Are Dividends the Future for Your Investment Portfolio?

No matter if you are a first-time investor, seasoned investor or a financial professional, there are a set of questions which you will come to ask yourself and the markets at some point during your investment journey. What is the future for my investment? Am I investing in the right thing? How much should I be earning?

In times of economic and social uncertainty with the COVID-19 pandemic, these questions have increased in prominence as more people look to investing as a form of financial security or in the hope of increasing their cash flow. The changes to social and working practices caused by COVID-19 has naturally raised concerns amongst investors about where is the best place to invest their money in the future.

One of the biggest issues facing investors and businesses at the moment is the uneasy feeling of not knowing what is to come. Well, in an attempt to provide some clarity, this article looks to explore what the future is for global dividends and how they can help investment diversification.

What has the impact been on financial markets?

It is safe to say these are unprecedented times that no one would have predicted 18 months ago. Businesses and consumers across the globe were not fully prepared for such an eventuality, causing a clear disparity between firms and sectors. It would be correct to say we have seen a lot of companies move well to working from home as well as an increase in technological innovation across all industries. This has been extremely good news for areas like the technology sector, telecommunications and pharmaceutical, all of which has seen a dramatic increase in role across the financial markets, as demand and importance has increased.

On the other hand, some key sectors have been dramatically impacted across the board, most notably the leisure industry, airlines and some areas within the financial markets. While the financial sector has been affected, they have been able to bounce back relatively quickly in comparison to other industries. A key factor behind this has been the large fiscal, government, monetary and central bank stimulus packages that have been applied to the wider economy and available to businesses. This set of unprecedented economic measures has allowed companies and companies across the board with the chance to balance their books and survive financially.

What has happened to dividends?

Although there has been significant financial uncertainty, a lot of companies have continued to pay dividends to their investors throughout the year. When COVID-19 first started to impact social and in turn, businesses, the UK and Europe experienced a significant number of dividend cuts. In comparison, dividend trends in Asia, the US and Canada have been much more stable the longer the crisis has gone on.

Opportunities for the investor in future months

A number of experts and fund managers believe the worst is behind us, investors continue to see a lot of opportunities and in a number of different sectors. One significant element COVID-19 has had on the financial work is the dramatic divergence between what people and investors discuss as a valued investment and an investment for growth. Naturally, the uncertain times has caused investors to look for defensive areas, which haven’t been heavily impacted by the situation, in an attempt to protect their investment. As a result, this has left significant parts of the market looking attractively valued.

Due to the ongoing virus situation, the returns from future dividend returns will ultimately depend on the continuing virus situation. With uncertainty around what financial situation we may be in, in a couple of months, the extent to any future dividend growth or payments next year will be heavily dependent on external factors and decisions of financial authorities.

While this is the case, investment trusts and funds will continue to operate and look for the best investment opportunities for their investors, for the time being, we may see increased investment in well-invested companies to provide some form of security.

This article is for information and educational purposes only and does not form a recommendation to invest or otherwise. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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