DISCOVER
EQUITY INCOME
Why invest in equity income theme?
When market conditions are volatile, and inflation starts to bite, companies that could demonstrate potentially defensive qualities, relatively strong free cash-flow and the potential to pay and grow their dividends become an investment option that worth investors to consider.
Potential hedge against inflation
Companies with the pricing power to pass cost increases on or the companies that could directly benefit from the price increases we are facing are more likely to maintain their dividend payment.
Therefore, equity-income investing is an approach that investors could consider during times of inflation.
Portfolio diversification to reduce relative risk
The days of zero interest rates and quantitative easing are behind us. Given the current shift in the macroeconomic backdrop as easy monetary policy comes to an end in the face of significantly higher inflation, investors could consider income stocks as diversifiers within an overall equity allocation due to their relatively low correlation with growth stocks.
Unleash the power of dividends of US stocks
The chart below shows that income, dividends and the reinvestment and compounding of those dividends from US stocks have contributed considerably to a long-term US equity investor’s total returns, and, in many cases, have exceeded the gain from capital returns alone. Thus, we believe that it is worthwhile for long-term investors to consider investing in US equities for a potentially sustainable and growing income.
The long-term returns from US equity markets illustrate the influence of dividends on wealth creation. To the long-term investor, equity returns are derived not simply from the receipt of dividends but from the accumulation of shares as a result of the reinvestment of those dividends. The compounding of investment returns via dividend reinvestment can be a powerful driver of equity returns over the long term.
The chart below illustrates, for example, that capital gains accounted for the growth of USD1 invested in US equities at the beginning of 1900, to USD531 at the end of 2022. However, the additional effect of dividend and its reinvestment turned that original investment of USD1 into USD70,211. Accordingly, dividends and their reinvestment accounted for 99% of US equity returns over the period.
Impact of Dividends, United States, 1900 - 20221
Compounding of dividends has been key to long-term equity returns
For illustrative purposes only.
Note: 1Bespoke US stock index. Returns and capital gains 1900-2022. Source: DMS Database, copyright © Elroy Dimson, Paul Marsh and Mike Staunton. Returns data licensed by Morningstar, 2022.
There is no guarantee that dividend-paying companies will continue to pay, or increase, their dividend.
Why BNY Investments for income?
A global context
At BNY Investments, we are convinced that all things must be seen within a global context. Our investment philosophy is built on an in-depth understanding of critical trends, allowing us to identify themes that seed our investment ideas. We filter these ideas through a long-term lens, a defining feature of our investment process. This helps us anticipate change, recognise opportunities, and detect potential risks.
The power of dividends
Our disciplined process is focused on companies with the potential and willingness to pay and grow dividends. All the while, it seeks to build a safety margin for the unexpected. The result is an actively managed, high-conviction portfolio.
Seeking controversy?
With market outperformance in mind, we seek opportunities when the potential for mispricing is high. This usually occurs when there is disagreement or scepticism in the market which makes it hard for investors to perceive true value or establish the risks at hand.
Our equity income investment ideas
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