Just a quick reminder to sign up for tickets for my next event, on dividends – on May 15th. It’s the Dividends Debate and you can find out more details (and get free tickets) here or at the ETF Stream website – http://www.etfstream.com/events/the-big-call-dividends-debate
One of the more curious aspects of the current increase in stock market volatility has been that although share prices have become much more turbulent – the VIX, a measure of stockmarket volatility for the US based S&P 500 index, has risen sharply in recent months – many other (backward looking) indicators indicate a surprising lack of volatility when it comes to corporate cash flows. Corporate earnings have been rising steadily over the last few months and that’s fed through into bumper dividend pay-outs. Back in February for instance analysts at fund management firm Janus Henderson observed that global dividends have hit record levels. Global dividends rose 7.7% on a headline basis, the fastest rate of growth since 2014, and reached a total of $1.252 trillion. Every region of the world and almost every industry saw an increase. Moreover, records were broken in 11 of the 41 countries tracked by Janus Henderson, among them the United States, Japan, Switzerland, Hong Kong, Taiwan, and the Netherlands. Volatility hasn’t declined markedly over the last few weeks – blame that Trump and his trade war – but dividends keep on chugging ahead. The chart below, for instance, looks at the FTSE All Share index since the late 1980s. It shows annual returns from equities – as volatile as you’d expect – and the annual dividend yield for this aggregate UK equities index. The contrast could not be starker. Crucially though there’s evidence that the power of dividends is also concentrated in certain months of the year – the first half of the year in particular.
Analysts at Morgan Stanley, for instance, note that an outsize share of annual global dividends is paid out between March and May. In fact, they estimate that roughly US$400 billion is set to be paid into investor accounts over these next few months which may be why risk assets in general, tend to outperform statistically in April. The US banks’ analysts observe that amongst “higher volatility and a dragging risk-free ‘anchor’, this could provide some welcome (temporary) relief’ in the coming months. In particular, spring is very much the high season for European dividends, with Stockholm OMX, AEX (Netherlands), FTSEMIB (Italy), SMI (Switzerland) and FTSE 100 (UK) all showing high carry over the next 4-6 weeks. Morgan Stanley reckons “this cash flow could provide tactical support to Europe, an equity region we also like strategically within global equities”.
Yet another possible signal for being long(ish) European equities versus US stocks?