But this does not mean that we will see a sudden reversal of capital values. Crucial to this will be rental growth driving the market, which we are beginning to see emerge. We expect returns in the order of 10 per cent in 2015 and then 5-6 per cent per annum over the next five to 10 years, driven mainly by rental income.
As always, there are plenty of risks that could derail any one of these sources of income. We have already seen several major companies cut their dividends, and there is a chance this could become more widespread if the global recovery is not sustained and economic growth falters. As ever one’s strategy needs to be diversified across the asset classes to balance risk and return.
David Marchant is chief investment officer at Canada Life Investments
DIVIDEND PAYERS
David Marchant, chief investment officer at Canada Life Investments, says:
“The sticking point with equity income is that dividends can fall as well as rise. Even companies that on the surface appear to be solid bets for yield can suddenly cut their dividends.
“In January, Tesco announced it would not pay a dividend for 2014-15 after it uncovered a hole in its accounts, while more recently Centrica, the parent company of British Gas, cut its payout after low prices for oil and gas caused its revenue to drop dramatically.
“On the positive side, BP and Royal Dutch Shell – two solid dividend payers – have vowed to maintain their dividends and will instead cut costs elsewhere in light of lower oil revenues.”
