InvestmentsJun 24 2016

What’s the future for global dividends?

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What’s the future for global dividends?

Dividends have come under downward pressure globally over the past few months but there are pockets internationally where investors can find good income growth.

This is the view of Alex Crooke, head of global equity income at Henderson, who told Investment Adviser’s Julia Faurschou there were several factors behind the disappointing dividends.

Initially, he said, there was a slowing growth outlook around the world, with growth rates beginning to decline. This has been affecting company profits.

Mr Crooke explained: “Costs are rising a little and revenues are not rising as much, and therefore the amount of profits to distribute as dividends is coming under pressure. We are beginning to see this right across the suite of companies and sectors.”

He said: “Another factor at is currency, with international companies in the UK maybe bringing money back from Latin America or other areas where currencies are weak, as well as some performance weakness on the commodities side, particularly oil producers and miners where we are beginning to see some dividend cuts.”

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For this reason, Mr Crooke said UK investors should be careful with their stock selection, particularly in the banking and commodities sectors.

“Stock selection is key but also beginning to look overseas will help, as we have seen the highest dividend growth coming out of Japan and America”, he said.

He cited sectors such as technology, US financials, healthcare and overseas insurance companies as promising areas where investors might find good global dividend growth.

“Tech is a good sector as we are seeing the payout ratio rising, with the percentage of the profits being paid as dividends growing.”

For income funds relying on dividends to meet their requirements, Mr Crooke said it might be harder in the UK to find top-notch income, however, without managers consolidating their risk into fewer companies.

He said: “We’re forecasting that the amount of dividends coming from UK companies in 2016 may fall, which will come about as a result of the mining, financials and commodities sectors.

“Pressure is building to replace this income and people should perhaps look overseas to put a percentage in international companies”, he added.