JPM_logo_Eng
  • Funds

    Fund Explorer

    • Search our funds

    Capabilities

    • Fixed Income
    • Equities
    • Multi-Asset
    • Alternatives
    • ETF Capabilities

    Fund Information

    • Fund News and Announcements
    • Regulatory Updates
    • Capacity Management
  • Investment Themes
    • Sustainable investing
    • Emerging Markets
    • European Equities
    • Managing Volatility
    • Future of Fixed Income
    • Strategic Beta
    • Fixed income investing
  • Insights

    Market Insights

    • Guide to the Markets
    • On the Minds of Investors
    • The Weekly Brief
    • Investment Principles
    • Investment Outlook
    • Market Watch
    • Monthly Market Review
    • US Presidential Election 2020

    Portfolio Insights

    • Bond Bulletin
    • Monthly Strategy Report
    • Asset Allocation Views
    • Fixed Income Views
    • Equity Views
    • Factor Views
    • Emerging Market Debt Strategy
    • Long-Term Capital Market Assumptions
    • Global Alternatives Outlook
    • ETF Perspectives

    Webconferences

    • Webconferences
  • Library
  • About Us
  • Contact Us
Skip to main content
  • Role
  • Country
Search
Menu
CLOSE
Search
  1. Home
  2. Insights
  3. Investment Outlook
  4. Seeking sustainable income

  • Share
  • LinkedIn Twitter Facebook
  • Email
  • Download
  • Print
  • Actions
  • LinkedIn Twitter Facebook
    Email Download Print


Seeking sustainable income

 



Central bank actions so far this year have performed the essential role of keeping government borrowing costs low but, for those seeking income, the negative side effect is that low-risk income options are increasingly scarce. 

Investors have been turning to higher risk asset classes, including equities, for income over recent years, yet dividend cuts have become a hot topic as companies look to shore up balance sheets against the shock from Covid-19. While we acknowledge that many companies – particularly those who are receiving government support – may find it difficult to maintain payouts over the coming months, it is essential not to mistake what, for many firms, will be a cyclical issue for a structural one. On a regional basis, we see US dividends as most resilient. The lower dividend payout ratio of the US market provides companies with more flexibility to maintain dividends in periods of weaker earnings. Higher use of buybacks provides a buffer for companies to cut before dividends are hit. Regulatory pressure on banks, in particular, has also been lower so far in the US than in Europe. 

Riskier parts of fixed income, such as corporate credit and emerging market debt, are other areas that may warrant attention when hunting for income. The Federal Reserve’s decision to buy both investment grade and high yield credit for the first time helped to pull spreads back from their widest levels in March, but credit spreads still sit significantly above their levels of the start of 2020. Central bank purchases in both the US and Europe should provide something of a backstop for corporate bond prices in the second half of the year, although we advocate an increasingly selective approach as investors move further down the quality spectrum and the need to differentiate between (more temporary) liquidity issues and (more permanent) solvency issues becomes more important.

Outside of fixed income, real assets may also have a larger role to play in portfolios as an alternative income source. While asset prices in areas such as infrastructure have not been immune to the pressures seen in public markets so far this year, income streams have broadly remained stable. But, of course, investors will need to be able to accept lower liquidity as the trade-off for moving into these types of asset classes.   

The risks of overstretching for yield when hunting for income have been made very clear by the market volatility so far in 2020. Higher levels of income can only be achieved via higher levels of risk in some shape or form. Rather than ramping up risk to achieve a fixed yield target, income-seeking investors may be better off using a wide range of asset classes to build well-diversified portfolios that are in line with their risk appetite, and accepting the level of yield available as a result. 

Dividend payout ratios

%, three-month rolling average

Source: FTSE, MSCI, Refinitiv Datastream, Standard & Poor's, J.P. Morgan Asset Management. US: S&P 500; Europe ex-UK: MSCI Europe ex-UK; UK: FTSE All-Share; EM: MSCI Emerging Markets. Dividend payout ratio shows 12-month trailing dividend per share divided by 12-month trailing earnings per share. Past performance is not a reliable indicator of current and future results. Data as of 31 May 2020. 

Related Articles

Central projections and risks

Explore potential macro and market scenarios following three projections: virus continuation, H2 robust recovery, or strong, synchronised global growth.

Read More

Rethinking the 60:40 portfolio

Explore how real estate, infrastructure and macro strategies can increase risk adjusted income and returns relative to traditional stock and bond portfolios.

Read More

Global momentum towards tackling climate change

With the US election result and growing Chinese intent, explore our projections of the impact of global efforts to tackle climate change on economic markets.

Read More

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not a reliable indicator of current and future results.
 

J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our EMEA Privacy Policy www.jpmorgan.com/emea-privacy-policy.
 

This communication is issued in Europe (excluding UK) by JPMorgan Asset Management (Europe) S.à r.l., 6 route de Trèves, L-2633 Senningerberg, Grand Duchy of Luxembourg, R.C.S. Luxembourg B27900, corporate capital EUR 10.000.000.

J.P. Morgan Asset Management

  • Terms of use
  • Privacy policy
  • Cookie policy
  • Accessibility statement
  • Sitemap
  • Investment stewardship
Decorative
J.P. Morgan

  • J.P. Morgan
  • JPMorgan Chase
  • Chase

Copyright © 2021 JPMorgan Chase & Co., all rights reserved.


We use cookies to provide necessary site functionality and improve your online experience. To learn more about the cookies we use, view our Cookies Policy.

Close
ACCEPT
Read our cookie policy