x y and Zee

Why Global Equity Income?

Many corporates continue to find themselves in a position of generating an embarrassing amount of cash which, in today's low-yield environment, is looking increasingly unlikely to generate any decent future rate of return. At the end of the second quarter 2016, US non-financial companies held over US$1.7trn of cash, 72% of which is kept off-shore.

 

That said, corporate bond issuance continues, running at its fastest pace in a decade, amounting to US$4.88trn issued globally so far this year. Where is all this cash going? Whilst the market has accepted an increased debt burden to fund share buybacks, will investors be so forgiving when companies borrow heavily to cover dividend commitments?

​

The flawed idea that a trade-off exists between dividend payments and future growth of earnings (i.e. dividend growth) means that a record number of companies are repurchasing shares due to supposed "financial flexibility".

 

I continue to believe that if there is no better way to utilise excess capital to grow the existing business, companies should return cash to shareholders in the form of dividends and allow the market to efficiently reallocate that capital.

 

I am a big fan of equity income investing. The vital importance of the long-term compounding effect of a re-invested dividend stream should never be ignored.