Risks which could disrupt global dividend growth in 2018

Challenges_aheadGlobal dividends soared to new heights in 2017 as the world economy returned to normal and confidence returned.

More recently there have been forecasts of a “dividend hangover” in 2018.

According to Martin Currie’s global equity income manager, Mark Whitehead, global dividend growth faces two major headwinds in 2018 which could disrupt the otherwise-supportive backdrop for income.

Dividend growth reached 7.7% in 2017, with total payouts at an all-time high of $1.25 trillion (€1.05 trillion). It is expected that 2018 dividend growth rates will match the record-beating results of last year.

Nonetheless, Whitehead, manager of the Legg Mason IF Martin Currie Global Equity Income fund, said there were risks to the outlook, especially the threat to global trade from President Trump in the US.

Whitehead said. “It is a serious risk if the situation becomes even more strained, and for those companies with high levels of foreign sales it could have a significant impact.”

The effect of more trade tariffs would be felt beyond China, with European and US-based exporters likely to be among the biggest losers. Barriers to trade could rock markets around the globe, Whitehead said.

Another risk, albeit a more marginal one, was a global economic slowdown that could derail markets.

He said: “If we see growth falter, then that would obviously feed into dividend growth. However, in the current environment we do not see this as a central issue, and indeed growth globally looks solid.”

Whitehead said banks globally are leading that earnings growth, with the rising interest rate environment in the US in particular a source of opportunities.

He commented: “We are seeing some of the strongest earnings and dividend growth globally coming from that sector.”

His fund has positions in regional US banks including Huntington Bank Corp, as well as Caixabank in Spain.

However, he continues to avoid UK-focused banks because of pressures on consumers. “UK banks are not a focus for us because of UK consumer weakness and corporate spending concerns sparked by Brexit, as well as levels of indebtedness.

“Indeed, there is a lot of risk in investing in UK income stocks because of the concentration of payouts, and we don’t have any BP or Shell, for example.”

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