Dividends and diversification are effective life preservers in choppy market seas, said one global equity strategist.

After June’s Brexit referendum touched off tumult in financial markets, equity investors watched as stock prices plunged downward over the course of a few business days, then recovered almost as quickly.

Dividend investors, on the other hand, continued to be paid for staying put -- but they were no less nervous, said Jane Shoemake, investment director, global equity income at Chicago-based Henderson Global Investors.

“Clients are understandably nervous about what’s going on in the U.K. and the world,” said Shoemake, who is based in the U.K. “There’s a huge concentration of stocks paying dividends in the U.K.”

In a Thursday webcast, Shoemake discussed Brexit’s impact on Henderson’s Global Equity Income Fund, with nearly $4 billion AUM, is a dividend-seeking, actively managed mutual fund.

Despite the U.K.’s status as a dividend destination -- Shoemake said U.K. stocks currently yield around 3.7 percent in dividends, and the Equity Income Fund’s 15 percent exposure to British stocks, -- Brexit had a minimal effect on Henderson’s strategy.

“What we have seen is a real polarity in the market, any stock that has had dollar earnings, like many consumer staples, has performed very strongly,” Shoemake said. “Those that are domestically exposed within the U.K. have performed poorly. Only two stocks were directly hit by the Brexit, the rest of the portfolio has a very international flavor to it and has benefited from the Sterling’s weakness.”

Shoemake said that as long as returns are being counted in dollars, dividend investors thus far have seen very little negative impact from Brexit.

Dividends have accounted for two-thirds of total equity returns over time, said Shoemake, noting that the MSCI World High Dividend Yield Index has outpeformed the MSCI All World Index when equity income is taken into consideration.

Henderson’s dividend strategy helps stabilize returns during periods of volatility, said Shoemake, but taking a global approach also helps to minimize concentration risk within portfolios.

“When you go globally, you have a much broader range of opportunities,” Shoemake said. “You’re less of a hostage to fortune.”

A broader approach also means a greater variety of income streams. While the top 10 dividend paying stocks in the U.K. FTSE 100 pay 54 percent of the total equity income from the index, in Henderson’s Global Dividend Index, the top 10 dividend payers account for just 10 percent of the total income paid.

Shoemake said it’s not enough for dividend-minded investors to seek out historically long-paid dividends or higher yields -- a fundamental approach should be taken to stock selection.

“Companies must have strong and growing levels of free cash flow,” Shoemake said. “We look for capital appreciation; we don’t want to overpay for the income stream. We pay very close attention to what we’re paying for stocks.”

Henderson’s managers try to avoid companies likely to cut their dividends, Shoemake said, by watching their performance over time.

Paradoxically, rising yields can be a sign of dividend distress, said Shoemake. Henderson looks for a sweet spot in yields between 2 and 6 percent.

“We have to watch out for value traps,” Shoemake said. “When we expect dividends to be high, they’re not always paid. Often, when a company is showing dividend yields of more than 6 or 7 percent, the market is saying that they don’t expect the dividend to be paid; these are value stocks.”

Yields above 6 percent have recently predicted dividend cuts and suspensions in the mining and banking sectors, said Shoemake.

Currently, healthy levels of free cash flow suggest that dividends in the technology, materials and biotech sectors are safe, said Shoemake, while lower levels of free cash flow are insufficient to support many dividends among energy and utilities stocks.

“Technology has shown really strong dividend growth, and tech hasn’t historically been known for the dividends that they are paying,”Shoemake said. “These companies are now maturing, they’re throwing off huge amount of cash, and they’re returning that cash to shareholders through dividends or share buybacks.”

Another unexpected area of dividend strength: Japan. While Japanese firms have not historically been big dividend payers, corporate culture has become more income-investor friendly in recent years, said Shoemake, but are not yet being picked up by Henderson’s index because they’re “coming from such a low dividend base.”

Dividend indices can fail to identify growing dividend opportunities and may be prone to investing in value traps and at-risk yields, said Shoemake.

“An active stock picking approach is absolutely critical; it’s important to seek out these companies that are growing their dividends,” Shoemake said. “There are risks out there, some sectors and companies are finding life very challenging, but there are many opportunities to go get income and money for our clients.”

With the global population trending older and a pronounced lack of yield in fixed-income investments, investors are going to have to find income across a variety of asset classes as they approach retirement, instead of leaning on a bond-heavy portfolio, said Shoemake.

“As an investor, where do you put your money to find income?” Shoemake asked. “Our view is that equity remains incredibly attractive as a means of income generation.”