Stock Market

Go global… and take a share of the £347bn dividend haul


Investors have been pelted by bad news this year, but go global… and take a share of the £347bn dividend haul

Investors have been pelted by bad news this year, with investments of all types and geographies in the doldrums. But there is one group that has been less mired in gloom. Those who invest to achieve an income on their nest eggs are seeing some blue skies, especially those who know the best places to look for it. 

Global dividend payouts rose by seven per cent to £347billion in the third quarter of this year, according to the latest Janus Henderson Global Dividend Index. As many as 90 per cent of companies around the world that the investment house monitors increased their dividends – or held them steady. 

Investors who want their portfolio to produce an income can choose to put their money into a range of companies that regularly pay out a portion of their revenues in dividends to shareholders. 

All around the world: Global dividend payouts rose by seven per cent to £347billion in the third quarter of this year

All around the world: Global dividend payouts rose by seven per cent to £347billion in the third quarter of this year

But an easier way to earn dividend income is to invest in an equity income fund or investment trust. These contain anything from a handful to hundreds of stocks chosen for their potential to pay out an income. 

That way, you are not relying on just a few companies, so your risk is more evenly spread. 

Why a global approach to income is good 

Global equity income funds are overlooked by many investors who choose to focus on the UK stock market. 

This is not a terrible mistake; the UK market is good at paying dividends and its 100 biggest stocks are currently offering an average annual income of 4.5 per cent. 

Yet, by considering global income funds, the number of possible high-yielding companies to choose from leaps. There are three times more companies with a dividend yield higher than five per cent among global companies than just UK ones, figures from fund manager Vanguard reveal. 

he global income sector has seen total returns fall by 0.6 per cent on average since the start of the year. This isn’t earth-shattering, but remember that most markets have taken a hit this year so a modest fall compares favourably. Global funds as a whole have lost nine per cent in value. 

Importantly, some of the best-performing global equity income funds have seen close to double-digit growth this year – almost enough to counter the harmful effects of inflation. 

Jason Hollands, managing director of investment platform Bestinvest, says: ‘The UK is the standout market when it comes to dividends, so income investors should not ignore the opportunities on their own doorstep. 

‘That said, it is wise to embrace diversification when it comes to building and managing an investment portfolio, so investors looking to generate income should cast their net more widely.’ 

How to choose an overseas income fund 

If you have a strong conviction about which parts of the world are likely to produce the best dividend income, you can invest in income funds with a specific geographical focus, such as Europe, Asia or the US. 

But opting for a global equity income fund allows you to invest in companies worldwide. 

Remember, though, that such funds vary wildly in their investment approach, so you will have to do some research to work out which one is right for you. 

What is a good income from a global fund? 

When investing in global income funds, the aim should not be to find the ones with the highest yields, but rather those that offer a consistent and sustainable income. 

So, look at the dividends paid this year and in past years. If possible, see how the income funds you are looking at have performed in different economic environments – from booms to recessions. This won’t tell you how the fund will perform in the future, but it will give a sense of its investment mettle. 

By far the biggest income contributors this year have been oil and energy companies, which have profited from soaring energy prices. But some of the biggest global income funds steer well away from them. This is because they believe the dividends are not sustainable in the long-term as the fortunes of such firms tend to be cyclical. 

James Norton, head of financial planners at Vanguard UK & Europe, says investors should avoid ‘yield traps’ – companies that offer a high income, not because they are healthy but because their share price is depressed.

5 EQUITY INCOME FUNDS THAT SCOUR THE WORLD FOR PROFIT 

1) GUINNESS GLOBAL EQUITY INCOME 

This fund seeks out quality companies paying dividends that can grow over time. It currently yields an income equivalent to 2.6 per cent. The fund invests in companies that make household essentials, such as Pepsico and Johnson & Johnson – as well as industrial and healthcare companies such as the American pharmaceutical company AbbVie. 

The portfolio comprises 35 stocks, each of which have the same weighting. 

Interestingly, fund managers Ian Mortimer and Matthew Page don’t think about dividends until quite late in their stock selection process. 

Page says: ‘To identify companies with strong dividend growth, we believe the best place to start is by looking at the cash flow they have generated over the last ten years. We then whittle down our list to those companies with strong balance sheets and low levels of debt. Only then do we consider dividends.’ 

2) MURRAY INTERNATIONAL 

A stock market-listed trust yielding an income equivalent to four per cent a year. 

Dzmitry Lipski, head of fund research at investment platform Interactive Investor, says: ‘Unlike its peers, this trust has almost half of its portfolio invested in Asia, Latin America and other emerging markets.’ 

The trust is run by Bruce Stout at Aberdeen Standard Investments. Holdings include companies such as Mexican airport operator Grupo Aeroportuario and Chilean chemical company SQM. 

3) BAILLIE GIFFORD RESPONSIBLE GLOBAL EQUITY INCOME 

The managers exclude stocks in certain industries such as tobacco and alcohol – focusing instead on businesses that stick to strict sustainability criteria. 

Top holdings include US consumer giant Procter & Gamble, Swiss companies Nestle and Roche and US tech firm Microsoft. Bestinvest’s Jason Hollands says: ‘The fund is a compelling choice for those seeking a rising income from responsible equity investments.’ 

It currently offers an income of around two per cent.

4) EVENLODE GLOBAL INCOME 

It looks for companies that will grow dividends over the long term. Unlike many rivals, nearly a fifth of its portfolio is in UK companies – the likes of Unilever and analytics company RELX that generate their revenues worldwide. The fund provides an income of around two per cent.

5) VANGUARD GLOBAL EQUITY INCOME 

Its portfolio comprises 134 companies and yields 2.8 per cent. One attractive feature is that its annual charges of 0.48 per cent are half that of most rivals. 

Top holdings include health care company Pfizer, science and technology company Merck and insurer Axa. 

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