DIY Investor Magazine
| August 2017
40
THE QUEST FOR INCOME: FINDING INCOME
FROM EQUITIES
The need for investors to find sustainable sources of
income has arguably never been greater. The world’s
population is becoming increasingly old: According to
the United Nations, by 2050, for the first time ever, there
will be more people globally aged 60 and over than
adolescents and youth aged 10-24 years*.
For investors seeking income, while protecting or
potentially growing their capital, it is a challenging
time. Rates of return on cash and fixed interest
are close to their lowest ever levels and investors
remain nervous in the face of global political and
economic uncertainty. Although inflation in headline
terms is low, it is rising, as Ben Lofthouse observes,
and this will cut into peoples’ real (post-inflation)
investment incomes.
Many people have been worried about equity
markets since the global financial crisis but
Lofthouse believes the biggest mistake has been
not to be invested. ‘We have all waited for the dip to
buy – and in the current environment, that can be
harmful for investors who want income, because we
are not being paid to wait. So, the problem is, how
do you approach finding income?’
KNOWING WHERE TO LOOK
‘The good news,’ he continues, ‘is that companies
offering a good level of dividend yield, such as
financial services, are not looking expensive and
have a good level of income and cash generation.
The market is being quite rational, which is not
always the case.
The worst thing for equity income investors is when
everything is expensive.’
‘Dividend growth is very good on a stock-by-stock
basis; last year, mining firms struggled to grow
their dividends but this was offset by financial
services, technology and housebuilding companies
As the world’s population ages, finding a sustainable income from investment has never
been more critical. Fortunately for investors, this coincides with a growing realisation
by companies of the importance of a growing and sustainable dividend policy. Heather
Farmbrough questions Ben Lofthouse, Portfolio Manager on the Janus Henderson Global
Equity Income Team, on his approach to finding the best equity income opportunities.
generating good dividends.’
Lofthouse and his colleagues on the 13-strong
Janus Henderson Global Equity Income team
concentrate on identifying companies around
the world with cash flow and dividend reserves
that should allow it to go on paying an income to
investors. They seek to invest in stocks yielding
between 2 and 6 per cent.
Their global remit means that they can avoid those
corners of the world where local conditions are less
favourable – for instance, some utility companies in
the UK are currently less attractive than elsewhere
due to political pressure to keep price increases
down.
Lofthouse is less concerned with making
predictions about companies or economies than
ensuring that a company has a safety margin if
things do not go as planned. He and the team look
at factors like balance sheet strength, dividend
pay-out ratio – the percentage of net income that is
distributed to shareholders in the form of dividends
– and low volatility of earnings.
He adds: ‘Dividend growth tends to be more stable
than earnings growth, so at times dividends may
not grow as much, but on the flip side, at more
difficult times, they tend not to fall as much as
earnings.’
WHY IT PAYS TO PAY DIVIDENDS
More and more companies are recognising that a
strong, sustainable and growing dividend policy
helps to attract long-term investors who will form
a stable shareholder base. In 2016, the world’s
listed companies paid out over US$1.15 trillion
in dividends, according to the Janus Henderson
Global Dividend Index, a long-term study into
global dividend trends.
