The UK stockmarket accounts for less than 5% of global market indices, yet it makes up a huge proportion of British investors’ portfolios. Nowhere is the tendency to invest mostly at home more pronounced than among income investors.
For many, the UK remains the “go to” market for dividends, and yet by taking this siloed approach, many investors are losing out on exciting opportunities for both capital growth and healthy growing dividends elsewhere around the world. The scope for healthy dividends in emerging markets, for example, is growing.
This is apparent in economic powerhouses such as China and India, but also in diverse economies such as South Africa and Mexico. The growth opportunities within these markets have long been apparent: working-age millennials in China outnumber the entire US population. However, as corporate governance across emerging markets improves, so do the prospects for robust and reliable dividends.
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Emerging market stocks with robust dividends
Mexico is currently our largest overweight region. While, as investors, we do not take a country-specific approach, focusing instead on individual stock opportunities, Mexico is home to several promising areas. This is due partly to its position as a major player in commodities but also a result of its positive economic recovery.
One of our largest active holdings is Wal-Mart de Mexico (Mexico City: WALMEX). Not only is it a well-run company with strong fundamentals, but the retailer is also committed to improving its environmental and social governance (ESG) credentials. The group offers employees a competitive maternity package and sent all vulnerable staff home on full pay during the pandemic; it is also spearheading the reduction of single-use plastics. This, alongside the company’s reliable dividend stream, gives us confidence in its future.
We are also optimistic about Haier Smart Home (Shanghai: 600690), a Chinese consumer-goods brand supplying air-conditioning units, high-level white goods and household appliances. While Haier’s main consumer base is China, its market is growing through exports.
In fact, Haier has been developing brand recognition in the UK ever since John Lewis began stocking its goods. This growing export market has meant that the brand now yields around 2.5%.
Our optimistic outlook is strengthened through our view that companies in these sectors are less vulnerable to recent shifts in Chinese government policy.
One long-term holding within the information technology (IT) sector is Tata Consultancy Services (Mumbai: TCS), an Indian IT services provider. The firm continues to report strong quarterly numbers, with earnings growing at a double-digit rate.
We particularly like this company’s shareholder cash return policy, which aims to return 90% of its free cash flow to shareholders through a combination of dividends and buybacks. TCS recently announced a buyback equivalent to more than 1% of its market capitalisation and continues to make healthy quarterly dividend payments.
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