I'm Jared Hoff, Portfolio Manager at Federated Hermes.
Which international market sectors are attractive for dividend investing now?
As we think about the market sectors with the best dividend offerings, we're thinking about the opportunity set in the same way that we always do. We're looking for a high degree of cashflow visibility, even in a slow economy. And that also means limiting cyclical exposure. We place a lot of emphasis, on high quality balance sheets, avoiding regulatory headwinds that come along with certain segments of the economy. And of course we wanna seek out and test management commitment and resolve to pay and raise the dividend through the whole business cycle. Those characteristics are gonna naturally lend themselves to certain market sectors year after year. And within the international market, we find those favorable dividend conditions pretty consistently in communication services, consumer staples, regulated utilities, especially the ones with renewables exposure to drive growth. Within healthcare, we continue to see a lot of companies like large pharmaceuticals delivering steady dividend growth even through the pandemic. And while the financials and energy sectors do bring some cyclicality, some regulatory challenges, especially within European financials. We have been seeing reliable income streams coming from certain corners of those two sectors. But within energy and the Canadian pipeline companies have continued to raise their dividends in the high single-digits, in spite of the pandemic. And within financials, we see pockets of attractive dividends coming from some global reinsurance companies and the Canadian banks, even under these challenging conditions. But in this environment, especially within financials, you have to give consideration to each country's regulatory environment and each regulators attitude towards dividends and capital controls, because we've seen a lot of European financials, especially being forced by their regulators, to suspend the dividend for the year. Those types of variables, certainly can present challenges for investors who need reliable dividends. But again, I think this does emphasize the importance of thoughtful, active stock selection when you're building an income stream.
What is your outlook for dividends for the remainder of this year?
As we look at the rest of the year and into 2021, I think the good news for dividend paying companies, is that the worst is probably behind us. They may not be totally out of the woods, but we think another complete economic shutdown is very unlikely here. So, earnings visibility and dividends visibility should improve somewhat, and a kind of slow deliberate recovery, I think continue from here. But, at this point, most of the companies that wanted to reset their dividends have already done so, so stay tuned. But I think we're in the late innings of, kind of working through that process. For the companies whose dividends have remained intact, kudos to them. But I think that we should keep our expectations for the resumption of dividend growth, pretty low, at least for right now. Growth will come back though, as we work our way to the other side of this COVID crisis. But today, in terms of stock prices, in terms of valuations, it's hard to say, it's hard to say what might precipitate, a rerating of international dividend stocks. Value and income stocks as a whole have remained out of favor for this year. And international equities have continued to lag domestic. What I do know though, is that with bond yields low, or even negative in some countries, and this growing need for income that we have in the U.S. I think international equities and their generous dividends, are uniquely well situated to help meet that income need today.
Disclosure: Views are Aug. 7, 2020 and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector. There are no guarantees that dividend paying stocks will continue to pay dividends. In addition, dividend paying stocks may not experience the same capital appreciation potential as non-dividend paying stocks. International investing involves special risks including currency risk, increased volatility, political risks, and differences in auditing and other financial standards. Stocks are subject to risks and fluctuate in value. Bond prices are sensitive to changes in interest rates and a rise interest rates can cause a decline in their prices. Past performance is no guarantee of future results. Federated Equity Management Company of Pennsylvania (8/20), 20-40380