The latest Janus Henderson Global Dividend index should make encouraging reading for beleaguered income seekers.
- Global dividends fell 2.9% on a headline basis to $275.8bn
- The banking and commodities sectors were notable winners
- It’s been a tough period for global equity income strategies, but this may revive its fortunes
The Index shows that in the majority of regions and sectors, dividends are recovering with businesses increasingly confident about making payouts to shareholders. Will this improvement encourage investors back into global equity income strategies?
The report shows dividends still falling, but at a far slower pace. Global dividends fell 2.9% on a headline basis to $275.8bn. Excluding the impact of special dividends in the US, the fall was just 1.7% with only one company in five cutting its dividend.
There was relative strength across most sectors and most regions. In North America, for example, dividends fell by just 0.3%. Canada proved particularly strong as the commodities sector benefited from higher demand and bottlenecks in supply. The major emerging markets saw dividends restored and Europe was a significant beneficiary of the banks resuming payouts. The UK, however, continues to struggle, with its previously high-paying energy companies unlikely to resume payouts at their previous levels.
The banking and commodities sectors were the stand-out winners. Regulators had eased their position on banks making payouts to shareholders. Other areas of strength included utilities and healthcare, alongside consumer discretionary sectors. The only enduring weak spot was the energy sector.
Could this revive the global equity income sector? It’s been a tough period for funds in this category, with the IA Global Equity Income sector underperforming the Global sector by almost 30% over the past five years (66.6% versus 96.4%). Some funds within the sector have benefited significantly from the revival in value stocks, but this is not universal and it is clear that value and income are not proxies for each other.
However, higher inflation may create some displaced fixed income investors in search of alternative sources of yield. In normal circumstances, rising bond yields might be bad news for equity income, but the unusual circumstances of 2020 have broken that relationship. Equally, unlike fixed income, dividends can grow in line with inflation as long as corporate profits are rising. This should draw investors to the sector.
There is also a valuation argument. Many of the global equity income stalwarts – healthcare, consumer discretionary – have been left behind by a market that has been narrowly focused on, in 2020, growth stocks and in 2021, recovery stocks. These now look cheap at a time when little else does.
Against this backdrop, it is difficult to see continued weakness for global equity income. Many of the headwinds that it has faced in recent years are becoming tailwinds. Investors remain income-starved and it can only be a matter of time before they come round to the sector once again.