Return to normal: the landscape for global dividend investing

July 13, 2021

By Damien McIntyre, CEO, GSFM

For those investors thinking about investing in equities to generate income, I believe that there’s presently a great opportunity to invest in global equities for dividend income and that the investment case for this is positive on several different levels.

Starting with the macro, COVID vaccines are starting to make a positive impact, particularly in the western world, and markets are looking at this progress in anticipation of economic growth strengthening as the year unfolds. Strengthening economic growth is highly supportive to earnings.

Though as the world returns to a stronger growth profile, the spectre of rising inflation is an issue taking up a lot of investor’s time and attention asking, wouldn’t that be bad news for equities?       

It’s important to remember that in an inflationary environment, equities can provide a hedge against inflation. This is because companies can choose to pass on higher input costs to their customers in the form of price increases. For example, during the last period of high global oil prices, Qantas Airways added a fuel levy to its airfares to insulate itself from the rising oil price. Companies can also offset the effects of inflation with productivity gains arising from either implementing a new technology or labour market reforms.

So, despite the prospect of higher inflation, I still think equities are a great place to seek income.

Where do global dividends come from?

There is great variety in the universe of global companies paying dividends giving fund managers like Epoch the scope to build highly diversified portfolios.

Traditionally, mature market sectors like Consumer Staples, Energy, Financials, Healthcare and Pharmaceuticals, Real Estate Investment Trusts, Telecommunications and Utilities have all provided the most opportunity for those seeking dividends. More recently though, Technology companies including Broadcom, IBM, Microsoft, Oracle, Qualcomm, Samsung Electronics and Taiwan Semi-conductor along with Materials companies such as BHP and Rio Tinto have all joined the long list of global companies paying dividends.

Dividend growth from global companies has been surprisingly strong, despite the pandemic!

Over the last 12 months, global dividends have held up very strongly, despite the pandemic. In calendar year 2021, our Epoch Global Equity Shareholder Yield Fund had 67 companies in its portfolio increase their dividend. Year to date[1], 33 companies have increased dividends their dividends in the portfolio.

Haven’t the market sectors I described earlier underperformed the broader stock market?

The short answer is yes, dividend and value stocks as groups have underperformed the broader stock market for over 10 years. A decade is a significant period of time, and one could take the countercyclical view and ask how much longer will the settings be in place to give growth stocks the relative advantage? (Settings such as low and in many countries negative interest rates.) From the countercyclical point of view, after 10 years of underperformance, isn’t this a good time to buy?

I strongly believe the answer is yes, particularly when compared to an investment in government bonds.

[1] To 30 April 2021

Important information

GSFM Responsible Entity Services Limited 48 129 256 104 AFSL 321517 (GRES) is the responsible entity of the Epoch Global Equity Shareholder Yield (Hedged) Fund ARSN 130 358 440 and Epoch Global Equity Shareholder Yield (Unhedged) Fund ARSN 130 358 691 (collectively, the Funds). The Funds are registered as managed investment schemes under the Corporations Act 2001 (Cth). GRES has appointed Epoch as the investment manager of each Fund. Class A Units in each Fund are available for issue by GRES, as responsible entity of the Funds.

The advice contained in this article is general and does not consider your objectives, financial situation or needs. The information and views contained in this update reflects, as of the date of publication, the current opinion of the author and are subject to change without notice. Before making an investment decision in relation to a Fund, investors should consider the appropriateness of this information, having regard to their own objectives, financial situation and needs. Prospective investors should read and consider the product disclosure statements for the Funds dated 26 March 2019 and the Additional Information to the Product Disclosure Statement which can be obtained from www.gsfm.com.au or by calling 1300 133 451.

Past performance information given in this document is given for illustrative purposes only and should not be relied upon as (and is not) an indication of future performance. None of GRES, its related bodies or associates nor any other person guarantees the repayment of capital or the performance of the Funds or any particular returns from the Funds. No representation or warranty is made concerning the accuracy of any data contained in this document. This document is issued on 13 July 2021.

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