Dividends | Capital Group




Fed Rate Decision: Liftoff at Last, but No Cause for Panic

  • The Federal Reserve has increased interest rates, as it appears confident about the U.S. labor market recovery, domestic inflation expectations and gradual economic recovery outside the U.S.
  • While the Fed has not laid out its precise path for normalization, it has stressed a careful approach to increasing rates, which may imply that this tightening cycle will be slower than past ones.
  • Although some areas of the bond market may lag in a rising rate environment, the income investors earn from bonds should benefit from higher yields going forward.
  • The impact on equities is more mixed, with some sectors benefitting as the economy continues to strengthen and others facing a headwind from higher financing costs.

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MARKET COMMENTARY  |  September 2015

Fed Rate Decision: Near-Zero For Now, But Higher Soon?

  • The Federal Reserve has decided to keep interest rates close to zero, as concern about global economic conditions cast a shadow over an otherwise fairly bright outlook for the U.S. economy.
  • Looking forward, the Fed is expected to raise rates gradually, and an increase of 0.25%, for example, would be unlikely to have a significant impact on the economy.
  • Over time, higher interest rates can be beneficial for bond investors, enabling reinvestment in issues offering higher yields.
  • Rising rates have a varied impact on stocks. Selective investors who emphasize company-specific research should continue to find attractive longer term income and return opportunities.

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INVESTMENT INSIGHTS  |  September 2015  |  FEATURING Stephen Green & Andrew H. Dougherty

The China Syndrome: Meltdown or Recovery Ahead?

The Rise and Fall of China’s Stock Market

A powerful rally in Chinese stocks — and a subsequent sharp decline — were driven primarily by government statements and policy measures, including a series of interest rate cuts. China’s central bank cut rates again in late August and eased reserve requirements on banks.

Source: Wind Financial

A sharp selloff in China’s stock market, a surprise currency devaluation and a persistent slowdown in economic activity have raised doubts about the ability of the world’s second-largest economy to maintain the hypergrowth levels of the past two decades.

Against this backdrop, economist Stephen Green and China affairs specialist Andrew Dougherty discuss:

  • The outlook for China’s economy, which remains generally positive over the long term
  • The origins and potential implications of China’s stock market correction
  • Segments of the economy that are poised for growth despite an overall slowdown in activity
  • China’s uneasy shift toward a market-based foreign exchange regime

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INVESTMENT INSIGHTS  |  August 2015  |  FEATURING Hilda L. Applbaum

Who Wins in a Rising Rate Environment?

In a Low-Yield Environment, Income Stocks Remain in Demand

Heading into the sixth year of an equity bull market, U.S. stocks appear expensive in most sectors. Valuations for traditional dividend-paying sectors, including basic materials, consumer staples and utilities, are high both on a relative and an absolute basis. A notable exception is the telecommunications sector, which hasn’t benefited quite as much from the global search for yield.
Source: FactSet. As of 5/29/15.

Portfolio manager Hilda Applbaum discusses income investing

With central banks around the world aggressively suppressing interest rates, the challenge of finding reliable income-producing investments has never been greater. Few investors are more familiar with this dilemma than portfolio manager Hilda Applbaum, the principal investment officer of The Income Fund of America®. In this conversation, Hilda shares her perspective on:

  • Income-oriented investing in a market where the prospect of higher rates looms large
  • The emerging role of information technology companies as high-quality dividend payers
  • The sustainability of corporate profits and expectations for P/E expansion
  • Finding income opportunities in an aging bull market

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July 2015
 |  FEATURING Gerald Du Manoir & Matt Miller

Evolving Japan Now Offers Intriguing Opportunities

A portfolio manager discusses the recent evolution among some Japanese companies toward a more shareholder-friendly management strategy.

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INVESTMENT INSIGHTS  |  July 2013  |  FEATURING Steven T. Watson

A Contrarian’s Guide to Global Dividend Investing and Opportunities in China

A flood of assets into higher yielding equities and a slowdown in economic growth in China are two of the major issues shaking the confidence of global investors. Portfolio manager Steve Watson explains how a contrarian approach to the market can help uncover opportunities even when investors are most doubtful.

As a manager in several dividend-focused funds, particularly International Growth and Income Fund, where are you currently finding value among dividend-paying companies?

Insurance companies have done very well over the past few months. The insurance companies were hurt by being part of the financials sector during the global financial crisis, even though their business models were much more robust than their share prices indicated.

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The top-yielding quintile of the Standard & Poor’s 500 Composite Index had the worst returns in 2009 and the best returns in 2011. We are often asked the question, “Where do these stocks go from here?” While there may be some value in trying to time an entry point into dividend-focused strategies, there is only so far one can go with that approach; we believe it is best to take a strategic, long-term approach to dividend investing.

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Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses or the collective investment trust's Characteristics statement, which can be obtained from a financial professional, Capital or your relationship manager, and should be read carefully before investing. 

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