Income investors are increasingly looking to broaden their options beyond the stalwarts of UK and US equities.
Figures from the latest Henderson Global Dividend Index (HGDI) show that in 2016 the region that paid the most annual dividends was, unsurprisingly, North America at $444bn (£356bn). Europe ex UK took second placed with $220bn of dividends in the year, while Asia-Pacific ex Japan ranked third with close to $116bn.
The latter region excludes Japan, which in recent years has seen a steady rise in payouts, up from $47bn in 2013 to $65.1bn in 2016. Instead the majority of Asia ex Japan dividends has come from Australia at $41.8bn, while Hong Kong is vying for the top spot with annual payouts of $39.9bn for last year. This is a marked increase from the $23.7bn recorded in 2013.
Overall the HGDI report notes headline growth in the Asia ex Japan region was 4.8 per cent in 2016, driven mainly by special dividends from Hong Kong. But while Australian payouts slipped to their lowest level since 2010 following steep cuts from mining and oil companies, this was offset by improvements in South Korea and Taiwan, which saw dividends increase by a fifth in underlying terms.
Another potential source of Asian income is from emerging markets in the region, such as China, India and Malaysia. Chinese payouts reached $28.4bn in 2016, making it the largest dividend payer in the grouping, accounting for roughly one-third of emerging market dividends. But 2016 was the second consecutive year of declining payouts in China, falling 14.7 per cent in underlying terms, according to the report. It highlighted that Petrochina cut its dividend by 75 per cent as the low oil price hit profits, while roughly half of Chinese firms reduced their dividends as a result of policies that link payouts to profits.
That said, India produced some of the best payouts in 2016, with annual dividends of $11.3bn as it overtook Russia to become the emerging markets’ second-biggest dividend payer, up from $10.2bn in 2015.
Mark Williams, head of Asia income at Liontrust, has reduced exposure to Hong Kong and China following strong performance in 2016, but the Liontrust Asia Income fund still holds slightly more than 40 per cent in the region.
“This [exposure] is via firms listed in Hong Kong, but they are companies with exposure to the mainland Chinese market, rather than the Hong Kong economy, which we think will struggle in a world of rising US interest rates,” Mr Williams explains.
“Much of the equity strength has reflected a confluence of positive factors in the Chinese economy. Rate cuts in 2015 took interest rates to accommodative levels that were maintained throughout 2016, which helped those with high debt burdens and benefited areas such as property.”
While this highlights the broad range of income sources in Asian equities, the question is whether this trend will continue.
Alex Crooke, head of global equity income at Henderson Global Investors, says: “The outlook for global economic growth appears brighter. Higher prices for oil and other commodities will lift profits for these dividend stalwarts, and allow payouts in these battered sectors to gradually be restored.
“The strong dollar may well disguise this underlying growth in 2017, but over the longer term exchange rate factors tend to even out, allowing underlying growth trends to exert themselves.”
