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Equity Income Opportunities Around the World

Amaya AssanAmaya Assan, senior investment research analyst, Square Mile Investment Consulting and Research

There is a myriad of dividend strategies aiming to exploit opportunities for income from equities. Although UK equity income strategies have long been popular with UK investors, equity income strategies have grown rapidly around the world over recent years.

  • The dividend pool in Europe is considerably bigger than that of the UK and offers investors much more choice
  • European management teams are increasingly proactive in returning excess capital to shareholders via dividends or other means.
  • Traditionally, Asia is regarded as a source for growth strategies; however,  investors are accessing a rising number of dividend-paying companies

Whilst UK equity income strategies have long since been popular with investors here in the UK, we have also seen rapid growth in equity income strategies around the world. The dividend pool in Europe for instance is considerably bigger than that of the UK thus offering investors much more choice. There are also a small number of UK companies that make up a sizeable portion of the dividend pay-out. Interestingly, it has been clear for some time that European management teams have shown an increasingly friendly attitude to returning excess capital to shareholders via dividends or other means.

“Dividend growth can be seen as a good indicator of a company’s business performance.”

There is a similar trend in Asia where the total dividend pool is ever increasing and arguably now comparable to that available in Europe. Investors have traditionally viewed the Asian region as a fertile ground for growth strategies. However, over the years the universe has grown. Investors can now access income strategies where one can find dividend paying companies whose businesses are growing nicely and the underlying growth in dividends will enable capital accumulation over time.

Whether you are interested in diversifying your source of income through Asia, Europe or elsewhere globally, it should be remembered that dividend growth can be seen as a good indicator of a company’s business performance – one of the dangers that investors can potentially face in this current environment is reaching for yield regardless of the quality of the underlying company.

Fund managers that focus on identifying sustainable businesses with solid cash flows that can grow their dividends over time, might offer a better route of accessing the income potential of regions starting to fully embrace the dividend culture. Finally, whether one is looking for a reliable income stream or income growth, it is important to note that income is not guaranteed and can fluctuate, and that the level of distributions is dependent on market conditions. Also, for funds investing overseas, exchange rate risks can be significant and the absolute level of income distribution is dependent on the level that sterling appreciates or depreciates versus local currencies.

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