Liontrust’s top-performing income manager is investing in companies that have slashed or cancelled their shareholder payouts as he hunts for bargains amid the dividend drought.
Storm Uru, manager of the Liontrust Global Dividend fund, told FTAdviser he was using the fact companies are culling dividend payments as a way to invest in typically expensive firms.
He said: “The stock price gets depressed so it is an opportunity to buy in the company at a good price.
“These types of companies are really well positioned over the next three to five years and we can pick them up now confident they are ready for the new type of environment.”
Examples include Disney, which scrapped its semi-annual dividend in May, and Estee Lauder, which did not pay out its Q2 dividend.
Mr Uru said: “These are global leaders which are quite expensive, so quite often there is no opportunity to buy them.
“But their dividend cover is actually completely different to companies such as BT and Vodafone, and they will be worth more in three to five years.”
Income takes a hit
Income investors have taken the “biggest hit in a generation” during the coronavirus crisis as companies looked to create a cash buffer against lockdown’s economic blow.
Link predicts the total dividends paid out from the UK, typically considered a ‘dividend haven’, to be a mere £56bn in 2020 in a worst-case scenario. By comparison, UK companies paid £111bn in dividends in 2019.
Mr Uru said he had looked to “redesign income investing” when he took over the Global Dividend fund three years ago, looking at it from a global perspective and moving away from chasing yield towards income growth.
The fund was formerly part of the Neptune range and was £13m in size on the acquisition of Neptune by Liontrust at the end of September 2019.
By the end of June 2020, the Global Dividend fund had grown to £42.2m.
He said: “When I inherited the fund it was full of companies which were paying a good 3 to 4 per cent divi but were declining in their industries.
“They just didn’t have the economic clout they had 10 years ago and we were investing in these firms as dividends rather than growth. But I wanted to invest in global leaders and focus on growth rather than yield.”
This style of investing has helped propel the Liontrust Global Dividend fund to a top performer during the coronavirus crisis.
The fund is the absolute best performer in the IA Global Equity Income sector over a six-month, one-year and three-year period, returning 42 per cent over the past three years compared to the sector’s 10 per cent average.
Investing in this way also meant the fund was a good diversifier against ‘dividend concentration’, Mr Uru said.
imogen.tew@ft.com
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