Income investing to be hit by slower dividend growth

Arrow down1Henderson Global Investors, which produces a dividend index, expects growth in dividend payments to fall from a headline rate of 10.5% last year to less than 1% this year.

2014 was a record year for global dividend growth, but the oil price and dollar strength will affect pay-out levels over the coming months, the London-based fund manager, which compiles the Henderson Global Dividend Index, says.

Global dividends rose to reach a record high of $1.17 trillion (€1.03 trillion) in 2014, according to Henderson, and over five years, dividends had grown almost 60%.

Henderson says that underlying growth was robust at 8.8%, even with special dividends, exchange rate movements and other factors removed.

The US drove dividend growth in 2014, with US dividends reaching $355.3 billion – a headline increase of 17%. Mining company dividends declined, but other sectors benefited from the rapid growth in the US economy.

At the end of the year growth slowed sharply, as the US dollar rose against every global currency except the Swiss franc, meaning that the 2014 total payout was just shy of Henderson's annual forecast.

Europe had a strong year, with good performances from Spain, Switzerland, the Netherlands and France, despite disappointing dividend growth from Germany and Italy.

In emerging markets, the report found a headline decline of 11.7%, though adjustments for currency and other factors, gave underlying growth of 8.5% year on year.

On a headline basis, only China saw growth among the 'Bric' countries (Brazil, Russia, India and China), accounting for the majority of dividends in emerging markets. Countries such as Russia and Brazil continued to struggle with economic difficulties, but Asia Pacific saw some growth and in Hong Kong investors enjoyed bumper special dividends.

At industry level, technology and consumer stocks were strong, while utilities and mining firms did badly.

Alex Crooke, head of global equity income at Henderson Global Investors, says: "2014 was a superb year for income investors, with developed markets leading the charge. After such a strong performance in 2014, we now expect a pause for breath in 2015."

Crooke says that factors such as the falling oil price and the increase in the value of the US dollar could affect future results. He anticipates, for example, that emerging market oil companies are likely to pay out less this year as their profitability comes under pressure.

"Overall, we now expect dividends to grow just 0.8% this year on a headline basis, to $1.176 trillion."

Henderson analyses dividends paid by the 1,200 largest firms by market capitalisation, as at December 31.

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