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Global income investors face shortfall of 3.3 per cent

Income investors around the world have shown unrealistic expectations in the last year.
April 25, 2014

Investors around the world have become more dissatisfied over the past 12 months with the income they receive from their investments.

The survey by Legg Mason Global Asset Management, which polled more than 4,000 investors globally, found that investors were on average seeking an annual return of 9.5 per cent from their income investments, but received just 6.2 per cent, a shortfall of 3.3 per cent.

Investors in the UK were most happy with their income investments, with the 'reality gap' standing at just 1.5 per cent. They were on average seeking 6.6 per cent income, but received on average 5.1 per cent.

This reflects the fact that yields in the UK are still attractive despite recent falls. The UK has a yield of 3.4 per cent and a three-year dividend growth of 16.7 per cent. However, countries which have higher yields than the UK offer diversification. The tables below, sourced from London-based investment house Newton, manager of the Newton Global Higher Income Fund (GB00B5VNWP12), an IC Top 100 Fund, show the best equity income prospects from around the world.

Top 10 highest-yielding countries

CountryDividend yield3 Year Dividend Growth
Czech Republic6.10%-2.50%
Pakistan5.60%9.00%
Poland5.30%11.60%
Spain4.60%-2.80%
Australia4.30%10.30%
Norway4.20%16.40%
Brazil4.10%13.40%
Russia4.00%54.70%
Hungary3.70%3.00%
New Zealand3.70%6.70%

Top 10 countries with fast dividend growth

CountryDividend yield3 Year Dividend Growth
Russia4.03%54.70%
Mexico2.00%35.20%
Denmark1.88%31.90%
Malaysia2.99%23.40%
United States1.97%21.30%
Turkey2.63%21.00%
Morocco2.69%19.80%
United Arab Emirates1.90%19.60%
Germany2.82%19.30%
Sweden3.56%17.60%

Source: Newton

Adrian Lowcock, senior investment manager at Hargreaves Lansdown says: "The core of an investor's income portfolio should be based in the UK. It is clear there are plenty of overseas opportunities for income which have attractive yields. However, investors should not just focus on a high yield in isolation. Dividend yields are historic and do not necessarily reflect future payouts. Investors should look for patterns of sustainable and growing dividends, as these provide the best long-term income streams to beat the rate of inflation."