Add a source of sustainable dividends with BNY Mellon Global Income

However, this rate of increases has also contributed to a decline in dividend cover – the extent to which a company’s dividend payments are covered by its profits. In 2018, profits came to 2.3 times the value of dividends globally, down from three times in 2010. This year that ratio is expected to fall to 2.2 – its lowest level in a decade. And the UK, which historically has offered attractive yields, is among the equity markets expected to have the lowest levels of cover.

So, if dividends are looking fragile, it is worth drawing income from funds with a reliable, well-diversified approach such as BNY Mellon Global Income (GB00BLG2W887). Its manager, Nick Clay, draws on the views of BNY Mellon's broader investment team on the global economic and market backdrop, and then picks stocks along the lines of a number of themes, with a strict focus on yield levels. Each of the fund’s holdings must yield at least 25 per cent more than FTSE World index at the time of purchase, and any holding whose yield drops below that of this index is sold as soon as possible.

Because yields move inversely to prices, Mr Clay and his team buy stocks relatively cheaply and sell them if they look expensive, giving this fund a defensive profile. Analysts at fund ratings company The Adviser Centre say: “These rules often direct the fund towards a core of higher-quality stocks with strong cash flows and high, sustainable dividends. Nevertheless, the nature of the thematic input means the team can be flexible in directing the portfolio towards economically sensitive investments when it is deemed appropriate, as long as they meet the dividend criteria.”

The fund tends to hold between 40 and 70 stocks across a variety of sectors and geographies, and had around 45 per cent of assets in North America at the end of September, with 30.5 per cent in Europe and 13.3 per cent in the UK. Its largest sector weightings were consumer goods and technology.

BNY Mellon Global Income’s yield is not the highest on offer at less than 3 per cent, but a price-driven approach could mean it proves to be more sustainable if dividends become less stable in future. The lower yield may also be a result of the fund’s strong performance – it beats the Investment Association (IA) Global Equity Income sector average over one, three and five years to the end of September, and FTSE World index over one and five years.

The fund's investment team tends not to adhere to its benchmark in terms of its stock selection, meaning that its returns can be quite different, and its yield discipline can sometimes give it a value-focused approach. So analysts at The Adviser Centre say that while this fund is suitable for investors seeking an income, those wanting returns more in line with the benchmark should hold it alongside a fund that has more of a growth investment style. 

However, as long as you are comfortable with the fund's investment style, periods of underperformance relative to FTSE World index and a lower yield than some of its sector peers, BNY Mellon Global Income remains a good option for a reliable yield in uncertain times and for good long-term total returns. Buy. DB