DILEMMAS FOR SECURING INCOME AS DIVIDENDS COME UNDER PRESSURE Georgina Taylor, Multi Asset Fund Manager at Invesco explains the importance of diversifying income sources.
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ncome has been thrown firmly into the spotlight recently with the news that banks are being advised to cancel all dividend payments and buybacks.
Hopefully this is a temporary suspension of an important component of equity income, representing around 15% of FTSE 100 dividends last year. Markets have priced in a pretty dramatic cut in dividends, with the FTSE 100 December 2020 dividend future falling nearly 45% during March.
only expected to contribute 0.08% to our income target, which currently equates to roughly 4.1% over one year. Given the flexibility of the strategy we can replace that with other sources if dividends are affected further.
Figure 1. Percentage contribution to income across asset types in 2019
Having access to a broader range of options to generate income can help diversify the income component of a portfolio. For the Invesco Global Targeted Income Strategy to meet its gross income target of 3-month LIBOR plus 3.5% p.a. we look at a wide range of opportunities. For 2019, the income breakdown was as per Figure 1. Note that equity dividends were already the smallest component of our overall income generation in 2019, and we have reduced that further in 2020. As at 24 March 2020, equity dividends were
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Source: Invesco, as at 31 December 2019.
