{"id":52600,"date":"2016-05-30T00:40:00","date_gmt":"2016-05-29T22:40:00","guid":{"rendered":"http:\/\/beta.next-finance.net\/opinion\/dividend-discovery\/"},"modified":"2019-12-31T00:46:37","modified_gmt":"2019-12-30T23:46:37","slug":"dividend-discovery","status":"publish","type":"post","link":"http:\/\/beta.next-finance.net\/en\/opinion\/dividend-discovery\/","title":{"rendered":"Dividend discovery"},"content":{"rendered":"

Alex Crooke, Head of Global Equity Income at Henderson, on what dividend growth can show and why payout ratios remain supportive<\/strong> <\/em><\/p>\n

Consistent dividend
\ngrowth is generally a
\nsign that a business is
\ndoing well and should
\nprovide investors with
\na degree of confidence. If dividends
\nare rising steadily over time, then a
\nfirm\u2019s earnings, cashflow and capital
\nshould also be growing.<\/p>\n

Sustainability ratio<\/strong><\/p>\n

Payout ratios identify the percentage
\nof corporate earnings that are paid as
\ndividends and can be an indicator of
\nwhether a company has the scope to
\nmaintain or increase dividends. The
\npayout ratio can be influenced by a
\nnumber of factors, such as the sector
\nthe company operates in and where
\nthe company is within its growth
\ncycle. As the graphic shows, the level
\nof current payout ratios varies
\nconsiderably between countries
\nand regions, both at an absolute
\nlevel and when compared to
\nhistorical averages.<\/p>\n

Although the chart shows that
\nopportunities exist for dividend
\nincreases in the emerging
\nmarkets, the outlook for
\nearnings and dividends remains
\nuncertain and at present we are
\nfinding the most attractive stock
\nopportunities for both capital
\nand income growth in developed
\nmarkets. Within the developed
\nworld, Japan and the US have the
\ngreatest potential to increase payout
\nratios, although from a relatively low
\nbase, with both markets currently
\nyielding around 2 per cent. <\/p>\n

\"regional_payout_variations.jpg\"<\/a><\/p>\n

Company selection<\/strong><\/p>\n

Conversely, payout ratios from certain
\nmarkets, such as Australia and the UK,
\nare above their long-term median.<\/p>\n

The 2016 forecast yield for Australia
\nis 5.2 per cent and for the UK 4.4 per
\ncent. Companies from these
\ncountries are distributing a
\ngreater percentage of corporate
\nearnings to shareholders in the
\nform of dividends than they
\nhave done historically. This
\nleaves the potential for dividend
\ncuts if a company is struggling to
\ngrow its earnings.<\/p>\n

One area of concern for income
\ninvestors with exposure to the UK
\nand Australia is the number of
\nlarge resource-related companies
\nlisted within these market indices. We
\nbelieve that earnings, cash flow and
\nultimately dividends from these types of
\nfirms are likely to be impacted by recent
\ncommodity price falls.<\/p>\n

Nevertheless, the UK in particular
\nhas a deep-rooted dividend culture, and outside of the challenging
\nenvironment for the energy and
\nresources sectors is home to a number
\nof businesses that are delivering
\nsustainable dividend growth. Our
\napproach is to invest on a companyby-company
\nbasis using an activelymanaged
\nprocess that considers risks
\nto both capital and income. <\/p>\n

Seeking dividend growth<\/strong><\/p>\n

We continue to seek companies with
\ngood dividend growth, and payout
\nratios that are moderate or low, which
\nprovides the potential for dividend
\nincreases. Typically, we avoid the
\nhighest-yielding stocks and focus on
\na diversified list of global companies
\nthat offer a sustainable dividend
\npolicy with yields between 2 per cent
\nand 6 per cent.