What’s next for global dividends?


So what’s in store for 2015? Well, at the corporate level, aggregate profitability looks unsustainably high and I would expect to see earnings growth expectations continue to be revised downwards. So we need to be careful when looking at valuations struck off earnings forecasts 12 months hence.

Looking at aggregate market level valuations, the US looks the most expensive following its recent strong run and Europe and the emerging markets look relatively attractive. Japan is now ‘back in the pack’ after being steadily de-rated for some 25 years.

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But these high level observations miss the subtleties in the make-up of the respective markets and relative stock level valuations. As such, I believe it is better to concentrate on individual stocks and build a portfolio from the bottom-up, looking for companies where profitability is sustainable and supportive of a healthy and regular distribution in the form of a dividend.

The US is a case in point and its diversity continues to provide some attractive opportunities. More than this, in areas such as consumer staples and ‘old tech’ it is home to market-leading companies which cannot be found elsewhere.

The latter contains the highly rated growth stocks of yesteryear, which now offer characteristics that an income investor holds dear – cash rich, high return businesses which have commenced dividend payments and sit on attractive valuations.

I also see good opportunities for stock selection in Japan, where there are nascent signs of change – mooted reductions in corporate tax rates, long overdue restructuring and even the occasional announcement of share buybacks. As such, I think Japan is a region which shouldn’t be overlooked within a global equity income portfolio.

As we head in 2015, after a period of significant multiple expansion with very little earnings growth I am relatively cautious on the overall market, particularly as aggregate levels of corporate profitability look stretched.

Against this backdrop, a global equity income strategy with a solid valuation discipline, focussed on robust companies – offering the prospect for attractive and sustainable dividends – is well placed to deliver healthy returns in 2015 and beyond.

The Fidelity Global Dividend Fund celebrates its third anniversary in January and boasts a consistently first quartile track record to date. Since launch, the fund has beaten 96% of funds in the IMA Global Equity Income sector, with Dan Roberts’ focus on high quality yielding stocks also resulting in lower volatility than broader global equities and the sector peer group.

This article is for Investment Professionals only, and should not be relied upon by private investors.

The value of investments can go down as well as up and clients may get back less than they invest. Investments should be made on the basis of the current prospectus, which is available along with the Key Investor Information Document, current annual and semi-annual reports free of charge on request by calling 0800 368 1732. Performance data source: Morningstar, 31 October 2014. Basis: bid-bid, net income reinvested at UK basic rate of tax, in Sterling terms. Performance relates to the A Acc GBP share class due to its longer track record and for comparison purposes with the peer group. Inception date: 30 January 2012. Peer group: IMA Global Equity Income sector. Past performance is not a guide to the future. Data Source - © 2014 Morningstar, Inc. All Rights Reserved.. Issued by FIL Investments International, authorised and regulated by the Financial Conduct Authority. Fidelity, Fidelity Worldwide Investment, the Fidelity Worldwide Investment logo and F symbol are trademarks of FIL Limited. RM114/4002/SSO/NA.