The survey shows 54% of companies will increase maintain dividends at current levels, while 40% are looking to increase them.
Dan Roberts, portfolio manager on the Fidelity Global Dividend and Global Enhanced Income funds said:
“Perhaps unsurprisingly, financials, post the 2008/9 financial crisis, and healthcare companies, which are our top sector weighting in the Fidelity Global Dividend fund, are most bullish about dividend growth. Japan and the US are the regions expected to increase payouts the most, although this may be partly a function of the fact that the total dividend level is lower in these markets than is traditionally the case in the UK and Europe, so there is more scope for dividends to grow.”
Roberts also pointed out that attitudes to dividends vary across different regions.
“The UK arguably has the healthiest dividend culture. By this, we mean companies pay a healthy proportion of their annual earnings in the form of dividends and there's a strong commitment to a progressive policy, i.e. ongoing dividend growth.”
In the US, however, payout ratios are lower and management will often favour share buybacks, said Roberts.
“There are pros and cons to this approach. On the one hand the buybacks tend to be pro-cyclical – meaning companies spend more money buying back their own shares when profits are healthy and share prices are high. In more difficult times they may suspend the buyback or in the worst cases issue equity. As such they are effectively buying high and selling low – never a good strategy. Having said that, a low payout ratio means that the dividend itself is more secure and there is the potential to grow the dividend ahead of earnings for a period of time – thereby providing a boost to dividend growth.”
Another benefit of investing in the US is the diverse market structure and wide range of sectors and companies to invest in, in Roberts’ view.
“Compare this to, say, Australia which has a higher headline yield but where the cross-section of industries available is quite narrow – with a particular concentration around cyclical sectors such as financials and materials.” The fund has also held a number of Japanese dividend paying stocks since its launch in 2012.
JP Morgan Asset Managment (JPMAM) has similarly identified a number of income opportunities. In the fixed income space its managers are long high yield bonds and the European banking sector, as well as rebuilding a position in emerging market debt. The firm does not like US Treasuries or government duration.
Within equities, JPMAM favours Western equity markets, including Europe and in particular the US, where payout ratios could rise over the next few years. Emerging markets could also be a source of dividend growth going forward as companies increasingly recognise the benefit of returning capital to shareholders.
