Throughout the period, the dividend yield doubled from 1.1 per cent to 2.2 per cent. Despite some of the discussed pitfalls, the huge potential benefit of dividends to returns is clear to see.
Looking at overall yield rather than just dividends can also help investors tailor investment decisions to their needs. The US in particular is a fertile ground for stock buybacks because many corporates there have large cash reserves and few opportunities to spend it on high return projects.
Different areas tend to use the most efficient method of returning cash to investors depending on the tax system in place. By introducing buybacks into their frameworks, investors give themselves another tool to exploit and more flexibility to avoid the most precarious dividends.
Understanding the underlying stock remains the most important factor in dividend investing. Applying a bottom-up approach will help protect investors from dividend cuts.
It is unclear what will trigger the unravelling of the crowded trades of recent markets, but the broad uptick in yields across the globe may herald a mass re-pricing of bond proxies if it continues. Prudent investors would do well to limit their exposure to such weakness.
Christopher Meurice is associate director at Signia
Key points
Dividend-paying stocks vary just as broadly as the rest of the market.
Investors need to understand the industry in which the dividend-paying company is operating.
Understanding the underlying stock remains the most important factor in dividend investing.
