Where are the best equity income opportunities?

The MSCI World index saw dividend growth of 14% in 2011, but the actual yield is still only 2.2%, owing to the dampening effect of low shareholder payouts in Japan and the US.

Bob Doll, chief equity strategist at BlackRock, says that despite the dividend growth seen, corporates are sitting on record levels of cash and payout ratios at about 30% remain below the long-term average – both of which are supportive of further payout uplifts.

Sonja Laud (pictured), manager of the Schroder Global Equity Income fund, expects dividend growth in 2012, but with continued regional disparities. She believes it will range between 10% and 14% in Europe and Asia, but be considerably lower in the US and Japan, further widening the gap between the markets.

‘In terms of dividend dynamics, Europe and Asia are by far the most promising,’ she says. ‘In the US, only 10% of the S&P 500 yields 4% or more, which shows what the preference for share buybacks has done to its dividend profile.’

Indeed, the S&P 500’s annualised dividend growth over the past five years is just 0.9% compared with 8.7% in emerging markets.

The low payouts in the US and Japan are leading global equity income managers to position their portfolios well away from the MSCI World benchmark, which the two markets dominate.

Laud says the smaller number of attractive dividend payers in the US is also leading to valuations looking unattractive.

‘In the US it is quite concentrated on telecoms, pharmaceuticals and utilities,’ she says. ‘It is quite a concentrated pool and a valuation gap is approaching high levels, so it worth looking more to Europe and Asia, which also has a much broader range of [dividend paying] sectors to choose from.’

She has 30.5% exposure to Europe, compared with the benchmark’s 17.7%, and 15% in Asia and emerging markets versus 5.5%.

Similarly, Artemis Global Income manager Jacob de Tusch-Lec is significantly underweight the US, favouring emerging markets on a relative basis, and highlights key holdings in Indonesia, Brazil and Singapore.