The ‘hunt for yield’ has continued to dominate investor priorities throughout the Covid-19 pandemic, according to JP Morgan Asset Management, but they are finding ways to supplement their income in what has been a difficult year for dividends.
Research by the asset manager showed that 75 per cent of investors consider dividends an important part of their overall income.
Considering that British companies are now paying out just half the dividends provided in 2019, according to data from Link Asset Services, 52 per cent of investors are concerned about the impact these cuts will have on their day-to-day finances, and 61 per cent are conscious of the impact on their future savings.
As such, the importance of dividend diversification has been reflected in investors’ appetite and areas like emerging markets have proven resilient in tough times.
And investors have been proactive, with JP Morgan revealing that 66 per cent of those surveyed are looking for new sources of income within the UK, but 29 per cent were looking to broaden their horizons at the global dividend opportunity.
“Demand for income remains high on UK investors’ agendas, yet the current environment can make many feel like their options are limited,” said Tim Mitchell, JP Morgan’s investment trust client director.
William Meadon, co-manager of the JPMorgan Claverhouse Investment Trust, said investors can continue to find great value stocks hiding in plain sight in the UK.
“Defensive sectors such as life assurers have been able to continue payments throughout the pandemic, while some housebuilders were able to restart dividends once construction resumed,” Meadon said.
“Today, with hopes of a vaccine on the horizon, and valuations remaining very compelling, we are increasingly optimistic about the outlook for UK companies.”
UK market price to book January 1980 to October 2020
Source: Datastream, Morgan Stanley Research
While the UK offers attractive value, the appeal of global dividends is not lost on investors.
Approximately 35 per cent of those surveyed said they were actively expanding their portfolios into emerging markets and Asia, while 17 per cent are looking to Europe and a further 15 per cent within the US.
The dividend case in emerging markets has been growing for some time now and payouts proved to be resilient this year despite the turmoil in markets.
The yield and payout ratios in these countries have held steady over recent years and a combination of income plus growth can be a powerful source of returns.
“2020 has been a difficult year across the board but there are reasons to be optimistic,” says Omar Negyal, co-manager of JPMorgan Global Emerging Markets Income Trust.
“In Asia we have seen a strong policy response and corporate balance sheets remain intact and we see attractive opportunities across Asian banks and insurers, as well as in the consumer goods and home appliances space in the Chinese A-share market.”