Good governance & income

This is the first paper in a series intended to focus on the intersection of specific Environmental, Social, and Governance (ESG) themes and traditional investment concepts.

In this piece, we are focused on governance, as it may (or may not) be supportive of income investing within equities. We are not trying to isolate a truly independent effect of governance on dividend payout.

Instead, we take the perspective of an income-oriented investor and illustrate, in practical terms, the interplay of governance, dividend payout ratio, and probability of dividend cut. We find that good governance and attractive dividend profiles are well aligned, but when it comes to the risk of dividend cut – the biggest risk to the income seeker – our results imply that we cannot turn to good governance alone for protection.