3 reasons to invest in global dividend growers

3 reasons to invest in global dividend growers

Andy Budden

Stocks that pay and grow dividends have an important place in a portfolio, especially one that’s for retirement. Here’s why.

If you think global equities are all the same, you are not alone. Most Australian investors view global equities simply as a growth asset or a diversifier to Australian stocks. But the majority is not always right.

The truth is that not all global equities are created equal. There is a specific segment that pays and grows dividends over time – an attractive profile that can be especially useful for investors in retirement.

Why global dividend growers?

Retirement investing presents its own unique challenges. You will need not just stable income for today, but also growing income for the future. Why is income growth important? For one, you are likely to live longer. Inflation can also eat into your purchasing power over time.

Unique challenges require unique solutions. In this context, global dividend growers have three attractive features:

1. Source of income. Growing dividends can be a source of income. In fact, they are likely to do a better job of protecting your purchasing power against inflation compared with fixed income.

2. Potential for superior total return. Global dividend growers have historically achieved a higher total return with lower volatility. They posted an annualised total return of 10.3% in USD terms between 1989 and 2014, handily beating the broader market’s return of 8.5%. They also did far better than stocks that did not pay dividends (4.5%), stocks that initially paid dividends but cut them (5.9%), and even stocks that paid constant dividends (7.7%). These differences can be very significant when compounded over a long period of time.

3. Downside protection. Global dividend growers have been more resilient in periods of market decline. On average, they captured just 85% of the market’s downside, while steady dividend payers captured as much as 97% of the downside. You are likely to appreciate a smoother stream of returns as a retiree with little tolerance for market shocks.

What about high dividend payers?

Dividend growers offer an advantage over high yielders today. High-yield stocks in Australia and elsewhere have been hugely popular in the low interest rate environment. But this part of the market has become crowded and somewhat expensive. You should ask yourself if it is worth paying that price for income. It is also important to assess current yield together with the potential for growing dividends in the years ahead.

Harness the power of global dividend growers – they can be a worthy complement to your retirement portfolio.


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