Equity Income  

Where are the regional opportunities for equity income?

This article is part of
Guide to global equity income

Where are the regional opportunities for equity income?

Investors seeking income from equities should be scouring the globe for reliable dividend payers.

Traditionally, developed market economies such as the US and UK have met equity income investors’ requirements.

Meanwhile Japanese and Asian corporates typically lagged in terms of paying out regular dividends to investors.

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With dividend payouts now improving in many emerging markets and Japan, where should investors be positioned for equity income growth?

The US has been the “engine of global dividends” for the past couple of years, according to the Henderson Global Dividend Index.

But the engine appears to be sputtering.

North American dividends actually fell 7 per cent to $108.3bn in the third quarter of 2016, while payouts were down 7 per cent to $100.4bn.

The Index attributes the deceleration to more subdued profit growth among US companies, in part due to the stronger dollar, but the slowdown is also a reflection of higher indebtedness at corporates, prompting cashflow preservation.

For 2016 as a whole, headline dividends in the US rose only 1.5 per cent to $412.5bn and while underlying dividend growth was a more robust 4.1 per cent, this follows double digit growth in 2014 and 2015, the Index points out.

US slowdown

Andrew Jones, global equity income manager at Henderson Global Investors, notes: "The US market has a lower dividend yield in aggregate than many markets at around 2 per cent but there are still many attractive income opportunities at a stock level."

Darius McDermott, managing director of Chelsea Financial Services, reassures investors: “There will probably be a bit of dividend growth in the US and companies linked to infrastructure will get extra cash from [president] Trump's policies, which may lead to more payouts.”

Henderson Global Investors allays investor fears by pointing out dividend growth in the US was expected to return to a more sustainable level after some years of double-digit growth.

The US is likely to continue to contribute to the global equity income part of a portfolio but investors may want to diversify by region to make up any shortfall. 

Nicolas Simar, portfolio manager for the equity value strategy at NN Investment Partners, says the UK market is offering the highest 2017 dividend yield at 4.4 per cent, followed by the eurozone with a 3.4 per cent dividend yield. 

Emerging markets, the US and Japan offer lower levels for 2017 at 2.9 per cent, 2.4 per cent and 2.2 per cent respectively, he adds.

He urges some caution in the UK market which relies on commodities to contribute significantly to that 4.4 per cent.