Banks are generating the strongest earnings and dividend growth globally, according to investment manager Martin Currie.
Martin Currie’s Global Equity Income manager Mark Whitehead said global banks’ earnings have been boosted by rising interest rates in the US.
The banks are also much better capitalised than previously, meaning they are able to pay higher dividends, he said.
“Therefore, we are seeing some of the strongest earnings and dividend growth globally coming from that sector,” he said.
UK banks 'not a focus for us'
However, he said he would continue to avoid UK-focused banks due to weaker consumer confidence.
UK-focused lenders include Lloyds Banking Group PLC (LON:LLOY), Royal Bank of Scotland Group PLC (LON:RBS) and Barclays PLC (LON:BARC).
“UK banks are not a focus for us because of UK consumer weakness and corporate spending concerns sparked by Brexit, as well as levels of indebtedness,” Whitehead said.
“Indeed, there is a lot of risk in investing in UK income stocks because of the concentration of payouts, and we don’t have any BP or Shell, for example.”
Trump 'biggest risk' to dividend outlook
He also warned that US President Donald Trump’s trade tariffs present one of the biggest risks to the outlook for global dividends in 2018.
Trump in March imposed worldwide tariffs of 25% on US imports of steel and 10% on aluminium.
The total value of global dividends rose 7.7% to US$1.25trn in 2017 and the growth rate in 2018 is forecast to remain unchanged, according to a Janus Henderson study.
But Whitehead said trade barriers could affect that outlook as it would “rock markets around the globe”.
“It is a serious risk if the situation becomes even more strained, and for those companies with high levels of foreign sales it could have a significant impact,” he said.
Whitehead said European and US-based exporters are likely to be among the biggest losers of any tariffs, particularly car manufacturers.
Another risk he highlighted was the global economic slowdown. While not a central forecast, it could derail markets, he said.
“If we see growth falter, then that would obviously feed into dividend growth. However, in the current environment we do not see this as a central issue, and indeed growth globally looks solid, with earnings growth forecast at 15% currently,” he said.