Trade wars, technology and Asian income
FundCalibre Managing Director Darius McDermott interviews well-known Asian income manager Jason...
Following a bumper year in 2017, global dividends have enjoyed a strong start to 2018, with growing company profits pushing them 10.2% higher than they were this time last year.
In its latest Global Dividend Index, Janus Henderson Investors said it expects economic growth to continue bolstering profit growth which, in return, should lead to even higher dividends in the future.
This is all very encouraging for investors seeking income, but how can they best access these dividends and which pockets of the market are most attractive? We dissect the key takeaways from the report.
UK dividends rocketed by 21.1% in the first three months of 2018, although the report highlights that this figure was positively distorted by the fact that FTSE 100 giant British American Tobacco started paying quarterly dividends as opposed to semi-annual payments.
The company made the change following its acquisition of Reynolds American last year, which brought with it a large contingent of US shareholders used to the more regular income. A special dividend from Sky also boosted the headline number.
Underlying dividend growth in the UK actually came in at 4.2% when these factors are removed. The report said mining company BHP Billiton was one of the largest contributors to the underlying dividend increase on the back of a continued resurgence in mining dividends.
A UK equity income fund we like, which holds BHP Billiton in its list of top 10 holdings, is Man GLG UK Income. Manager Henry Dixon adopts looks for cheap and out-of-fashion stocks which have twice the level of dividend growth than the market, but also boast stronger balance sheets.
On the other side of the Atlantic, US dividend payouts rose by 8% and Canadian dividend payouts rose by 13.8%. Both countries broke their quarterly records.
Canada’s increase – the largest amongst major dividend-paying countries – was mostly because financials and oil & gas companies performed well. In the US, dividends were boosted by the strong performance of technology, financial and healthcare stocks.
Guinness Global Equity Income currently has the largest regional US weighting out of our Elite Rated global equity income funds, at 43.6%*.
Stocks are chosen based on individual company fundamentals rather than the broader economic backdrop. Each of the 35 holdings in the portfolio are evenly-weighted to avoid too much stock-specific risk.
The report found that the dividends in continental Europe grew by 13.7%, although this was propelled by the strength of the euro.
When taking this currency effect into account, underlying dividend growth was 3.9% – a more modest amount reflecting the fact that relatively few European companies pay their dividend in the first quarter of the year and because European healthcare, particularly in Switzerland – saw lower payouts.
In this part of the market, we like Elite Rated BlackRock Continental European Income, which is managed by Andreas Zoellinger. The fund aims to invest mostly in large and medium-sized companies, which offer steady growth, low-risk returns and reliable dividends. He invests flexibly depending on where we are in the economic cycle.
Asia Pacific (excluding Japan) was the only region to experience lower dividends on both a headline and underlying basis over the period, although the dip is likely to be temporary.
Sharply lower one-off special dividend payments in Hong Kong caused most of the fall while, in Australia, QBE Insurance Group cut its dividend along with Telstra – usually a dividend stalwart – which cut its dividend for the first time in 20 years.
It was a different story in Japan, however, with underlying dividend growth up 8.2% – a first quarter record for Japanese dividends.
For those who want exposure to Japan, Schroder Tokyo may be a good option. Manager Andrew Rose looks to capitalise on stocks that he thinks have been mispriced by the market. For those who want exposure to the Asia Pacific region, Jason Pidcock’s Jupiter Asian Income combines the diversity of Asia Pacific companies with a reliable and growing stream of income.
The report said emerging market dividends were characteristically volatile, having jumped by more than one-third compared with the same quarter last year. Taking any currency effect out of the equation, underlying growth was 2%. This is mostly because India saw lower payouts as state-owned mining company Coal India pushed its dividends down. Russian payouts were also lower, but dividends in Brazil rose significantly.
China is severely under-represented in the first quarter for seasonal reasons. It is comfortably the largest emerging-market payer, and has shown flat or falling dividends over the past three years. Its performance for 2018 is likely to be better, according to the report, and will be crucial for the overall emerging market total.
Magna Emerging Markets Dividend has one of the largest regional allocations to Brazil within the emerging markets sector, at 9.8%**. Manager Mark Bickford-Smith looks for robust and well-managed companies which he believes can stand the test of time. The fund has a concentrated portfolio, with each position size based on Mark’s conviction as opposed to the market index.
This blog was based on the figures reported in the Janus Henderson Global Dividend Index, edition 18, May 2018.
*Source: Guinness Global Equity Income factsheet, 30 April 2018
**Source: Magna Emerging Markets Dividend factsheet, 30 April 2018