Dividends have provided a significant share of investor returns over the long term. For example, dividends contributed 61% of the total return of the MSCI World Index since 1970 . We believe dividends must therefore be an important consideration when making any equity investment.
Our approach is to look globally for high quality companies that can grow their dividends into the future. We do not simply look for companies with a high dividend yield as this can often signal a company which has an underlying problem. Instead we look for quality companies with a history of generating consistently high returns on capital through an economic cycle. In this way we can identify companies that have management with the capital budgeting discipline to be able to pay a dividend that can grow into the future. By focusing their resources only on projects that provide a high return on capital these companies are well placed to create value for shareholders and therefore should see dividend growth support share-price performance.
Historically the UK has been the key market for equity investors seeking an income stream. However, the UK equity market has become more concentrated in recent years, both in terms of sector diversification and income generation. Today just 6 companies account for 42% of all UK dividend payments . High quality companies, with long histories of paying dividends are not exclusive to the UK but can be found in many developed markets. At the same time around the world companies are responding to shareholder pressure to adopt more progressive dividend policies. The demographic shift towards an aging population in the developed world and increased personal wealth in developing countries will lead to a greater demand for current income, and therefore those companies that can provide a growing dividend will likely be rewarded with higher equity valuations. A global approach therefore offers not only geographic diversification but access to a growing and broader range of dividend paying companies.
The Guinness Global Equity Income Fund seeks to benefit from this global investment environment, and provide our investors with both a growing income and long-term capital appreciation.
1Bloomberg, Guinness Asset Management calculation 14/01/2011
2Bloomberg, Guinness Asset Management calculations 14/01/2011
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