A global search for dividends in this fund ‘for all seasons’

AS THE fund’s name implies, the focus of Aviva Global Equity Income is on delivering dividends to investors. It’s a task the fund is fulfilling quite nicely and its manager is confident that future rising dividend payments can be achieved despite the difficult economic backdrop.

In the past year, the £206million fund has generated income of just under 6.2pence, with the shares trading at around £2.64.

In the previous 12 months to the end of September 2021, the equivalent income paid to investors was 5.38pence a share. Over the past five years, Aviva says annual income has grown at an average 7.8 per cent.

Manager Richard Saldanha runs the fund on the basis of finding income for investors. His view is that if the right dividend-friendly companies are bought, capital returns will ‘take care of themselves’.

Over the past five years, total fund returns of 61 per cent have been achieved. Over the same period, the average global equity income fund has provided a return of 37 per cent.

Saldanha’s attitude to dividends is a flexible one. He will not include a company in the portfolio if it doesn’t pay a dividend to shareholders. That approach rules out technology giants such as Amazon and Meta.

But he is quite happy to buy shares in other tech companies – the likes of Visa and Microsoft – that are now paying growing dividends, albeit small ones in terms of yield.

Says Saldanha: ‘Twenty years ago, technology companies were not paying dividends.

‘As a result, they were a no-go for income investors. But the likes of Visa and Microsoft are breaking the mould.’

He adds: ‘Visa is a great business that is paying shareholders an income equivalent to around 0.8 per cent a year.

‘A small figure, but the dividend is growing at 20 per cent a year. It’s a compelling investment with a business right at the heart of the boom in e-commerce.

‘The same can be said of Microsoft which has the potential to deliver double-digit growth in income over time.’

Such low-yielding investments – with the potential to generate growing income for the fund – are complemented by holdings in companies which deliver higher levels of income, but provide less scope for dividend growth.

These include the likes of National Grid in the UK (5 per cent yield), Swiss pharmaceuticals giant Novartis (yield of 3.6 per cent) and German telecoms giant Deutsche Telekom (3.3 per cent).

A third category of income stocks includes companies providing a mix of dividend growth (anything between 5 and 15 per cent a year) and dividend yields of 2 to 4 per cent. Among them is US consumer goods giant Procter & Gamble which has 66 years of dividend growth under its belt.

Saldanha accepts that the economic conditions – high interest rates and raging inflation – are difficult for many companies, but he believes he has constructed a fund for ‘all seasons’.

He says: ‘The fund provides dividend resilience which is allimportant at a time of high inflation. Its breadth in terms of geographic spread also means it is not over-reliant on certain sectors for its dividends.’ Most UK equity income funds depend upon commodity producers, oil companies and the banks for their dividends.

Aviva Global Equity Income pays quarterly income. Total annual fund charges are 0.87 per cent.

Over the past five years, global equity income funds with better overall performance records are JPM Global Equity Income, Guinness Global Equity Income and Liontrust Global Dividend.