Dividends are often seen as a sign of confidence but they also reflect a company's commitment to shareholder value. On both accounts, Stuart Rhodes, manager of the M&G Global Dividend Fund thinks that the environment for dividends worldwide looks attractive.
Dividends are often seen as a sign of confidence but they also reflect a company's commitment to shareholder value. On both accounts, Stuart Rhodes, manager of the M&G Global Dividend Fund thinks that the environment for dividends worldwide looks attractive.
There have been some healthy dividend increases around the world from a variety of industries, and Stuart is encouraged by the dividend growth announced by many of the companies his fund invests in. Wal-Mart and Nestlé are two holdings in the portfolio that have stated their intention to pay higher dividends this year (21% and 16% higher, respectively) - quality companies with excellent capital discipline and a long track record of progressive dividends.
Stuart also takes comfort from the fact that many companies that struggled to raise their dividends during the financial crisis are delivering dividend growth once more. DSM, the Dutch manufacturer of food ingredients and vitamins, and US insurer Arthur J Gallagher - both held in the portfolio - have increased their dividends during the current reporting season after holding them flat for the last two years.
The corporate sector is in good shape: balance sheets have been restored, cashflows are buoyant and shareholders are being rewarded again with higher dividends. In terms of how this is reflected in stockmarkets, consensus estimates assume dividend growth on a global basis of about 10% in 2011 - a growth rate which Stuart believes is undemanding. "To put things into context, dividends are still recovering from the savage cuts in 2009 but remain well below their peak levels. Market expectations are by no means excessive." says Stuart.
But Stuart's focus is not on the immediate future or the year ahead. His is on the long term (three to five years, if not more) because the benefits of compounding - the accumulation and reinvestment of dividends - only come with time. He has conviction that his strategy of investing in companies with potential for long-term dividend growth can deliver competitive returns over the long run and we continue to find attractive opportunities at the stock level.
For Financial Advisers only. Not for onward distribution. No other persons should rely on the information contained in this article. This Financial Promotion is issued by M&G Securities Limited which is authorised and regulated by the Financial Services Authority and provides investment products. The company's registered office is Laurence Pountney Hill, London EC4R 0HH. Registered in England No. 90776.
