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12 December 2014

The culture of paying dividends continues to spread across the globe and prospects look good for income investors

Volatility in global stock markets made headlines and unnerved investors recently. But it also illustrated again that the daily fluctuations of share prices are a distraction from the ability of those companies to provide an income.

A recent study on global dividends by Henderson Global Investors revealed that the turbulence has had little impact on immediate payments in 2014 and forecasts further dividend growth in 2015. The data also shows that dividends continue to become a more widespread and rooted aspect of corporate strategy outside traditional strongholds.

Global dividends reached $288.1 billion in the third quarter, up 3.8% from the same period last year, and it is estimated that pay-outs for 2014 will be up by almost 10% from a year earlier*. It means that  investors should enjoy the best year of dividend growth since 2011, despite the strong dollar. Many multinational companies pay dividends in dollars and the strength of the currency has reduced the return on profits earned overseas.

Next year, payments are expected to grow again at an underlying rate of 7.2%*. The figures reinforce both the potential of equities to deliver inflation-beating levels of income and the important role that dividends and dividend growth play in boosting investors’ total return.

America ahead

The positive developments for income investors this year come despite the uncertainty over the outlook for the world economy. Certainly, as the eurozone economy falters, analysts predict the rapid growth in European dividends this year is unlikely to be repeated in 2015. However, other regions look more likely to deliver solid increases, particularly the US.

The US continues to act as the main engine for dividend payments, with payments up from 29 out of 33 sectors. The underlying growth from regular dividend pay-outs in the third quarter was up 10.8%, with US financials, technology and telecom companies continuing to lead the way. America’s technology companies have also ramped up their pay-outs by over 19%. Alongside some headline-grabbing one-off payments from the technology firms, this sector has significantly outpaced growth in the wider market in recent years.

Maturing markets

Interestingly, the escalation of Western sanctions against Moscow for its foreign policy in Ukraine has not curtailed the level of pay-outs from Russian companies this year, although the fall in the value of the rouble has eroded the export revenue of the world’s largest energy-exporting nation and reduced the growth rate to zero, despite an underlying growth rate of 8%. However, Russian energy groups Gazprom and Rosneft were still in the top five global payers in the quarter*.

The BRICS nations - Russia, along with Brazil, India, China and South Africa - have increased pay-outs by 136% between 2009 and 2013, twice as fast as other emerging markets, and now account for two-thirds of annual dividends from the wider area*. The figure reflects how companies in these economies are beginning to mature as they turn increasingly to dividend payments, rather than focusing purely on capital growth.

Separately, Bloomberg data* show that the percentage of companies paying dividends in the MSCI Emerging Markets Index has grown by 20% over the last decade. The growth in dividends from emerging markets and the Asia-Pacific region demonstrates the deepening recognition in these countries of shareholder rewards – and the potential rewards on offer for global income investors.

*Source: Henderson Global Investors, November 2014

The information contained is correct as at the date of the article. The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James's Place.

Some of the products and investment structures documented within this article will not be available to our clients in Asia. For information on the funds that are available please get in touch.


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