By Bettina Edmondston and Alasdair Birch, managers of the Liontrust Global Income and Growth Fund
The third quarter of 2026 had the highest proportion of dividend cuts, which usually increase during economic downturns or recessions, since the peak of Covid in 2020. Not only this, but buyback volumes are on track for a 10-year historic low.
There are two frequently cited reasons for these lows: wider needs for capital expenditure, which has become more expensive through inflation, and increased interest rates and uncertainty.
But dividend pressures have been particularly pronounced in three sectors: consumer staples, chemicals and telecoms. In the third quarter alone, Conagra and Campbell’s cut their dividends and Kraft Heinz, General Mills and Hormel kept theirs flat. These companies need cash to reinvest and find growth, with their traditional processed food products under long-term volume pressure. Earlier this year, Diageo cut its dividend after years of weak earnings growth and faced with increased investment spending needs.
LyondellBasell, a large manufacturer of plastic resins, basic chemicals and fuels, cut its dividend 50% earlier in the year. In chemicals, we sold our positions in Evonik and Brenntag in the spring. Structural price pressure from overcapacity shows no signs of going away.
In telecoms, there were cuts from Telus in Canada and Telefonica in Spain. Again, competition and the need for investment met the demands of hefty debt burdens under pressure from higher interest rates.
Expect more technology changes, more investment and higher interest rates to keep the pressure on.
To avoid these pitfalls in our portfolio, we have looked further afield to find the companies that have already invested heavily in their operations, have strong cash generation and a healthy cash dividend cover. This should help them to grow their absolute dividend and often share buybacks in coming years. This is part of the reason why we have moved our research and investments further up the value chain, more into industrial companies, further down the market cap spectrum and a little bit more towards emerging markets in the last five years.
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Key Risks
Past performance does not predict future returns. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested.
We recommend this fund is held long term (minimum period of 5 years). We recommend that you hold this fund as part of a diversified portfolio of investments
Credit Counterparty Risk: Outside of normal conditions, the Fund may hold higher levels of cash which may be deposited with several credit counterparties (e.g. international banks). A credit risk arises should one or more of these counterparties be unable to return the deposited cash.
Liquidty Risk: The Fund may encounter liquidity constraints from time to time. The spread between the price you buy and sell shares will reflect the less liquid nature of the underlying holdings.
Emerging Markets Risk: the Fund may invest in emerging markets which carries a higher risk than investment in more developed countries. This may result in higher volatility and larger drops in the value of the fund over the short term.
ESG Risk: there may be limitations to the availability, completeness or accuracy of ESG information from third-party providers, or inconsistencies in the consideration of ESG factors across different third party data providers, given the evolving nature of ESG.
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Disclaimer
This document is issued by Liontrust Investment Partners LLP (2 Savoy Court, London WC2R 0EZ), authorised and regulated in the UK by the Financial Conduct Authority (FRN 518552) to undertake regulated investment business.
It should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets.
This information and analysis is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content, no representation or warranty is given, whether express or implied, by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.
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