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Investors Set For $1.25 Trillion Dividend Windfall

Global dividends are forecast to hit annual records in 2017, but where can investors look to cash in on this trend? We unearth some top Morningstar picks

David Brenchley 20 November, 2017 | 3:14PM

Income seekers were given a boost in the third quarter of 2017, as global dividends payments saw their fastest headline growth rate in three years, data from Janus Henderson shows.

Dividends paid by companies around the globe in Q3 stood at $328 billion (£248 billion), up 14.5% from the previous three months, according to the recently merged asset manager’s Global Dividend Index. The index reached its highest level ever of 168.2.

It means full-year dividends are now forecast to be just shy of $1.25 trillion, a new yearly record and up 7.4% on a headline basis. All regions saw dividends increase in underlying terms, something Ben Lofthouse, manager of Henderson International Income Trust (HINT), says is rare.

“As the global economy continues its long-awaited post-crisis normalisation, confidence is improving, and company profits are rising,” he adds. “Income investors are enjoying the benefits of this growth, as it feeds through into higher dividends.”

Once again, North American companies accounted for a large proportion – around 40% - of the dividends paid in Q3. Every sector in the US raised payouts, with the biggest increase coming from the aerospace and defence sector. Banks are also becoming much larger dividend payers as they continue to improve their capital reserves.

The UK has lagged over the past year, but shot back to form in the three months just gone, delivering the fastest underlying growth rate at 17.5%. Miners helped, with Rio Tinto (RIO) doubling its payout and BHP Billiton (BLT) tripling its dividend. Anglo American (AAL), meanwhile, restored its dividend earlier than expected. Compass’s special also boosted the total.

There are three companies in our universe that Morningstar analysts believe are undervalued and yield more than 4.5%.

Centrica (CNA) tops that list, with a yield in excess of 5%. The British Gas owner has had a patchy dividend history but is back on track with a new chief executive. Morningstar analyst Charles Fishman has a fair value of 250p, suggesting potential share price upside of 50% from current levels.

General Electric (GE) also has a payout ratio above 5%. The conglomerate, which works in areas as diverse as oil and gas, healthcare and aviation, is embarking on a multi-year restructuring that will help make it more efficient. Barbara Noverini thinks the share price, currently at $18.25, is worth $26.

Victoria’s Secret owner L Brands (LB) is currently reaching an inflection point in terms of revenue and margins, according to Bridget Weishaar. While her fair value estimate has been reduced to $69, there’s still plenty of juice in the firm’s current $49 share price, which provides “an attractive entry point”.

Elsewhere, Murray International (MYI) has been given a Morningstar Analyst Rating of Gold and has a four-star performance rating. Managed by Bruce Stout, the investment trust yields 3.9% alongside preserving capital. It has a skew towards emerging markets and counts Taiwan Semiconductor (2330) and Mexican airport operator Grupo Aeroportuario de Sureste (ASUR) as its two top holdings.

JPMorgan Global Growth & Income (JPGI) has a five-star performance rating and Bronze Morningstar Analyst Rating. It yields 3.75% and aims to also provide superior capital growth. Managed by Jeroen Huysinga, the trust’s top holdings are Alphabet (GOOG), Google’s parent company; Finnish stainless steel producer Outokumpu (OUT1V); and Pioneer Natural Resources (PXD), a US shale producer.

Managed by Jacob de Tusch-Lec, Artemis Global Income is also five-star and Bronze rated. Morningstar’s analyst Jeffrey Schumacher sees it as a core holding for income seekers. The fund’s top holding is General Electric, with Norwegian life insurer Storebrand (STB) and US bank Citigroup (C) next in line.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article
Security NamePriceChange (%)Morningstar
Rating
Alphabet Inc C1,037.05 USD0.59
Anglo American PLC1,384.50 GBX1.50
Artemis Global Income I Acc132.28 GBP-0.70
Centrica PLC141.89 GBX-1.53
Citigroup Inc75.71 USD0.97
General Electric Co17.71 USD0.00
Grupo Aeroportuario del Sureste SAB de CV Class B336.33 MXN0.70-
Henderson International Income Ord166.96 GBX0.73
JPMorgan Global Growth & Income Ord325.24 GBX0.85
L Brands Inc57.28 USD3.96
Murray International Ord1,256.00 GBX0.40
Outokumpu Oyj7.51 EUR2.39-
Pioneer Natural Resources Co155.90 USD1.07-
Rio Tinto PLC3,527.50 GBX1.70
Storebrand ASA63.35 NOK-0.78-
Taiwan Semiconductor Manufacturing Co Ltd227.50 TWD0.22
About Author David Brenchley

David Brenchley  is a Reporter for Morningstar.co.uk