As the market continues to tread water and interest rates remain at record lows… And while gold loses its shine and the price of ‘bunker’ baked beans are still on a 2-for-1 deal… There is at least something going up. Yes, Foolish readers, dividends are on the march higher yet again. But this time it’s not just payouts from the FTSE 100 that are climbing. Dividends from all around the world are gaining ground.
Shareholders could receive an extra $100bn this year
According to Alex Crooke, the head of global equity income at Henderson Investors, global income…
As the market continues to tread water and interest rates remain at record lows…
And while gold loses its shine and the price of ‘bunker’ baked beans are still on a 2-for-1 deal…
There is at least something going up.
Yes, Foolish readers, dividends are on the march higher yet again.
But this time it’s not just payouts from the FTSE 100 that are climbing. Dividends from all around the world are gaining ground.
Shareholders could receive an extra $100bn this year
According to Alex Crooke, the head of global equity income at Henderson Investors, global income investors are enjoying a “bumper year”.
Mr Crooke says:
“2014 looks set to deliver the fastest growth in global dividends since 2011, only this time, most of that growth will come from increases in payouts from firms themselves, rather than from swings in currencies…”
Sounds good to me.
Indeed, the boffins at Henderson calculate global dividends surged almost 12% to a record $426.8bn during the second quarter of this year.
Payouts advanced throughout Europe, America, Japan, Hong Kong, Australia as well as here in the UK…
…thanks to the likes of Nestle, Sanofi, China Mobile, Commonwealth Bank of Australia, British American Tobacco, Toyota, Wal-Mart and Exxon.
And if the dividend momentum keeps going, Mr Crooke reckons shareholders around the world could receive an EXTRA $100 BILLION during the year as a whole.
Which is not bad going for holding so-called ‘boring’ Foolish blue chips.
You can understand why the FTSE has stalled this year
Still, there’s always something for the doom-sayers to latch on to.
And yes, currency fluctuations have hurt some British dividends during 2014.
You see, between July last year and July this year, sterling has jumped from less than £1:$1.50 to more than £1:$1.70…
…so reducing the converted payments from dollar-payer faves such as BP, Shell, Rio Tinto and AstraZeneca.
Here’s a good example of the effect currency rates can have on our returns:
In dollar terms, this year’s Q2 dividend from BP advanced 8% to 9.75 US cents.
Yet in sterling terms, the payment looks set to inch from 5.76 pence to about 5.84 pence – an increase of just 1%.
And when you think just how significant the dividends from BP, Shell and so on are to the FTSE 100, you can understand why the wider market has stalled this year.
A MASSIVE $4.5 TRILLION has been paid out in the last five years
Of course, such currency movements are part and parcel of investing. So if they scare you from backing quality blue chips or investing in general, simply leave your money in the bank.
Indeed, if you are not prepared to invest for the long term…
…allowing currency movements to even themselves out and the stock market to weave its compound-return magic…
…simply leave your money in the bank.
And good luck if you do decide deposit accounts — and their rock-bottom interest rates — are for you.
Because the stock market is not for everyone.
But when you realise, according to our friends at Henderson, that during the last five years:
- Global dividends have surged almost 60%;
- Investors have shared payouts totalling a MASSIVE $4.5 TRILLION, and;
- Currency movements have affected total dividends by just 1.4%…
…then you’ll understand completely why I think buying tip-top dividend-paying blue chips for the long haul makes perfect sense to ordinary investors such as you and me.
And talking of tip-top paying-dividend blue chips…
Buying today at less than £14 gets you a super 5.7% income
I said on Monday that there are always opportunities to buy quality companies on the cheap, whatever the market conditions.
And trawling through the index, I see GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) has returned to a new yield high.
As the chart below shows, Glaxo’s shares now offer a 5.7% income — matching that attained during the banking crash and the Greek-euro crisis.
True, a quick check of Glaxo’s results showed a challenging first half, with those nasty currency movements not helping matters.
In fact, core EPS for the half of 40.1p slipped 5% in constant currency terms – but plunged 22% at actual rates.
But all companies endure difficulties from time to time – even global dividend powerhouses such as Glaxo.
But they can also enjoy periods of notable success and market enthusiasm. In fact, that chart shows Glaxo’s yield dropping below 3% during 2005 and below 2% during 2001 in the good times…
And one day, new products and rising sales could rekindle that market enthusiasm, lift the share price and so push the yield lower.
You never know, perhaps the yield may drop down to 3% again. If it did, the shares would sit at £26 based on the current 80p payout.
And if you really want to be ambitious, the shares would be £40 to give a repeat of the 2% yield seen in 2001.
In the meantime, buying today at less than £14 gets you a super 5.7% yield — and a slice of the near-£4bn Glaxo adds to the global dividend pot every year.
All told, I can think of worse shares to consider right now.
Anyway, I’ll leave the last word to Mr Crooke at Henderson:
“When considering equities, most attention is paid to the daily movements in share prices, but in fact, over the long term, dividends and dividend growth offer the principal source of an investor’s total return, and provide a compelling basis for valuing companies.”
Maynard owns shares in Commonwealth Bank of Australia. The Motley Fool has recommended shares in GlaxoSmithKline.