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Which regions have the fastest- and slowest-growing dividends of 2014?

19 May 2014

Dividend growth in emerging markets and Asia has been disappointing this year, according to the latest Henderson Global Dividend Report.

By Thomas McMahon,

News Editor, FE Trustnet

Emerging market and Asian markets suffered the worst dividend growth rates in the first quarter of 2014, according to a report from Henderson, a worrying trend for income funds in the regions.

Dividends grew just 7 per cent in the emerging markets and Asia Pacific 5.7 per cent compared to 15 per cent in the UK and 30.2 per cent in the US.

The regions’ markets have been suffering over the past 12 months in particular, with currency movements compounding their problems, and Henderson warns the prospects for dividends this year in these regions are poor.

“The major emerging market currencies have been weak against the US dollar, with the Brazilian real, Indian rupee, South African rand and Russian rouble all down 10-15 per cent,” the report said.

“A slowdown in the underlying growth of dividends from emerging market companies is therefore compounded by falling exchange rates.”

“We are cautious on emerging markets as sources of income this year.”

Henderson also highlights the high variability of payouts in these areas. Emerging markets are three times more likely to use special dividends, which are one-off payments over and above the regular dividends that imply no commitment to future payouts.

The dividends in the regions are three times more variable than the developed world, too. The least variable markets are the UK and Canada.

Russian dividends were sharply impacted by the tensions in Ukraine. The country supplies two per cent of all global dividends, but payouts halved during the quarter as the market slumped 15 per cent.

Performance of indices Jan – Mar 2014


Source: FE Analytics

“Q1 dividends more than halved year on year, reflecting the unpredictable nature of distributions from companies there,” according to the report.

“What is more, a number of Russian companies had delayed dividend announcements at the time of writing, while Sberbank had cut its preference dividend.”

“Rising military tension has exacerbated capital flight from the country, and political pressure to preserve currency reserves may be a factor in terms of board decisions on dividend payments.”

These worrying results might lead some to jettison the idea of holding emerging markets or Asian income funds.

It is certainly the case that Asian Income funds have struggled in recent years compared to their sectors, as FE Trustnet has recently reported.

In part this was due to massively reduced demand for yielding assets in the emerging world when rates were expected to rise in the West.

Only Invesco Perpetual Asian Equity Income is ahead of the MSCI AC Asia Pacific ex Japan benchmark over the past 12 months.

Performance of funds vs index over 1yr


Source: FE Analytics

The yields are still fairly high though, helped by the falling stock prices. Henderson Asian Dividend Income is yielding 5.4 per cent and Liontrust Asia Income 4.63 per cent. The Invesco fund is the lowest at 3.33 per cent, but all others are over 4 per cent.

The derivative-enhanced strategy of Schroder Asian Income Maximiser is yielding 6.91 per cent.

Dividends are also high on many of the emerging markets funds, with only two under four per cent.


Source: FE Analytics

Furthermore, the report suggests that investors should hang on to their Asian and emerging markets funds in the interest of diversification.

“There is, however, no single geographic region with lower variability than the overall global level, and only consumer basics are less volatile at an industry level,” the report said.

“This highlights the value of a global approach to income investing. The benefits of diversification mean that downswings in one area or industry are mitigated by positive effects elsewhere.”

“This means that an income stream from a global portfolio with carefully balanced industry exposure is much more predictable than focusing on one country or theme.”

Dividend growth in the UK was at 14.8 per cent and Europe 8.9 per cent, boosted by the strength of the two currencies which is expected to continue this year.

Yields dropped 20.6 per cent in Japan, however, with the currency again the culprit.

Globally dividends rose healthily, with 12.1 per cent year on year growth after the effects of special dividends were stripped out.

The report suggests that the developed world should continue to see healthier dividend growth for the rest of the year.

“Domestic growth in Japan is being masked by the yen’s weakness, while stronger euro and sterling exchange rates should continue to boost dollar growth from these markets this year,” it said.

“The US is set to remain a particular bright spot. The risks to income from emerging markets can be high, and growth rates are low, particularly in US dollar terms.”


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