Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

THERE was more positive news this week for investors seeking an income from equities. Janus Henderson, which monitors the dividends paid by companies around the world, said in a report that it now expects global dividend payments to reach US$1.4 trillion this year1.

That will come as a welcome relief to income investors both in the UK and in other countries too, who saw their dividends wilt during the pandemic. In the UK, dividends (excluding special payments) shrank by around 38% in 2020, as companies acted to preserve their cash buffers or bowed to pressure from regulators to suspend payouts2.

Since then, the world’s economies have recovered almost as sharply as they nose-dived last year, enabling cash rich companies to restart their dividend payments. Janus Henderson says dividends from companies resuming payments accounted for three quarters of the 11.2% underlying growth in global dividends in the second quarter of this year3.

In the UK, we’ve already seen large dividend payers such as Royal Dutch Shell and BP partially reversing their cuts of 2020 after a strong recovery in oil prices. Banks including Barclays, HSBC and Lloyds have reinstated payouts after the pandemic failed to make a dent either in the creditworthiness of their borrowers or in the amounts previously set aside for bad debts.

Meanwhile, mining companies including BHP and Rio Tinto have announced record dividends after a year of strong demand for commodities like iron ore and copper4.

Similar patterns have emerged elsewhere around the globe. In the second quarter, the world’s mining companies grew their dividends to levels higher than before the pandemic began. The dividends from industrials, consumer discretionary companies and financials were also strong.

With Janus Henderson now looking for global dividends to recover this year to just 3% below their pre-pandemic peak, equity income investors should be able to look to the future with increasing confidence5.

The Franklin UK Equity Income Fund features on Fidelity’s Select 50 list of favourite funds. It benefits from being run by an experienced four-strong management team based in Leeds led by the income investing veteran Colin Morton. Its largest holdings are Royal Dutch Shell, AstraZeneca, Unilever, and the FTSE 100’s biggest payer in 2021, Rio Tinto. The Fund currently yields approximately 4.0%, an amount that is not guaranteed.

Another Select 50 favourite, the Fidelity Global Dividend Fund, has a wider investing remit and a flexibility to invest in sectors and industries underrepresented in the UK, such as technology. The Fund therefore offers diversification benefits to investors with largely UK based portfolios. Large holdings include Procter & Gamble, Roche, Cisco Systems and Samsung Electronics. The Fund currently yields approximately 2.5%, which is not guaranteed.

Source:

1 - Janus Henderson, 23.08.21
2 - Link Group UK Dividend Monitor Q4 2020
3 - Janus Henderson, 23.08.21
4 - BHP, 16.02.21 and Rio Tinto, 26.02.21
5 - Janus Henderson, 23.08.21

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Overseas investments will be affected by movements in currency exchange rates. Select 50 is not a personal recommendation to buy or sell a fund. The Fidelity Global Dividend Fund invests in overseas markets and so the value of investments can be affected by changes in currency exchange rates. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to a Fidelity adviser or an authorised financial adviser of your choice.

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