While interest rates have risen from the pandemic induced lows, cash rates and bond yields still remain unattractive for income seeking investors. That said, there are a number of higher income opportunities available in the equity markets via stock dividends.
Now traditionally, Australian equity investors have relied on banks and high yielding industrials for a source of income. However, we at HALO Technologies believe that putting all one’s eggs in one basket (the Australian market) increases overall risk for investors and ignores the myriad of high yielding investment opportunities outside of Australia! Go forth and diversify!
Looking around the world we note that the lowest equity market yields are in Japan and the U.S. The Nikkei (Japan) has a yield of 1.9% and the S&P 500 has just a 1.55% dividend yield, so we may not find too many opportunities there.
However, when we look to Europe and the U.K we see market yields are considerably higher. The Euro Stoxx yields 3.2% and the FTSE 100 has a dividend yield of 3.9%. In fact, when we drill down, we can see a number of European and U.K. stocks that yield in excess of 6-7%.
However, we can’t just choose investments solely on the basis of yield. In some instances, an abnormally high yield brought about by a depressed share price can signal trouble ahead. One should look for companies that have not just a high but a sustainable dividend. Larger companies are preferable than small in this regard, so keep the market capitalisation more than US$1 billion.
Also, only focus on companies with a track record of consistent dividend payments and particularly with the capacity to sustain current dividend payouts into the future. One should also look at certain “quality” factors such as return on equity (ROE), earnings variability, and debt to equity (how leveraged are they).
What yield oriented investors must also understand, the current running yield of any stock is not guaranteed. Companies can and do reduce dividend payments over time. Currency movements may well affect the dividend value when translated into Australian dollars. Therefore, the value of dividends may be higher or lower than the starting yield.
That said, investing in high dividend paying companies has its advantages. Higher income equities may underperform the broad market in strong uptrends but usually do better in corrective phases and downward trending markets like we have now.
In terms of stock ideas, we note that the following two companies look particularly attractive on the basis of yield, underlying fundamentals, and most importantly- the ability to maintain (and perhaps increase) the dividend.
Paris based, Engie SA offers a full range of electricity, gas and associated energy and environment services throughout the world. The Company produces, trades, transports, stores, and distributes natural gas, and offers energy management and climatic and thermal engineering services
Engie is also European and world leader in low-carbon electricity production, centralized and decentralized energy networks, and associated services. The company relies on its key business lines (Renewables, Decentralized infrastructure, Client Solutions, Thermal Generation and Energy Supply) to offer its customers competitive, high value-added solutions that enable them to achieve their carbon-neutrality targets. Engie operates electricity power plants, natural gas terminals, and storage facilities in over 40 countries.
U.K. based Vodafone Group PLC provides wireless communication services. The Company offers mobile telecommunications services including voice and data communications. Vodafone Group serves customers worldwide.
Vodafone is one of the world's top wireless phone carriers, with its more than half a billion subscribers (across some 25 countries) behind only China Mobile. A network of partnerships with other mobile networks extends its reach into another 45 countries. As well as telephony, it has 27 million fixed broadband customers, and more than 20 million TV customers. The company generates the majority of its business in Europe, where it is a leader in the wireless markets in the UK and Germany. Vodafone increasingly serves callers in Africa, the Middle East, and Asia through subsidiaries and joint ventures. It holds a 45% stake in Vodafone Idea Limited, the company formed by the merger of Vodafone India and local carrier Idea.
If you are looking for more international dividend opportunities, HALO Global has you covered. The International High Dividend Vue is a thematic, concentrated portfolio of ten companies that provide investors with a steady and reliable stream of dividends.
The investment strategy focuses on identifying large and mature global companies that pay out a reliable stream of dividend income which is likely to increase in the future. The portfolio is designed to have lower correlation with broad markets and invests in companies with sustainable high dividend yields that are higher than similar managed funds and ETFs.
All information contained in this publication is provided on a factual or general advice basis only and is not intended or be construed as an offer, solicitation, or a recommendation for any financial product unless expressly stated. All investments carry risks and past performance is no indicator of future performance. Before making an investment decision, you should consider your personal circumstances, objectives and needs and seek a professional investment advice. Opinions, estimates and projections constitute the current judgement of the author as at the date of this publication. Any comments, suggestions or views presented in this communication are not necessarily those of HALO Technologies, Macrovue or any of their related entities (‘we’, ‘our’, ‘us’), nor do they warrant a complete or accurate statement.
The opinions and recommendations in this publication are based on a reasonable assessment by the author who wrote the report using information provided by industry resources and generally available in the market. Employees and/or associates of HALO Technologies or any of the other related entities may hold one or more of the investments reviewed in this report. Any personal holdings by HALO Technologies or any of the other related entities employees and/or associates should not be seen as an endorsement or recommendation in any way.
HALO Technologies Pty Ltd ABN 54 623 830 866 is a Corporate Authorised Representative No 1261916 of Macrovue Pty Ltd ABN 98 600 022 679 AFSL 484264. Macrovue Pty Ltd is a wholly owned subsidiary of HALO Technologies Pty Ltd.