Global equity income streams have also been shown to stand up on a total return basis, said Threadneedle Investments fund manager Stephen Thornber.
“Because dividends are simply a distribution of profit by a business, high dividends are a clear sign that a company has a good business model and that management is dedicated to shareholder returns,” said Mr Thornber.
“And what’s more, the dividends are likely to be sustainable looking forward because unlike some governments, corporates have done a good job of repairing their balance sheets in recent years and are in good health,” he said.
Equity income strategies are also well suited to an ageing population that is looking to supplement its income from superannuation with other investment strategies, said Mr Thornber.
Returns from equity income are likely to become more significant as quantitative easing is rolled back, he added.
“The biggest monetary policy experiment in 300 years is now being wound back, and even though the long-term fallout is difficult to predict, there is no doubt that quantitative easing is a powerful inflationary force. It is quite likely that inflation will rise as economic growth picks up,” said Mr Thornber.
“Retired Australians, and those approaching retirement, are particularly concerned with preserving purchasing power as they start to live off their investments. Even modest dividend growth, of five per cent per annum, offers excellent protection from inflation, and we believe there are many attractive companies which can grow dividends by at least that over the next few years,” he said.
