Global hunt for higher dividends as investors use income for growth
PERSISTENTLY low interest rates mean investors need to look beyond s savings for in income and find sha shares that pay rising dividends over time. Investors who hd do not need the income can also use dividendpaying shares for capital growth by reinvesting the money, which is sensible as dividends dominate an investment’s long-term return.
While the UK is well known for paying dividends, other countries are increasingly recognising their importance. The US is a big payer, handing out $87billion (£51billion) in the first quarter of this year, double that of the UK and three times that of the Continent, says the Henderson Global Dividend Index.
Henderson says dividends have grown by nearly a third worldwide over the quarter, helped by a £15billion Vodafone payout.
Sometimes, though, even the shares of firms with a record of paying good dividends can start to look too expensive. This explains why Stuart Rhodes, manager of M&G Global Dividend Fund since launch in July 2008, has been offloading quality consumer stocks despite their dividend records. They include food giant Nestle and health and hygiene group Reckitt Benckiser.
He has looked for potential elsewhere, including Imperial Holdings, a South African logistics company with a 4 per cent yield, and US financial services group Wells Fargo, which paid a 20 per cent higher dividend in 2013.
The most significant change has been a move into US technology firms. These make up 17 per cent of the portfolio against 4 per cent three years ago. Rhodes says: ‘The technology companies have developed a commitment to growing dividends, with some increasing them by as much as 20 to 40 per cent recently.’
Because Rhodes’s fund is not a pure income play, it is listed in the ‘global’ fund sector rather than ‘global equity income’, but firms’ dividend strategies are still key.
He says: ‘I have to be picky, as valuations have gone up. But there are enough candidates across the world.’ Though the yield is just 3.1 per cent, Patrick Connolly of financial adviser Chase de Vere approves of Rhodes’s strategy of generating strong total returns and choosing firms that are likely to pay bigger dividends in future.
He says: ‘We like this fund. We aren’t overly concerned about its size as over half is invested in large companies that are easy to buy and sell.’