The M&G Global Dividend Fund is a truly globally diversified fund that aims to deliver income and growth through investments in companies it identifies as ‘dividend achievers’. The fund’s holdings include companies in the USA, Canada, Brazil, Australia and Switzerland.
We take a look at the fund’s approach and the value it aims to find in the dividend culture of equity markets.
For more information about this fund and details of how to invest via the Fair Investment ISA and Investment Account, visit M&G Global Dividend Fund. Included in the Select 100, the M&G Global Dividend Fund is available with no initial charge.
Dividends hit the headlines in the wake of the oil disaster in the Gulf of Mexico in 2010. BP, the firm at the centre of the deepwater drilling operation, ceased paying a dividend during the crisis as its share price fell and it came under intense pressure.
Until that time, BP had been one of the main dividend payers in the UK stock market, but the temporary suspension of dividends from BP was probably of little concern to Stuart Rhodes, manager of the M&G Global Dividend Fund, who has sought out international dividend cultures since its launch in 2008.
Defined simply as the payment of income by a company to its shareholders, the name dividend comes from the legal obligation to divide the sums distributed between shareholders in proportion to the number of shares held.
Data presented by Rhodes at a recent conference looked at the average annual real returns (after inflation) from equity investments in different markets over a 40 year period. For example, in Australia dividend yield and the growth in those dividend payments accounted for all of the above inflation growth each year.
The annual average return from that investment would have been negative once inflation is taken into account had it relied solely on the increase in the value of the share price in that time.
“The compounding of growing dividends is a phenomenon you don’t really want to be against,” Rhodes says. In the case of the data for Australia, Rhodes describes the return as coming from ‘the dividend yield and the ability for that dividend yield to grow.’
The fund’s management approach is described as a ‘bottom-up stockpicking’ style, relying on an analysis of individual companies.
One of the key things Rhodes is looking for is companies that grow consistently over time but will also pay a dividend. He counts around 90 companies in the USA which he calls ‘dividend achievers’: companies with a 25-year or more track record of consecutive dividend increases.
He avoids investments in ‘high yield companies that don’t go anywhere’ preferring companies that are seen as having an ability to deliver sustainable growing dividends. “I am much more interested in what the yield is going to be than what it is today,” he says.
Since its launch in 2008 to the end of October 2010, the return for accumulation (capital growth) investors was 37.6 per cent and income investors 28.3 per cent. As with other investments, past performance should not be read as a guide to the future performance of this fund.
Global dividend culture
As well as the USA, Australia has an established dividend culture, partly driven by what are called ‘franking credits’, a tax system that allows tax credits from paid corporation tax to be added to dividends, essentially boosting the level of dividend paid.
In Brazil, a country where the fund has holdings, companies are required by law to pay a minimum of 25 per cent of net profit as a dividend.
With a focus on sustainable dividend growth, the fund takes a long-term investment view, rather than a focus on the current yield level. The fund has an objective to deliver an overall dividend yield in excess of the world average and generate a rising income stream.
The fund is part of the range of funds managed by M&G’s Global Equity team, which also manage the Global Basics and Global Growth funds, investment funds also available through the Fair Investment ISA and Investment Account.
For more information about the fund, part of the Fair Investment Company Select 100, and details of how to invest via the Fair Investment ISA and Investment Account, visit M&G Global Dividend Fund.
© Fair Investment Company Ltd