The corporate sector will remain the strongest part of the world economy in the years ahead, according to Standard Life Investments. In an effort to maintain this strength, company managers will deploy more of their accrued cash towards growth rather than dividend distribution policies.

Richard Batty, global investment strategist at Standard Life Investments, said that investor behaviour is already altering, and the corporate sector may be in the process of changing the way it views dividends. Managers used to want to show financial strength by accruing cash and then distributing this as a dividend or a share buy-back. Now investors are more willing to reward companies that embark on growth strategies and managers are responding to that.

Batty said: “One reason for this is that dividend yields are already high relative to the low yields from bonds or cash, mitigating the need to distribute high cash balance and raise the dividend further. In addition, the corporate signalling mechanism may be changing, rewarding companies that are able both to sustain current dividend distribution policies and to embark on a variety of growth strategies, such as spending on productive M&A or capital investment.”

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