We Want Dividends That Can Grow

VIDEO: Dividend growth can be harder to find at times of uncertainty, says Evenlode's Ben Peters

Holly Black 3 December, 2019 | 11:04AM

 

 

Holly Black: Welcome to the Morningstar series, "Why Should I Invest With You?" I'm Holly Black. With me is Ben Peters. He is manager of the Evenlode Global Income Fund. Hello.

Ben Peters: Hello.

Black: So, your fund has just passed its two-year birthday. Happy Birthday.

Peters: Thank you very much.

Black: Do you want to tell us a bit about what it does?

Peters: Yeah. So, the Evenlode Global Income Fund looks to invest in a portfolio of companies around the world that can pay a good dividend today, but very importantly, can grow their distributions to shareholders through time. And we think that if we can deliver that to our clients, it's a nice growing income stream, but also should lead to good total returns with the usual sort of equity market volatility as well.

Black: So, you started off working on the Evenlode Income Fund, which was UK only focused. How has it been broadening out your universe to the entire world?

Peters: Well, it's been absolutely fascinating. And particularly, given that in the UK we have some great businesses that we've been investing in for over 10 years now, but globally, there are some sectors that you don't particularly see in the UK The semiconductor industry, we used to have ARM Holdings, but that's now been taken into private hands. So, we've broadened out our knowledge as well and discovering these new sectors has been part of the fun of launching this fund.

Black: So, what are some of the areas that are most interesting to you?

Peters: Well, we're generalists, but I think we find companies of interest in particular sectors with that aim of dividend growth in mind. So, consumer goods is a big sector for us, but also the technology sector. That's both sort of IT – software particularly but some hardware companies, healthcare, media, particularly business media as well and then a certain sort of industrials and other firms that we find of interest as well.

Black: Well, these consumer goods companies have been popular with income investors because they're pretty reliable dividend payers. Does that popularity change the valuation case for you?

Peters: Yes. And it's actually been particularly important factor this year. If you look back at the start of the year, these companies were trading at valuations that we felt were very attractive, but some of them have been very strong in terms of their share price performance, companies like Nestlé, Procter & Gamble, PepsiCo, and that's led us to reduce our weightings in those companies to reflect the less attractive valuations on offer. We still think that they're okay, but less attractive than they were even at the start of this year.

Black: Can that be quite hard to do when you still think it's a great company and it's just on a valuation basis?

Peters: Yeah, it's really good question. These are great businesses and we are long term holders of them. So, we don't sort of take activity just for activities sake. There has to be a good reason. And in this case, the valuation differentials have changed enough to make us do things.

Black: And we keep hearing at the moment about a potential slowdown or a recession. Does that affect dividend growth, which is obviously what you're after?

Peters: Yeah, it can in the short term. We largely invest in companies that are relatively uncyclical, but we do have some cyclical companies in the portfolio. There's probably room for a bit more. We'll see what happens in the market. So, the economic conditions can affect dividend growth. But something else that's affecting dividend growth right now is companies preferring to use buybacks as a means of giving cash back to investors rather than dividends. Buyback schemes are a bit more flexible. So, management teams when they're feeling a little bit more uncertain, tend to lean on those a bit more. So, we're seeing less dividend growth in the short term, but the longer-term prospects are still very good.

Black: Okay. Well, thank you so much for your time.

Peters: Thank you.

Black: And thanks for joining us.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Holly Black  is Senior Editor, Morningstar.co.uk

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