13 Jun 2022
CONTRIBUTORS | Jo Rands, Portfolio Manager & Research Analyst
Remaining popular with investors not least due to the low level of returns available on traditional sources of income, equity income investing offers a unique opportunity to benefit from both a company’s dividend yield as well as their long-term capital growth.
The opportunity for income across the UK is one of the most dynamic amid global markets. Remaining popular with investors not least due to the low level of returns available on traditional sources of income, equity income investing offers a unique opportunity to benefit from both a company’s dividend yield as well as their long-term capital growth. With UK CPI currently overheating to levels not witnessed since 1982, investors are weighing up the opportunity cost of investing in equities for income whilst global interest rates remain on an upward trajectory looking to combat inflation.
In spite of this the UK still offers a generous dividend yield relative to the income on offer elsewhere across the globe. The 3.5% yield on the FTSE All Share exceeds the FTSE World yield of 2.25% and is well in excess of the existing Bank of England (BOE) base rate at 1%.1 That being said, the world is still recovering from a COVID-19 dividend hangover as the UK continues its recovery toward pre-pandemic dividend levels. Whilst the short-term threat of further rate rises becomes an increasing reality, the importance of positioning an equity income portfolio towards those companies that can preserve and sustain their profits through diverse market environments cannot be understated.
What Are the Risks?
All investments involve risk, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments. Smaller and newer companies can be particularly sensitive to changing economic conditions. Their growth prospects are less certain than those of larger, more established companies, and they can be volatile. Actively managed strategies could experience losses if the investment manager’s judgment about markets, interest rates or the attractiveness, relative values, liquidity or potential appreciation of particular investments made for a portfolio, proves to be incorrect. There can be no guarantee that an investment manager’s investment techniques or decisions will produce the desired results.
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Investments entail risks, the value of investments can go down as well as up and investors should be aware they might not get back the full value invested.