with interest and how these are going to be delivered. Within Europe there will be key Brexit negotiations next year and we will need to judge the likely effects this will have on economies and corporate profitability. Overriding that, in 2016 we’ve had a very strong US dollar so it will be interesting to see how that plays out for international companies. The price of oil will again be very important. It has been recovering gently in 2016; so it will be interesting to see whether supply contracts and whether we see a rise in the price - both of which tend to dent global growth. Undoubtedly, there will be a lot of factors at play in 2017 and trying to judge how they all interact will be the key to generating performance.

What should investors expect from the asset class in the coming year?

Overall, the outlook is not gloomy. Analysts are still forecasting growing earnings and if this happens then we should see dividends rise globally. Our long-term study into dividend trends, based around the Henderson Global Dividend Index (HGDI), is forecasting around 1% growth in global dividends next year in US dollar terms. If corporate profitability improves then we hope to see an upgrade to those forecasts.

Generally, we see profitability improving as a result of growth in the supply of money and from bank lending increasing. While valuations of some companies are looking quite high, particularly in the US, we see better value in Europe, Asia and some parts of the Emerging Markets.

In summary, we think 2017 could be a good year for investing if the infrastructure and spending plans from various economies come through. If corporate profitability improves then we think the price of shares could improve over the year.

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. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.

Past performance is not a guide to future performance. 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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