TOL - 7th Feb, 2024
Global equities are delivering for income investors
Plato Investment Management's latest global income report highlights key trends in global developed market dividends.
Global equities continue to provide a strong source of income and can play an important role in diversifying income portfolios which, in Australia, are often heavily concentrated in large cap Australian equities and fixed income.
The latest Plato Investment Management Global Income Report shows during 2023 global developed markets posted dividend growth of 8.9% (in AUD terms) on top of a total return in excess of 20%. This was underscored by a very strong fourth quarter where A$447 billion of dividends were paid globally, with dividend growth coming in at 6.2% for the quarter (Q4 2023 vs Q4 2022).
The icing on the cake, compared to 2022, for global income investors was a weaker Australia dollar - a big benefit for retirees and other Australian investors who received a boost to both their foreign currency income and global equity returns, when translated into AUD.
The outlook for global dividends
We've seen positive trends emerging in global dividends during recent months.
In that strong fourth quarter of 2023, over half (54.8%) of dividend paying companies increased or initiated dividends when compared to the same quarter last year. Just 10% of companies decreased payouts and the number of companies cutting to zero remained low at 5.2%.
A number of well-known multinationals have significantly increase their dollar payouts. These include.
- Shell PLC (LON: SHEL)
- Microsoft (NASDAQ: MSFT)
- LVMH Moet Hennessy Louis Vuitton SE (EPA: MC)
In addition, we are now beginning to see a number of businesses that omitted dividends in the pandemic, reinstating dividends. For example Walt Disney Co (NYSE: DIS) and Southwest Airlines Co (NYSE: LUV).
We think this broad strengthening of balance sheet confidence will see the dividend uptrend continue into 2024, while more companies hit hard by lockdown disruptions in recent years will return to regular dividends.
The sectors and regions to watch
After annual growth of 9% in 2022, Australia was one of the only countries to decrease payouts in 2023 vs 2022 as iron ore prices fell impacting BHP, Rio Tinto and Fortescue. Given iron ore prices have stabilised well above USD$100 per tonne, we are forecasting strong future dividends for these stocks.
Looking at the fourth quarter, Australia was still the 5th highest paying country with large Q4 dollar increases coming from the banking sector as ANZ, Westpac, and NAB raised dividends per share.
Elsewhere, the quarter saw strong growth in Belgium (+75%), Spain (+37%), the UK (+26.8%), and the US (+10.4%). While yields fell in France (-23%) and Switzerland (-11%) .
Looking at sectors, when we compare calendar years 2023 to 2022, all sectors except for materials (-11.5%) posted growth. Significant increases came from consumer staples (+16.9%) and Utilities (+15.7%).
Our fourth quarter data shows more recently, yields are being driven by Consumer Staples (+28.4%). The sector has been more resilient in the volatile macro and geopolitical environment.
Dividend payouts from consumer staples businesses including Costco Wholesale Corporation (NASDAQ: COS) and PepsiCo Inc (NASDAQ: PEP) grew considerably.
However, as you would expect, this was offset by a fall in Consumer Discretionary payouts. Cost of living pressures and weak consumer sentiment saw the sector yields fall -27.2%. For example, Germany's Volkswagen (ETR: VOW3) saw its overall dividend decrease due to a large special dividend in the previous period.
Dividend cut probability
Plato’s proprietary dividend cut model provides insights into future dividends. It represents Plato’s macro view regarding the likelihood that global developed markets will cut their income.
Our model continues to predict a lower-than-average probability of dividend cuts in global developed markets. Many commentators predict peak global interest rates and falling inflation. However, despite the recent market rally, global caution reflects higher rates, inflation above target and war in both Europe and the Middle East, all of which provide a challenge to markets.
Materials/Energy remain one of the higher risk areas in the market and have recently decreased yields on the back of commodity prices and challenges to the demand side.
Invest in a diversified portfolio of dividend paying global equities
The Plato Global Shares Income Fund aims to maximise retirement income specifically for pension phase investors and SMSFs seeking to diversify their income sources.
Click here to learn more about the Fund on the Plato Investment Management website.
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Daniel is lead manager for the Plato Global Shares Income Fund and Global Low Carbon Fund. Daniel is the chair of the Plato ESG Committee. Prior to joining Plato he was a Portfolio Manager at Realindex Investments, responsible for global equity products. Daniel is a CFA charterholder.
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All content in respect of the Plato Global Shares Income Fund (ARSN 608 130 838) (the Fund) is issued by Pinnacle Fund Services Limited ABN 29 082 494 362 AFSL 238 371 (“PFSL”) as responsible entity of the Fund and is prepared by Plato Investment Management Limited (ABN 77 120 730 136) (AFSL 504616) (“ Plato”) as the investment manager of the Trust. PFSL is not licensed to provide financial product advice.
The information provided is of a general nature only and has been prepared without taking into account your objectives, financial situation or needs. Before making an investment decision in respect of the Fund, you should consider the current product disclosure statement (PDS) and Target Market Determination (‘TMD’) of the Fund and the Fund’s other periodic and continuous disclosure announcements lodged with the ASX, which are available at www.asx.com.au, and assess whether the Fund is appropriate given your objectives, financial situation or needs. If you require advice that takes into account your personal circumstances, you should consult a licensed or authorised financial adviser.
Neither PFSL nor Plato guarantees repayment of capital or any particular rate of return from the Fund. Neither PFSL nor Plato gives any representation or warranty as to the currency, reliability, completeness or accuracy of the information contained in this website. All opinions and estimates included in this website constitute judgments of Plato as at the date of website creation and are subject to change without notice. Past performance is not a reliable indicator of future performance.
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Daniel is lead manager for the Plato Global Shares Income Fund and Global Low Carbon Fund. Daniel is the chair of the Plato ESG Committee. Prior to joining Plato he was a Portfolio Manager at Realindex Investments, responsible for global equity...
Daniel is lead manager for the Plato Global Shares Income Fund and Global Low Carbon Fund. Daniel is the chair of the Plato ESG Committee. Prior to joining Plato he was a Portfolio Manager at Realindex Investments, responsible for global equity...
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