Investors who are looking for reliable dividend growth may want to take a look at companies with strong brands, as well as companies in the media, technology and fund management industry, says Nick Train, manager at the Finsbury Growth & Income investment trust (FGT).
Train, whose fund focuses on long-term investments in a small selection of UK-traded companies, says he’s specifically attracted to companies with strong brands such as Unilever (ULVR), Burberry Group (BRBY) and Diageo (DGE).
Unilever has grown its dividend by 11 times since 1988, Burberry has increased its dividend by seven times since 2003 and Diageo has grown its dividend by 8.5 times since 1988, according to Bloomberg and Lindsell Train data. This dividend growth has been at least partially a result of strong brand names, explained Train at a recent press conference held by the Association of Investment Companies (AIC).
Train is also invested in the media and technology space, calling this area “the next major bull market.” His media investments include Daily Mail and General Trust (DGMT), which has increased its dividend by 9 times since 1988. Pearson (PSON), the international media company that owns the Financial Times, is also held in Train’s investment trust because he says the company is a leader in its industry and has been successful at harnessing technology to distribute its content. Pearson has increased its dividend by 5 times since 1988. Another of Train’s technology favourites is Sage Group (SGE), a software business that has increased its dividend by a whopping 72 times since 1988.
Strong dividend growth can also be found in the market and fund management industry, said Train. He particularly likes Schroders (SDR), which has increased its dividend by 21 times since 1988. Another holding, the London Stock Exchange Group (LSE), has seen its dividend increase by 8.5 times since 2000, he said.
“Inflation risk is increasing materially,” and a good way to combat inflation within your investment portfolio is to buy companies that pay dividends that are above the inflation rate, said Train. In particular, Diageo is a suitable company for guarding yourself from inflation, he said.
Morningstar analysts have a high opinion of Train’s investment strategy.
“He is a walking example that the Warren Buffett approach still works,” said investment trust analyst Szymon Idzikowski. “He buys good brands when they are cheap and keeps them, eventually selling when they get expensive. It’s fascinating because it’s a simple strategy, yet very successful. We have heard from a number of fund managers that the Warren Buffett times are over, yet Train’s fund comfortably beats peers in the short, medium and long term.”
While Train enjoys investing in companies that can grow their dividends, Idzikowski warns that the Finsbury Growth & Income investment trust “does not have a very consistent dividend history, but it is impressive as a total return vehicle. Train is focused on quality companies--businesses that can prosper through business cycles & grow earning over a long time--rather than focusing on yield targets.”
Unilever and Sage Group are also favoured by the fund manager Hugh Yarrow from Wise Investment. Watch Yarrow discuss Unilever and Sage Group in the “Fund Managers’ Favourites: Dividend Stocks” video.
