Dividends are still marching in for Saints FUND FOCUS

WHEN Vodafone announced recently it would chop its dividend, the news sent shivers down the spines of many investors who rely on payments from such big British names to boost income. Was this a sign that dividends from home-grown firms might soon start to dry up?

Vodafone’s announcement was of little surprise to James Dow, co-manager of the Scottish American Investment Company – known as Saints. The investment trust is dedicated to finding reliable dividend payers from all over the world, not just the UK. And it mainly seeks out ones that do this while growing their businesses but not overextending themselves in terms of capital expenditure. He says: ‘Vodafone has such a big investment to make in its network.’

Saints boasts a steady record of dividend growth, increasing it every year at a faster rate than inflation. Its current yield is 2.9 per cent compared to 2.1 per cent for the Consumer Prices Index. The trust has achieved this income goal throughout some of the most challenging periods for investment, from the dotcom crash to the financial crisis. It has increased dividends for each of the last 39 years.

Dow ascribes the trust’s recent success to what he calls a threepronged ‘unfair advantage’ over rivals. This includes being supported by a large team of stock pickers at Baillie Gifford, the fund house that has run Saints since taking it over in 2017; making investments for five years at least; and, importantly, going global in its search for income.

Dow believes this is especially important during the current uncertainty in the UK economy. He says: ‘If you confine yourself to the UK, there are only 220 investable companies. Although some of these are businesses that operate globally, a lot are UK focused. Globally, there are ten times the number of companies for resilient income growth.’ To put it in investment pot terms, British investors have nearly £11 billion salted away in UK income trusts compared to just £3 billion in similar global trusts.

Companies from North America, Europe and the UK account for about 75 per cent of the portfolio while the rest is spread across Asia Pacific and the emerging markets.

One of his favourite types of company is a ‘compounding machine’ – a business with an enduring competitive position and strong growth potential. These make up 70 per cent of the portfolio and include many big names such as Nestlé, Hiscox and Apple. Apple was added to the holdings before the tech giant started paying a dividend in 2012. The trust not only enjoyed ‘fantastic capital growth’ but has reaped the benefit of regular dividends.

CH Robinson, a US truck haulage business, is another that meets the brief because it grows its business without high levels of capital expenditure and has a dividend yield of 2.5 per cent. Plenty more of its holdings are of a similar calibre – something which appeals to Chris Salih, investment trust analyst at consultancy FundCalibre. He points to the fact the trust, which is valued at £580million and has an ongoing annual charge of 0.76 per cent, held up well during last year’s stock market turbulence.

Salih supports the idea of hunting beyond British shores for income, saying: ‘In its latest Global Dividend Index, fund managers Janus Henderson revealed that global dividends are now almost twice the level they were when its index started in 2009.’