As US markets wobble, income may be a more predictable source of returns for investors.
- Capital returns are unpredictable in a volatile environment
- Dividends have generally proved to be much more resilient than company profits
- Income is abundant, with global dividends growing by 6.6% in 2024
It is a precarious moment in financial markets. The Trump trade appears to be over, with its chief beneficiaries returning to pre-election levels. So far, the mantle has been taken up by Europe, where markets have seen astonishing gains since the start of the year. But European companies remain under the looming threat of tariffs, and the economic situation in the region looks fragile.
In this environment, picking a winner in global equity markets is a tough call. Investors are vulnerable to the caprices of the US president who has proved himself reliably unpredictable. It is possible that the weakness of the US technology sector will ultimately have a depressive effect on all global financial markets. After all, if the US economy starts to weaken, the rest of the world will not be immune.
Amid this volatility, income is likely to be an investor’s friend. Fortunately, as the latest Janus Henderson Global Dividend Survey shows, it is abundant. It showed global dividends growing by 6.6% in 2024, and is predicting 5% headline growth in 2025, bringing total payouts to a record $1.83trn. It showed an astonishing 88% of companies either held or raised their dividends across the world.
The survey also showed increasing diversification of income sources. It points out that technology giants Meta, Alphabet, and Alibaba, had a significant impact on the overall dividend total last year. These three names accounted for a fifth of overall dividend growth over the year. But most importantly, it continues to reduce the historic reliance on a handful of sectors for payouts.
Stifel has recently released its analysis on the highest dividend yielding equity investment trusts, which confirms this picture. It shows 30 trusts with a yield of over 4%, and 10 with a yield of over 5%. These include conventional equity income trusts such as Abrdn Equity Income (7.1%), and Merchants (5.4%), but also Montanaro UK Smaller Companies (5.3%) and two Asian Income trusts – Henderson Far East Income (11%) and Abrdn Asian Income (6.6%). Stifel points out that other trusts have recently adopted an income strategy, including Polar Capital Global Financials and Schroder Japan.
This leaves investors with an astonishing array of income options – across small caps, multiple geographies and different sectors. Dividends have generally proved to be much more resilient than company profits through economic cycles and are likely to be a more reliable source of returns for investors as they navigate a complex moment in global financial markets.
