‘I’ll never go fully green because I want dividends’

Ian Mortimer, of Guinness Global Investors, tells Lauren Almeida why tobacco stocks are important and why yield watching is wrong

Hunting for income on the stock market has not been an easy sport since the pandemic took hold. Dividends were cut across the board, and while the market offers up plenty of high yields, they are often because the stock has fallen out of favour with other investors.

Ian Mortimer, manager of the £ 2.3bn Guinness Global Equity Income fund, has warned that hunting for the highest yields is one of the least effective ways for investors to buy a reliable income. The fund yields 2.5pc against the UK market average of 3.5pc.

He said: “The best way is to look for quality stocks. That is how you can find ones ultimately best placed to pay a dividend through thick and thin, and keep growing it with inflation.”

Mr Mortimer tells Telegraph Money how he identifies shares with the best dividends and why “green” credentials can act as an obstacle for income hunters.

WHO IS THE FUND FOR? Investors who want the best dividend-paying companies from around the globe. Many of our peers look for the highest dividend yields but we do not think that is the most sensible approach. We want companies that are of an exceptionally high quality, that are good at investing in themselves and rewarding shareholders, and have strong balance sheets. These are the businesses that are best-placed to pay a dividend in all market environments. We have a concentrated strategy of 35 stocks, with around 3pc of the fund in each company.

HOW HAS THE FUND’S INCOME FARED? In 2020, 28 of our companies grew their dividend. Six were flat and only one cut. Overall, our investors received the same income as 2019, which was good going considering the market we operated in.

Last year, 31 grew their payouts, three were flat and one reduced. Since the start of the pandemic, not one of the companies we own has cancelled its dividend.

WHAT HAVE BEEN YOUR BEST AND WORST INVESTMENTS? Our best has been Microsoft, which we bought when we launched the fund in 2010 and is up 13 times.

One of our worst has been Teva Pharmaceuticals, a drug manufacturer that is listed in the US but based in Israel. We lost 40pc of our money between October 2013 and August 2017.

HOW HAS THE FUND COPED WITH MARKET FALLS, GIVEN SO MUCH IS INVESTED IN TECH? We want stocks that have a moderate but growing dividend. This means we have more flexibility than some of our peers. Dividends are usually lower, but growth is a lot higher. We haven’t been badly hurt by the sell- off because we don’t own speculative, hyper- growth stocks, such as Zoom. We like quality companies such as Cisco and Microsoft.

BUT EVEN MICROSOFT SHARES ARE DOWN 8PC THIS YEAR... The market is shifting from “growth” stocks, such as Microsoft, towards those classed as “value”. We have a balance of styles: from industries whose profits rise and fall with the economy, such as IT and banks, to more traditional dividend-paying industries, such as consumer stocks and healthcare.

We still like Microsoft. It trades at a reasonable price given its impressive growth, and pays dividends on top. We are always ready to take profits and top up stocks trading at cheaper prices. We sold down Microsoft at the end of the year, which helped cushion the fall this year.

UNILEVER HAS ATTRACTED A LOT OF CRITICISM LATELY. DO YOU AGREE IT NEEDS CHANGE? We have owned Unilever for a long time but like other investors, we have been disappointed with its share price. We are pleased that its bid for GlaxoSmithKline’s consumer arm appears to have gone away and we agree with Terry Smith, manager of the £26.1bn Fundsmith Equity fund, that it has focused too much on the minutiae of its ethical, social and governance commitments rather than boosting profits.

CAN INVESTORS CARE ABOUT THE ENVIRONMENT AND DIVIDENDS AT THE SAME TIME? Investing with a “green” lens rules out some of the best dividend payers. We try to strike a balance. For example, we do not invest in commodity and mining stocks. But we think tobacco companies, such as British American Tobacco and Imperial Brands, offer very good value, are high- quality businesses and have a well- covered dividend. So we will continue to invest in them.

WHAT WOULD YOU HAVE BEEN IF NOT A FUND MANAGER? I have a PhD in physics, so maybe a physicist.