This year has been a rough ride for income investors, as companies cut dividends across the globe to shore up their balance sheets in the midst of the coronavirus pandemic.
The latest Janus Henderson Global Dividend Monitor estimates that global dividends will fall between 17.5% and 20.2% in 2020 – adding that its best case scenario will see a total of $224bn of dividend cuts*.
Some places have been hit harder than others. For example, the UK and Australia, which have traditionally paid out a large portion of their profits to their investors in the shape of dividends.
But as we head towards 2021, there is a growing sense of optimism that things will improve. For example, Link Group has pencilled in a preliminary best-case increase of 15% and a worst case of 6% for UK dividends from the lows of 2020**.
Of course, we are by no means clear of the pandemic (further lockdowns may occur). We also have geopolitical tensions to contend with and a new president in the White House – volatility and uncertainty are by no means a thing of the past for financial markets.
Just one thing is for certain: in an environment of continuing monetary stimulus, where interest rates will stay low, investor hunger for a sustainable income will be as strong as ever. With this in mind, here are four consistent performers in the income space.
UK – Artemis Income
A stalwart of the UK equity income sector for two decades, this fund is designed to be an all-weather fund that won’t ever shoot the lights out but shouldn’t greatly disappoint either. Managers Adrian Frost, Nick Shenton and Andy Marsh focus their analysis on a company’s cash flows and how this will drive future dividends. The fund typically holds between 50-70 stocks and has a bias towards large-cap equities. The managers look for stocks deemed to be ‘special situations’. These tend to appear in many different sectors, but are driven by similar catalysts: management change, recovery and industry restructuring. Meeting management is another important part of the process.
Global – TB Evenlode Global Income
Managers Ben Peters and Chris Elliott believe the market fundamentally underestimates the value of high quality businesses because of its obsession with short-term events. The investment team takes a long-term approach, focusing on quality, cash-generative businesses. The team defines quality companies as those with three characteristics: asset-light business models; high barriers to entry which can’t be disrupted easily; finally, their customers’ decision to buy their product or service should not be determined completely by price. The portfolio is highly concentrated with 30-45 stocks; however, these holdings will usually have large diverse international revenue streams. The fund typically favours more defensive sectors like consumer staples or healthcare.
Asia – Jupiter Asian Income
Well-known Asian income manager Jason Pidcock combs the breadth of the Asia Pacific market in search of large companies with reliable dividends that can deliver both income and growth for investors in a 30-50 stock portfolio. Jason will predominantly look for large companies that are leaders in their markets, from the more developed countries in the Asia Pacific region, including Australia and New Zealand. The fund’s construction is primarily driven by stock selection, though Jason believes it is crucial to understand the economic context and does a lot of reading and studying of the region.
US – JPM US Equity Income
Manager Clare Hart will look for undervalued companies that exhibit durable franchises and strong management teams. Clare keeps an astute eye on risk management, with a diverse spread of names to ensure a stable, above-market yield when building a portfolio of 85-110 holdings. The fund does not avoid any sector in particular but can have a zero weighting if there are no attractive opportunities and will be naturally underweight cyclical or commodity names as the dividend, is often unreliable from these companies.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Darius’s views are his own and do not constitute financial advice.
*Source: Janus Henderson Global Dividend Index– November 2020
**Source: Link Group UK Dividend Monitor – Q3, 2020
