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ECB QE makes shares an attractive option for income investors compared to bonds, says Stephen Thornber of Columbia Threadneedle Investments and fund manager of the St James’s Place strategic managed fund…

The European Central Bank announced its programme of quantitative easing in January, the consequences of which have seen bond yields fall to their lowest-ever levels and the euro currency weaken versus its peers. Furthermore, government bond yields remain low against equities in relative terms – making shares, rather than bonds, a more attractive option for income investors.

Yet looking beyond the UK, traditionally one of the highest-yielding markets, there are plenty of opportunities for equity income investors. In the US, pay-outs from S&P 500 companies reached USD93 billion in the fourth quarter of 2014; and this figure was eclipsed in the first three months of this year, which saw some USD99.4 billion paid out in dividends. This trend looks set to continue with expectations that global dividends will continue to grow in 2015. Although a stronger dollar is likely to be a challenge for some US multinationals, it is expected that shareholder-friendly activity will continue.

The global dividend story is not just about the UK and US, though. There has been a slow but discernible change in Japanese corporate behaviour, with many companies committing to making or raising dividend payments. There is potential that Japanese businesses will return just 42% of profits to shareholders – equivalent figures in Europe and the US are around 60% and 80% respectively.

In an environment where some of the traditional asset classes favoured by income investors are looking less attractive – in historic terms – equities represent the best value and should continue to offer an attractive and growing income when compared to bonds, even if bond yields start to rise. However, diversification remains an important watchword. The long-term opportunity in Japan is very meaningful and underlines the importance of not being constrained to investing in only one country or region.

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