- Getting dividend income from outside the UK has become a popular option
- It has been fueled by the pandemic and collapse in dividends of British firms
- Asian dividends fell far less than the UK
- Global dividend expected to grow by about 11% this year
Receiving dividend income from outside the UK has become a popular option for many investors in recent years – a trend driven by the pandemic and the decline in dividends paid by many British companies.
This search for dividends has resulted in investment funds with broad global earnings becoming increasingly popular.
Income funds focusing on specific regions or countries of the world – for example, Asia, North America, Japan and emerging markets – have also attracted investor interest.
According to the latest data compiled by investment house Janus Henderson, global dividends are expected to rise by around 11 per cent this year, along with Europe, the UK and Asia Pacific.
Sunny temperament: The global dividend is expected to increase by around 11 per cent this year with Europe, the UK and Asia Pacific.
An investment trust, described by analysts Edison as ‘doing what they say on the tin’, will confirm the Asian dividend boom when it announces its annual results this week.
Henderson Far East Earnings — one of the funds operated by Janus Henderson — will reveal that it just managed its 13th consecutive year of dividend growth.
Still, although a 1.7 percent increase in the annual dividend to 23.4 pence per share would be welcomed by earnings-hungry shareholders, it will be offset by the trust’s poor overall performance. Shares ended Friday at £2.96.
Over the past one, three and five years, the fund has lagged behind its peer group, reporting relative meager overall returns (capital plus income) of only 3.9, 5.9 and 16.8 percent in the process.
In other words, any earnings return from the poor share price performance of 40 of the trust’s holdings is underreported.
Of these three time frames, only one similar stock market listed trust – JP Morgan Asia Growth & Income – has a low record, though over the past year (it has a better long-term record).
As the table shows, not all Asia Pacific Income Funds that are listed on the London Stock Exchange have outperformed Henderson Far East Earnings in years one, three and five.
Mike Carey, who has run a £440 million stock market-listed fund since 2007 (and most recently in conjunction with Sat Duhra), believes the trust’s returns have been ‘disappointing’.
“If we go back to pre-pandemic times, the trust’s total return was in line with its peers,” he says. ‘But the poor performance of dividend yields as an investment strategy has hit confidence badly.’
The trust’s shares are currently yielding close to 8 percent, an extraordinary figure — especially when measured against its peers where a yield of 4 percent is more ideal.
Kerle says the top 25 percent of earnings-generating stocks across Asia are currently at a 60 percent discount compared to the rest of the market.
In other words, their share prices are seriously depressed. This is the result of a huge appetite from investors – due to lockdowns and work from home – for alternative growth stocks such as Chinese technology giants Tencent and Alibaba and companies involved in the drive towards a net-zero carbon global economy.
“There is a lot of expectation in the valuations of some of these growth stocks,” cautioned Kerle.
He believes that at some stage, a catalyst will emerge that will reward fund managers like him who prefer to focus on well-run companies that are cash-generating and profitable.
‘It’s disappointing,’ he says, ‘but the background exists for our investment strategy to work for the benefit of shareholders. It is just a question of waiting for the change in investor sentiment.
If the trust’s share price rises strongly, the 8 percent yield will fall — although dividend payments will continue to increase.
Two big disciplines dominate the trust’s portfolio — mining and financials. Kerle believes strong demand for commodities such as aluminium, copper, cobalt and nickel – driven by the greening of the global economy – is a ‘big positive’ for mining companies such as Rio Tinto and BHP which are among the trust’s top ten holdings. Huh. .
He argues that if interest rates rise as expected, Asian financial stocks will do well, leading to profits.
In recent weeks, the trust has reduced its exposure to Chinese stocks in the face of an expected slowdown in the economy, triggered by higher energy costs and rising commodity prices. Although Carey — and Henderson Far East Income shareholders — have been patiently waiting for cash-producing businesses in Asia to return in favor, they believe the dividend outlook for the region is positive.
He says: ‘Asian dividends fell only 5 percent as a result of the pandemic, compared to more than 30 percent in the UK. Since Asian companies have traditionally used less of their profits to pay dividends, there is room for dividend growth in the future, especially if the region also benefits from economic growth.
This fund is a view shared by Darius McDermott of Scrutiner Fund Caliber. He says: ‘Asia is one of the few regions in the world that gives investors access to a decent dividend. This is a vast sector, with many world-class companies really starting to embrace the dividend culture.
UK investors will not only benefit from the diversification of their income sources, but they will also be exposed to some excellent companies…