DIVIDENDS provide the vast bulk of long-term returns from equities. Work by Elroy Dimson, Paul Marsh and Mike Staunton of the London Business School shows that the real annual total return from American shares since 1900 has been 6.4%. Capital gains supplied just a third of that figure; reinvested dividends accounted for the rest.
So the outlook for dividends ought to be crucial for equity investors. They should be concerned that, in some markets, dividend income is concentrated in a small number of stocks (see chart). In Australia, Britain, France, Germany and Switzerland, more than 70% of the dividends come from just 20 companies.
That leaves investors’ income dependent on the fortunes of just a few industries. Banks were big dividend-payers until the financial crisis of 2008; energy and mining companies have been good sources of income since then. But falling commodity prices are leading energy companies to reduce their payouts. Last year 504 American companies cut their dividends, according to Standard & Poor’s, a credit-rating agency, compared with 291 in 2014. Energy companies made up nearly half of the...Continue reading
Source: Business and finance http://ift.tt/1KsTRRQ
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