How do we manage quality, income & risk in a bond portfolio?
We believe that quality and yield opportunities can still be found in bonds.
Over the past year
In 2020, some companies halted dividend payments as global growth faltered with the onset of the global public health crisis. As illustrated in the chart2, dividend stocks have underperformed growth stocks for most of the year, but we began to see a rotation on positive development of vaccine efficacy3.
Currently, dividend stocks are still trading at a discount when compared to the broad markets, or in particular, relative to growth stocks. As illustrated in the chart4, the return dispersion within markets remains large, for example, between the MSCI World Index (blue) and the MSCI World High Dividend (dotted black). And we have been positioned to benefit from a shift in performance patterns.
Dividend stocks from around the world
The global economic recovery continues and the bright spots are currently the US and Europe. This year, some US and European companies have also resumed dividend payouts.
The fundamental picture for global dividends look cyclically attractive as economies around the world reopen and pent-up consumer demand is materialising, supporting corporate earnings.
In the US, profit margins have remained resilient5. While supply chain disruptions continue to drag on some economic activities and support above-trend inflation, companies that seek to address these challenges through a combination of higher price and a focus on productivity should support margins through 2022.
Despite policy normalisation by select central banks including the US Federal Reserve, which is set to begin pulling back the stimulus provided, interest rates and government bond yields have remained low.
Quality equities could offer an attractive opportunities of dividend income, as illustrated in the chart6 below.
Number of companies yielding greater than 3% by region6
Strong momentum of the global economic recovery continues to support corporate earnings. In an overall portfolio1, quality dividend-paying companies with relatively attractive valuations and sound fundamentals may help diversify risks and achieve consistent income amid uncertain markets.