Investing for income and growth in emerging markets

Investing for income and growth in emerging markets

Rising dividend payouts

As a result of developments in corporate governance, maturing economies and changing demographics, companies in emerging markets are paying out higher dividends to shareholders than they had previously.

Improved corporate governance

Over the past 20 years, emerging markets have seen widespread improvements in corporate governance. At the outset, booming economic growth had allowed the families or governments that controlled companies to do more or less as they pleased with assets that belonged to all shareholders. As growth slowed however, investors became more aware of the benefits that could accrue from improved governance and started to exert pressure on those companies.

Maturing economies and changing demographics

At the same time, the slower economic growth that comes with maturing economies, together with moderating population growth, has made the high capital spending, debt-fuelled corporate model that aims to capture or at least maintain market share in a rapidly-expanding economy no longer appropriate for most firms. It has been replaced by one focusing more on cashflows and financial prudence.

The Samsung example

For decades Samsung Electronics was seen as a high growth company, generating returns but ploughing them back into the business. The last few years have seen four factors at play that have led to a very different approach:

  • The growth rate of its core businesses has slowed
  • Many of Samsung’s shareholders, largely foreigners, have put pressure on management to improve returns
  • The Samsung group is undergoing a restructure, due partly to generational asset transfer issues
  • Recognition that increased dividend payouts will help longer-term funding for pensioners in Korea

As a result the dividend paid out by Samsung Electronics has grown from KRW 110 in 2012 to KRW 1,138 per share in 2018; a compound annual growth rate of close to 50%.

Many companies now generate sufficient cash to both reinvest in the future growth of their businesses and pay out attractive dividends to shareholders. They also have the management teams in place to ensure that this happens. An increasing part of the returns from equity investing in emerging markets is therefore coming from dividends as opposed to capital gains. As the chart below shows, a quarter of the returns in the last decade have come in the form of dividends paid to shareholders, a ratio that has widened over the last six or seven years.

A portfolio investing in high quality, growing companies who treat the company as belonging to all shareholders and who provide them with a consistently rising income stream should produce strong compounding returns over time. Companies of this nature are increasingly to be found in emerging markets.

Emerging market equities – is the correction over?

An overview of recent developments in the emerging market equities.

Download factsheet
pdf-image

Magna emerging markets dividend fund

An overview of the fund's objective and strategy.

Download factsheet
pdf-image

Magna Emerging Markets Dividend funds


Issued by Fiera Capital (UK) Limited

Fiera Capital (UK) Limited, 39 St James’s Street, London SW1A 1JD, authorised and regulated by the Financial Conduct Authority (FCA). Tel: + 44 (0)20 7518 2100, Email: marketingeurope@fieracapital.com,
Fax: + 44 (0)20 7518 2199, Website: uk.fieracapital.com 

Important information

For Professional Clients only – not for Retail use or distribution. This material is for the use of intended recipients only and neither the whole nor any part of this material may be duplicated in any form or by any means. Neither should any of this material be redistributed or disclosed to anyone without the prior consent of Fiera Capital (UK) Limited. This document has been issued by Fiera Capital (UK) Limited for information purposes only and is not to be construed as a solicitation or an offer to purchase or sell any security or other financial instrument. Where Fiera Capital (UK) Limited provides information in the document, it is provided exclusively for information purposes. The information does not constitute any form of recommendation related to the personal circumstances of investors or otherwise, nor does it constitute any specific or general recommendation to buy, hold, or sell financial instruments and does not thus create any relationship between Fiera Capital (UK) Limited and any investor. The document may not include all the up-to-date information required to make investment decisions. Other more accurate and relevant sources of information may exist. Investors should thus diligently inform themselves about the chances and risks of the investments prior to taking investment decisions. In addition to the financial aspects, this should include, in particular, the legal and tax aspects of the investments. It is strongly recommended that any potential investor should contact a financial adviser and, where required, a lawyer or tax adviser. The purchase of financial instruments constitutes a high risk investment and investors may lose a substantial portion or even all of the money they invest. The value of any investments and any income generated may go down as well as up and is not guaranteed. Investors should note that past performance should not be seen as an indication of future performance. Although the material in this document is based on information that Fiera Capital (UK) Limited considers reliable, Fiera Capital (UK) Limited does not make any warranty or representation (express or implied) in relation to the accuracy, completeness or reliability of the information contained herein. Any opinions expressed herein reflect a judgment at the date of publication and are subject to change. Fiera Capital (UK) Limited accepts no liability whatsoever for any direct, indirect or consequential loss or damage of any kind arising out of the use of all or any of this material. Neither Fiera Capital (UK) Limited nor any third party content provider shall be liable for any errors, inaccuracy, delay or updating of the published content of the provided document. Fiera Capital (UK) Limited expressly disclaims all warranties as to the accuracy of the content provided, or as to the use of the information for any purpose, as far as legally possible.