Finding income from equities



​As the world’s population ages, finding a sustainable income from investment has never been more critical. Fortunately for investors, this coincides with a growing realisation by companies of the importance of a growing and sustainable dividend policy. Freelance journalist Heather Farmbrough questions Ben Lofthouse, Portfolio Manager on the Janus Henderson Global Equity Income Team, on his approach to finding the best equity income opportunities.

The need for investors to find sustainable sources of income has arguably never been greater. The world’s population is becoming increasingly old: According to the United Nations, by 2050, for the first time ever, there will be more people globally aged 60 and over than adolescents and youth aged 10-24 years*.

For investors seeking income, while protecting or potentially growing their capital, it is a challenging time. Rates of return on cash and fixed interest are close to their lowest ever levels and investors remain nervous in the face of global political and economic uncertainty. Although inflation in headline terms is low, it is rising, as Ben Lofthouse observes, and this will cut into peoples’ real (post-inflation) investment incomes.

Many people have been worried about equity markets since the global financial crisis but Lofthouse believes the biggest mistake has been not to be invested. “We have all waited for the dip to buy – and in the current environment, that can be harmful for investors who want income, because we are not being paid to wait. So, the problem is, how do you approach finding income?”

Knowing where to look
“The good news,” he continues, “is that companies offering a good level of dividend yield, such as financial services, are not looking expensive and have a good level of income and cash generation. The market is being quite rational, which is not always the case. The worst thing for equity income investors is when everything is expensive.

“Dividend growth is very good on a stock-by-stock basis; last year, mining firms struggled to grow their dividends but this was offset by financial services, technology and housebuilding companies generating good dividends.”

Lofthouse and his colleagues on the 13-strong Janus Henderson Global Equity Income team concentrate on identifying companies around the world with cash flow and dividend reserves that should allow it to go on paying an income to investors. They seek to invest in stocks yielding between 2 and 6 per cent.

Their global remit means that they can avoid those corners of the world where local conditions are less favourable – for instance, some utility companies in the UK are currently less attractive than elsewhere due to political pressure to keep price increases down.

Lofthouse is less concerned with making predictions about companies or economies than ensuring that a company has a safety margin if things do not go as planned. He and the team look at factors like balance sheet strength, dividend pay-out ratio – the percentage of net income that is distributed to shareholders in the form of dividends – and low volatility of earnings.

He adds: “Dividend growth tends to be more stable than earnings growth, so at times dividends may not grow as much, but on the flip side, at more difficult times, they tend not to fall as much as earnings.”

Why it pays to pay dividends
More and more companies are recognising that a strong, sustainable and growing dividend policy helps to attract long-term investors who will form a stable shareholder base. In 2016, the world’s listed companies paid out over US$1.15 trillion in dividends, according to the Janus Henderson Global Dividend Index, a long-term study into global dividend trends. As more growth companies are paying out dividends to shareholders, so investors can enjoy an increasingly diversified portfolio that offers  income and the potential for growth.

Studies indicate that dividends generate a significant proportion of the total returns from equities over time. The combination of reinvested income along with capital growth has led to the long-term outperformance of higher dividend-paying companies when compared to the wider equity market, as shown in the chart below.

Higher dividend-paying companies have historically outperformed the market

Source: Thomson Reuters Datastream, 31 May 1997 to 31 May 2017, total return indices, in sterling terms, rebased to 100. Past performance is not a guide to future performance. Yields may vary and are not guaranteed. 

Being committed to financing a dividend on a continued basis means that companies have to be well-financed and capable of producing a sustained cash flow. There is also evidence that this makes the management team more disciplined when it comes to decision making.

Heather Farmbrough is a freelance financial journalist. She has previously worked for the Financial Times, the BBC and as a fund manager.

*United Nations, World Population Ageing report, 2015

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.

For promotional purposes.

Important information

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

Janus Henderson Global Equity Income Fund

Please read all scheme documents before investing. Before entering into an investment agreement in respect of an investment referred to in this document, you should consult your own professional and/or investment adviser.

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. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change.

If you invest through a third party provider you are advised to consult them directly as charges, performance and terms and conditions may differ materially.

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.

Any investment application will be made solely on the basis of the information contained in the Prospectus (including all relevant covering documents), which will contain investment restrictions. This document is intended as a summary only and potential investors must read the prospectus, and where relevant, the key investor information document before investing. Copies of the Fund’s prospectus and key investor information document are available in English, French, German, and Italian. Articles of incorporation, annual and semi-annual reports are available in English. All of these documents can be obtained free of cost from Janus Henderson Investors registered office: 201 Bishopsgate, London EC2M 3AE.

Issued by Janus Henderson Investors. Janus Henderson Investors is the name under which investment products and services are provided by Janus Capital International Limited (reg no. 3594615), Henderson Global Investors Limited (reg. no. 906355), Henderson Investment Funds Limited (reg. no. 2678531), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), (each registered in England and Wales at 201 Bishopsgate, London EC2M 3AE and regulated by the Financial Conduct Authority) and Henderson Management S.A. (reg no. B22848 at 2 Rue de Bitbourg, L-1273, Luxembourg and regulated by the Commission de Surveillance du Secteur Financier). We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

Copies of the Fund’s prospectus are available in English, French, Spanish German and Dutch. Key investor information documents are available in English, Danish, German, Finnish, French, Italian, Norwegian, Spanish, Swedish and Dutch. Articles of incorporation, annual and semi-annual reports are available in English. All of these documents can be obtained free of cost from the local offices of Janus Henderson Investors: 201 Bishopsgate, London, EC2M 3AE for UK, Swedish and Scandinavian investors; Via Dante 14, 20121 Milan, Italy, for Italian investors and Roemer Visscherstraat 43-45, 1054 EW Amsterdam, the Netherlands. for Dutch investors; and the Fund’s: Austrian Paying Agent Raiffeisen Bank International AG, Am Stadtpark 9, A-1030 Vienna; French Paying Agent BNP Paribas Securities Services, 3, rue d’Antin, F-75002 Paris; German Information Agent Marcard, Stein & Co, Ballindamm 36, 20095 Hamburg; Belgian Financial Service Provider CACEIS Belgium S.A., Avenue du Port 86 C b320, B-1000 Brussels; Spanish Representative Allfunds Bank S.A. Estafeta, 6 Complejo Plaza de la Fuente, La Moraleja, Alcobendas 28109 Madrid; Singapore Representative Janus Henderson Investors (Singapore) Limited, 138 Market Street, #34-03/04 CapitaGreen, Singapore 048946; or Swiss Representative BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich who are also the Swiss Paying Agent.

Information on this document is on Henderson's best endeavours.

Specific risks

  • Some or all of the Annual Management Charge and other costs of the Fund may be taken from capital, which may erode capital or reduce potential for capital growth.
  • This fund is designed to be used only as one component in several in a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested into this fund.
  • The Fund could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Fund.
  • The Fund may use derivatives with the aim of reducing risk or managing the portfolio more efficiently. However this introduces other risks, in particular, that a derivative counterparty may not meet its contractual obligations.
  • 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.
  • If the Fund holds assets in currencies other than the base currency of the Fund or you invest in a share class of a different currency to the Fund (unless 'hedged'), the value of your investment may be impacted by changes in exchange rates.
  • If the Fund or a specific share class of the Fund seeks to reduce risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or detrimental.
  • Securities within the Fund could become hard to value or to sell at a desired time and price, especially in extreme market conditions when asset prices may be falling, increasing the risk of investment losses.

Risk rating


Important message