Global equities are delivering for income investors

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%. 

• 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).

The sectors and regions to watch

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%).

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.