Equity Income  

Best in Class: Jewel in the income crown

Best in Class: Jewel in the income crown

There was finally some good news for income-starved investors last month. The latest Global Dividend Index from Janus Henderson reported that global dividends reached an all-time quarterly record of $447bn (£341bn). Payments were up 5.4 per cent year on year and underlying growth was 7.2 per cent – the fastest rate since late 2015.

This will be welcome news for many, especially as the dividend cover for UK companies has once again been called into question. According to the Share Centre, dividend cover for the FTSE 100 is at its lowest level since 2009. Oil and gas companies make up a significant part of overall UK dividends and, while the firms themselves are in much better shape than they have been for a number of years, they are still paying out five times more in dividends than they are making in profits. 

The FTSE 250 index isn’t much better, with dividends increasing despite a 16 per cent net fall in profits. 

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Now seems as good a time as ever to make sure that clients’ dividend exposure is well diversified, either by splitting the allocated amount between regional funds, or via a global income fund. 

One of my favourite global income products is Artemis Global Income. It is one of the top-performing funds in what is becoming an increasingly important sector. Jacob de Tusch-Lec has run it since launch in 2010, outperforming the sector average by just under 65 per cent in that time. 

Mr de Tusch-Lec’s process is well defined, but allows some flexibility for him to express his views. He screens for free cashflow yield, rather than purely looking at dividend yield, as this affords him more flexibility and allows him to look at mid-cap ideas that might be able to grow their dividends over time.

The fund has a value bias, with the manager identifying stocks or sectors that are out of fashion, but where he believes there may be a catalyst for change. Income comes from three sources, namely quality, value or cyclical yield plays, and he can vary the proportion of these as the business cycle evolves. 

Mr de Tusch-Lec’s slightly atypical approach to identifying stocks – namely by avoiding mega-caps – has served the vehicle well and is a distinguishing feature.

The portfolio’s largest overweight is currently Europe at around 46 per cent. Most European companies make a single annual dividend payment in the second quarter, so the fund was well positioned to make the most of this trend, while longer term the improving economy provides a supportive environment for both growth and further payouts.

With 30 per cent in North America, the strategy is underweight US companies, allowing for further diversification around the globe. It has over 9 per cent in emerging markets, 5 per cent in Japan and a small position in Asia. Just 7 per cent is invested in UK companies. 

On a sector level, the fund has less exposure to tobacco stocks than many of its peers, so experienced less of a hit in July when the US Food and Drug Administration announced it would examine the case for lowering nicotine levels in cigarettes to reduce addiction.