News & analysis
Global dividends set for record year
Listed companies across the world could return a record amount of cash to investors in 2019, one market watcher predicts. But the expected rate of dividend growth highlights Janus Henderson’s con- cerns that equities are in for a tougher year.
Global companies could pay around $1.41trn (£1trn) in dividends for 2019, the asset manager says. This is 5.1% improvement on the $1.37trn (£1trn) that was handed back to shareholders in 2018, on an underlying basis. This is a decline on the 8.5% that dividends grew by last year to record their best performance since 2015.
That growth was fuelled by almost nine in 10 companies increasing or main- taining their dividend payments.
Dividends normalising in mining, energy and bank stocks after periods of low or no payments was another factor in 2018’s growth. As were increasing pay- outs by tech stocks and the impact of tax cuts in the US. Downward economic revisions around the world have influenced Janus Hen-
Annual Dividends 2016 2017 2018 2019e $ 1.16 trn $ 1.25 trn $ 1.36 trn $ 1.41 trn Source: Janus Henderson
Alternative debt funds return 10.3% as listed bonds decline
Private credit funds generated double-digit annual returns while bonds were in negative territory, an investment firm has reported.
derson’s forecast for lower dividend growth.
Expectations of lower growth put the dividend forecast for 2019 within the 5% to 7% long-term average. Janus Henderson’s head of global equity income, Ben Lofthouse, said: “Despite more challenging equity market conditions, investors can take comfort in the ability of the world’s companies to continue to generate income. “Yields in many parts of the world are very attractive, while 8.5% dividend growth is ahead of the long-term trend,” he added. “This strength reflects a number of factors; several sectors, such as mining, oil and banking have been normalising their dividend payments, after a period of low or no dividends, while some of the biggest tech firms are increasingly adopting a dividend-pay- ing culture. The impact of tax cuts in the US clearly helped dividend growth there too. “For the year ahead, we expect dividend growth to be more in line with the longer-run trend. Corporate profit expectations have fallen as global economic forecasts have been revised down, although most observers still expect compa- nies to deliver positive earnings growth in 2019. Dividends in any case are much less volatile than earnings, so we remain optimistic on the prospects for income investors.”
6 | portfolio institutional | March 2019 | issue 82
Alternative fixed income funds returned 10.3% on aver- age in the year to the end of September, Cambridge Associates said. This compares to the Bloomberg Barclays Government/Credit Bond Index, which contracted by 1.37% during the same period. Private credit is seen as a longer-term investment with such funds returning 8.75% and 10.42% annually over five and 20 years, respectively.
Like bonds, private credit offers investors a regular cash income and so is seen as an illiquid alternative to listed debt.
Its sub-sectors include lending directly to
companies and distressed debt. However, red flags have been waved in the direct lending sector where, to win deals, investors are taking more risk by lending money on less stringent terms that they once did.
This does not make good reading in light of economic growth recently been downgraded, putting lenders at risk of rising defaults.
Property investors target global gains to escape volatile markets
Investors are set to increase their exposure to bricks and mortar to escape volatility in the debt and equity markets, the property team of one asset manager believes.
Diversification and generating stable cash-flows during turbulent times are attractions, according to Invesco Real Estate. Income from property is a higher percentage of the asset class’ total return than many other assets, at 49% for listed and 81% for unlisted, Invesco said. This strategy will lead investors to search the globe for stable income-producing assets as the UK offers limited options, the research claims. Indeed, the emer- gence of pan-regional open-ended funds allowing investors to open-up their property portfolios to the $26trn (£19.6trn) global real estate market. Invesco Real Estate managing director of client portfo- lio management Simon Redman said the firm is seeing investors shift to global real estate from the domestic market as they look to diversify their portfolios away from global economic trends and other asset classes.
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