Income 1: Growth 0 in a year of two halves

2018 was a year to forget for growth investors. While many stock markets in the developed world hit all time highs in the first half of the year, by the time it ended, only the US was in positive territory in terms of returns – and then only just. Every other major stock market lost money.

However, 2018 was a bumper year for income investors. According to the latest Janus Henderson Global Dividend Index, global dividends rose to a record $1.37 trillion, with nine out of ten companies either increasing or holding steady their income payments.

Trump helps boost US dividends

Dividends from North American companies totalled $509.9 billion – breaking the half a trillion barrier for the first time, with strong contributions coming from banks, healthcare and the technology sector. Just 1 in 25 US companies cut their dividends and 1 in 40 Canadian ones.

Companies in the US were helped by Trump’s tax cuts and some of the biggest tech firms are increasingly adopting a dividend-paying culture. JP Morgan overtook Wells Fargo to become the largest payer of banking dividends.

Europe’s dividends run out of energy

Divided growth in Europe lagged the global average, held back by slow growth in Switzerland and lower payouts in Belgium. Swiss companies Novartis, Nestlé and Roche pay half of Switzerland’s dividends and, while each showed steady growth, a big cut from Credit Suisse made an impact on the total.

While France is Europe’s largest dividend payer, EDF (the utility company) cut its dividend as it underwent restructuring to save costs. Italy had a slightly better year, but has now officially entered a recession and dividends have only risen 8% since 2009. Having said all that, nine tenths of Europe’s companies rose or held their dividends, with Germany and Netherlands in particular doing well.

UK banks make a comeback

In the UK, British American Tobacco made the single largest contribution to dividend growth. Since it took over Reynolds American it has paid an extra $1.2 billion and has gone into the top 30 of global players. Meanwhile, the Royal Bank of Scotland paid its first dividend in 10 years.

Asia and emerging markets split

Dividend growth in Asia was in line with the global average, but with some stark differences: while Australian dividends only inched ahead, Singapore and South Korean stood out in the region. Samsung now accounts for half the South Korean total and was the eleventh largest payer in the world in 2018, entering the top 20 for the first time. This is quite a feat considering it did not even feature in the top 100 in 2014.

After a weak first half of the year, emerging market dividends bounced back strongly and reached their highest level since 2014. Russian payouts accounted for two-fifths of the total, with a notable increase from Sberbank. China represents a quarter of emerging market dividends and enjoyed good growth.

Japan’s new dividend culture pays off

Dividends grew strongly in Japan in 2018. Decent profit growth and a rapidly developing paying culture have seen dividends rise significantly in the past three years.

Mitsubishi Corp raised its dividend by almost a third, with NTT Docomo, Tokyo Electric and Nippon telegraph also making significant contributions. Only 1 in 30 Japanese companies cut its payout.

Funds making the most of dividend payments

Janus Henderson believe that, despite more challenging stock market conditions, investors can take comfort in the ability of the world’s companies to continue to generate income.

For those wanting to invest in funds that specifically target dividend payments, there is plenty of choice, but we’ve outlined some of our favourite Elite Rated options below.

Artemis Global Income

Staring with a global fund, this Artemis offering invests all around the globe in developed and developing markets. It has a 42.5%* weighting to the US at the moment and favours medium, large and mega-cap businesses.

BlackRock Continental European Income

The manager of this fund aims to identify undervalued stocks that offer sustainable dividends, potential dividend growth and inflation protection. Around a quarter* of the fund is currently invested in French companies.

Threadneedle UK Equity Income

Closer to home, this fund has a manager who is often contrarian, avoiding speculative stocks and those enjoying short-term momentum. Instead, he prefers to have a patient, but high-conviction, approach to investing.

Schroder Oriental Income

Samsung is a top ten holding* in this investment trust. The manager only uses gearing when he sees exceptional opportunities, so it is less risky than some of its peers. Unusually for the trust, it also has a small weighting to Japan* at the moment.

Magna Emerging Markets Dividend

This fund has around a third* of the portfolio invested in Chinese companies. It also holds Samsung* in the top ten. A hidden gem among other better known emerging markets funds, it offers exposure to emerging market companies that pay higher-than-average dividends.

Baillie Gifford Japanese Income Growth

Finally, this Elite Radar fund has been launched specifically to take advantage of the new dividend culture in Japan. It is harnessing the improving corporate governance introduced by Prime Minister Abe, as more and more businesses move towards a progressive dividend-paying policy.

All data Janus Henderson Global Dividend Index data source from edition 21, February 2019
*Source: Fund fact sheet, 31 January 2019