Thornburg Investment Management
August 12, 2019
Thornburg is a global investment firm delivering on strategy for institutions, financial professionals and investors worldwide.

Rethinking Your Income Strategy?

In an era of low interest rates, the right equity dividend strategy can provide the income and total return that investors seek.

As global economic growth slows and fixed income yields around the world stagnate near multi-year lows, finding an attractive source of income is becoming more challenging. Dividend-paying stocks can provide that income. Moreover, dividends have the potential to boost total returns over time, thanks to the power of compounding.

Lower for Longer

The global financial crisis ushered in a decade of unprecedented monetary stimulus measures by the world’s major central banks. Now, interest rates in the U.S., Europe and Japan are hovering at historical lows. At the time of this writing, the yield on the U.S. 10-year Treasury is just 1.71%, the lowest it’s been since October 2016. In Germany, the 10-year bund, a proxy for interest rates across the eurozone, recently dipped into negative yield territory, as it did in late 2016. The yield on Japan’s 10-year government bond is also negative.

July’s 25 basis point rate cut by the U.S. Federal Reserve reaffirms that the Fed and other central banks are on a dovish path to stoke the fading embers of global economic growth. It’s unlikely that an extended uptrend in rates will happen anytime soon.

Attractive Dividend Yields? Think Globally.

Now is the time—as it always is—to consider  global  equity income strategies. Why? Broadly, stock dividend yields in the U.S. and abroad are more attractive than certain asset classes traditionally relied on for income.

Today, investors across the eurozone can earn a higher yield from stock dividends than from high yield bonds. European Central Bank monetary policy has compressed fixed income yields to the point where the spread (the difference) between high yield bonds and the region’s overall stock dividend yield is essentially zero. In the U.S. the spread between high yield bonds and the dividend yield on stocks is low relative to its historical average. In this environment, global equity income strategies, some which yield over 4%, become a compelling option for income seekers.

 

Dividends: Key to Total Return—Especially Internationally

Stock dividends have historically played a large part in driving equity returns. They have contributed over 50% of U.S. equities’ total return since the early 1870s. The impact of dividends on international equity returns is even more pronounced, thanks to dividend yields that are often higher abroad. Since 2011, dividends have accounted for essentially all of emerging market equity returns and approximately 70% of developed international equity returns (see chart below). While many investors consider the potential for capital appreciation to be the primary reason behind owning stocks, it’s the dividend that can, at times, provide the most benefit to investors—especially given today’s investment landscape.

 

In today’s world of slowing growth, high asset valuations and low interest rates, global equity income strategies demand attention from investors seeking attractive income and total returns.

“The only thing that gives me pleasure is to see my dividend coming in.”
—John D. Rockefeller

 

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Important Information

Before investing, carefully consider the Fund’s investment goals, risks, charges, and expenses. For a prospectus or summary prospectus containing this and other information, contact your financial advisor or visit  thornburg.com . Read them carefully before investing.

The performance data quoted represents past performance; it does not guarantee future results.

Investments carry risks, including possible loss of principal.

Neither the payment of, or increase in, dividends is guaranteed.

The views expressed are subject to change and do not necessarily reflect the views of Thornburg Investment Management, Inc. This information should not be relied upon as a recommendation or investment advice and is not intended to predict the performance of any investment or market.

Please see our  glossary  for a definition of terms.

Additional risks may be associated with investments in emerging markets, including currency fluctuations, illiquidity, volatility, and political and economic risks.

The performance of any index is not indicative of the performance of any particular investment. Unless otherwise noted, index returns reflect the reinvestment of income dividends and capital gains, if any, but do not reflect fees, brokerage commissions or other expenses of investing. Investors may not make direct investments into any index.

Thornburg mutual funds are distributed by Thornburg Securities Corporation.

Thornburg Investment Management, Inc. mutual funds are sold through investment professionals including investment advisors, brokerage firms, bank trust departments, trust companies and certain other financial intermediaries. Thornburg Securities Corporation (TSC) does not act as broker of record for investors.

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To learn more, please visit www.thornburg.com

The views expressed by the portfolio managers reflect their professional opinions and are subject to change. Under no circumstances does the information contained within represent a recommendation to buy or sell any security. Investments carry risks, including possible loss of principal. Investments carry risks, including possible loss of principal. Portfolios investing in bonds have the same interest rate, inflation, and credit risks that are associated with the underlying bonds. The value of bonds will fluctuate relative to changes in interest rates, decreasing when interest rates rise. Unlike bonds, bond funds have ongoing fees and expenses. Investments in the Funds are not FDIC insured, nor are they bank deposits or guaranteed by a bank or any other entity. Please see our glossary for a definition of terms: http://www.thornburg.com/legal/glossary.aspx Thornburg mutual funds are distributed by Thornburg Securities Corporation. Thornburg Investment Management, Inc. mutual funds are sold through investment professionals including investment advisors, brokerage firms, bank trust departments, trust companies and certain other financial intermediaries. Thornburg Securities Corporation (TSC) does not act as broker of record for investors.

Before investing, carefully consider the Fund’s investment goals, risks, charges, and expenses. For a prospectus or summary prospectus containing this and other information, contact your financial advisor or visit our literature center. Read them carefully before investing: https://www.thornburg.com/forms-literature/product-literature/mutual-funds/index.aspx



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