How to avoid FOMO through dividend investing

Returns have been eroded by the ongoing spate of asset support conducted by central banks since the financial crisis. The idea of the global economy weaning itself off measures such as quantitative easing looks ridiculous, with central bankers willing to step in the moment something goes wrong. Investors also expect it. The result of these actions has been to push up valuations of assets. There is a cost to that support and that is lower returns and increased volatility.

One thing you can do is to try and trade that volatility – but good luck. These days unexpected events, like snap elections, make it difficult to build a repeatable process around such an approach. Instead, the nature of sustainable income over time, the power of compounding dividends, could provide a resilient and significant impact to one’s total return, which in the long run, leads to greater asymmetry in returns.  Stability of returns is important to clients and in a world of risk and high valuations, it is ever more important.

However, many growth-oriented managers are still seeking the big story – the next Amazon or Apple. They have a fear of missing out (FOMO). But the ability to pick one particular fish out of the sea is difficult.

I see investing more like Michelangelo who famously, when asked about his art, said it’s what you take away that matters. We take a similar view: take away the statistically unattractive stocks. That’s what the discipline of income does – it narrows down the bucket and forces us to be patient.

Nick Clay – Newton, a BNY Mellon company

Returns have been eroded by the ongoing spate of asset support conducted by central banks since the financial crisis. The idea of the global economy weaning itself off measures such as quantitative easing looks ridiculous, with central bankers willing to step in the moment something goes wrong. Investors also expect it. The result of these actions has been to push … read more

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Dividend prospects: A global diagnosis

Demographic factors are likely to have an increasing and significant impact on global demand for equity income assets including dividend-paying stocks. Experts from the United Nations population division forecast the number of retirees worldwide will reach two billion by 2050 while average life expectancies will continue to rise. This growing group of investors seeks stable income.

While returns from traditional income-generating assets remain suppressed, investors are more likely to focus on those equities that promise the highest yields. However, simply chasing stocks which promise the highest returns can be dangerous. While higher forecast income levels may initially appear attractive, in many cases they may be indicative of heightened risks. In the longer term this can lead to disappointment through cuts in dividends.

The difference between forecast and realised dividend yields demonstrates that a passive investment approach based on forecast yields is not appropriate. In order for an equity income strategy to be successful, careful analysis of how companies allocate their capital is critical. Entities with a disciplined approach to capital management should be better positioned to provide consistent and sustainable returns in the future.

Nick Clay – Newton, a BNY Mellon company

Demographic factors are likely to have an increasing and significant impact on global demand for equity income assets including dividend-paying stocks. Experts from the United Nations population division forecast the number of retirees worldwide will reach two billion by 2050 while average life expectancies will continue to rise. This growing group of investors seeks stable income. While returns from traditional … read more

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Do ‘baby boomers’ really have their finances sorted?

Demographic data shows that across the globe populations are ageing. The post-World War II ‘Baby boomer’ generation – is now entering or approaching retirement. In the UK, there are more than 22.7 million people aged 50 years and over, representing more than a third of the total UK population.[1]

While they may appear to be entering retirement from a position of relative financial strength, the reality of the situation is far more challenging. The first priority for most people will be financing their own retirement with an income they can live off to replace their salaries. As people can now expect to live longer, they need to be sure their investments are suitable to provide for this. Further, many people will have an important second objective of preserving capital in order to bequeath their wealth to their dependents.

With interest rates unlikely to rise dramatically in the near future, income returns on assets such as government bonds and cash deposits remain at historic lows, and in many cases below the rate of inflation. Our view is that a focus on dividend-paying equities can offer investors the comfort of an attractive income stream in an otherwise low-return environment, and provide a shield against inflation.

Nick Clay – Newton, a BNY Mellon company

[1] Mid-2013 Population Estimates, UK Office for National Statistics, 2014

Demographic data shows that across the globe populations are ageing. The post-World War II ‘Baby boomer’ generation – is now entering or approaching retirement. In the UK, there are more than 22.7 million people aged 50 years and over, representing more than a third of the total UK population.[1] While they may appear to be entering retirement from a position … read more

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Why UK companies’ payout potential is still strong

Dividend payout ratios

The traditional UK equity income space is better placed to satiate yield-hungry investors going forward as dividend payout ratios become more consistent with their 15-year average.  In a world with muted economic growth, projects with acceptable investment returns, or attractively priced  acquisitions are harder for companies to come by. This means they can grow their dividend even in the absence of earnings growth. Against this backdrop income-orientated companies will continue to be rewarding for investors

Emma Mogford, Newton

 

The traditional UK equity income space is better placed to satiate yield-hungry investors going forward as dividend payout ratios become more consistent with their 15-year average.  In a world with muted economic growth, projects with acceptable investment returns, or attractively priced  acquisitions are harder for companies to come by. This means they can grow their dividend even in the absence of … read more

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