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Global Opportunity

Global Opportunity

​Alex Crooke, Head of Global Equity Income, discusses the global opportunities for growth in the sector, as well as the trends and outlook for dividends. 

Market developments in late 2015 and the start of 2016 put pressure on a number of key dividend sectors and regions. While some areas saw downward pressure on dividends, taking a global view reveals where dividend payouts were higher and where there is a positive outlook.

Why go global for equity income?
Global equity income strategies provide investors with attractive income and capital growth opportunities from different markets around the world, while at the same time avoiding areas that carry unwanted levels of risk. Investing globally offers significant diversification benefits with access to a broader range of companies and regions than a single country strategy, which may be overly concentrated in a limited number of companies or sectors.

Global dividend trends
At Henderson we have a highly-experienced team with a strong dividend investing heritage that has been managing global equity income strategies since 2006. We also publish the quarterly Henderson Global Dividend Index (HGDI), which is long-term study into global dividend trends from the world’s largest 1,200 firms by market capitalisation, based in US dollars.

The latest HGDI report shows that global dividends rose 2.2% to US$218.4bn in the first quarter of 2016. This was an increase of $4.7bn on the same period last year with Japan, North America, and Europe exhibiting strong dividend growth, while the UK, Asia, and emerging markets lagged behind. Special dividends almost doubled year on year, providing a boost to the headline growth rate, with large payments from the US and Hong Kong.

Underlying dividend growth
Exchange rates were more stable in Q1 2016 and made a smaller impact when translating global dividends into US dollars. On an underlying basis (which adjusts for exchange rate movements, timing effects, one-off special dividends, and index changes), dividend growth was 3.1%

Henderson Global Dividend Index (HGDI) by region

Source: Henderson Global Investors as at 31 March 2016.
Index level measures the progress firms are making in paying dividends, using 2009 as a base year with a value of 100, calculated in US dollars.

Regional dividend trends
Key findings from HGDI reveal that Japan and North America have exhibited the best dividend growth in Q1, with the former producing underlying growth of 10.5%, while the US and Canada generated dividend growth of 6.7% and 6.3% respectively. We are also seeing some interesting opportunities arise in Europe (3.6% underlying dividend growth in Q1), where companies are returning to the dividend payment list, particularly in the financials and consumer-related sectors.

In the UK, dividends fell 5.0% in the first quarter to $16.4bn, although this translated into underlying growth of 0.7% once the weakness of the pound and other technical factors were taken into account. The rest of the year is likely to see UK dividends fall as deep cuts from some of the largest companies listed in London, principally in the commodity and banking sectors, take effect. BHP, Rio Tinto, Glencore, Standard Chartered, Barclays, Morrisons and Rolls Royce are among the blue chip names to have announced cuts to payouts.

Emerging markets also struggled (-16.9% underlying) as a large increase in dividends from India was not enough to offset big cuts in Brazil.

Sector dividend trends
HGDI shows that the technology sector is continuing to provide investors with good dividend growth. A number of companies are increasing their payout ratios (the proportion of profits paid out as dividends) as well as growing their profits, which is driving larger dividend payments. Pharmaceuticals and financials were the largest dividend paying sectors in Q1 16, while consumer-based sectors are demonstrating good dividend growth and we expect this to continue through the rest of the year.

Dividend growth outlook
For the full year, we remain positive on North America and Europe, while we expected the outlook for the UK and emerging markets to be more challenging. We have also become more negative on the prospects for Asia Pacific ex Japan, in particular owing to the effect of dividend cuts from commodity companies listed in Australia.

The shifting fortunes of different regions around the world highlight the value of taking a globally diversified approach to equity income investing. Overall, we expect global dividends to reach $1.18trillion this year, which is an increase of 3.3% year on year in underlying terms.

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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