Dividends from stocks and shares investments could provide inflation combating investments, an investment manager has said.
Schroders Investment Management said there was potential for dividend growth over the next three years after the first market wide dividend cut in decades.
The asset manager said there was a significant income gap for people in retirement who rely on investments for income which recent research put at £160billion. This was leading people to eat into their savings and investment capital.
Co-manager of the Schroders Income Fund, Nick Kirrage, said: “IFAs (independent financial advisers) are telling us that over the last 12 months there has been a marked increase in the number of investors looking to invest for income. With equity looking increasingly attractive it is understandable that investors are turning to income funds, which provide higher income as well as the prospect of the longer term capital appreciation that savers need.”
The fund manager said certain stocks with depressed or no dividends, such as banking shares, had the potential to produce returns over the next three years. While many investors already rely on dividend income Schroders said there was an over-reliance on cash-linked investments.
Managing director of intermediary business at the company, Robin Stoakley, said: “The threat of rising inflation is a major issue facing investors, particularly those nearing or already in retirement who need to maximise their income.”
He said while a focus on bonds and their perceived safety had left equities in the shade, this was changing with certain parts of the market representing compelling value.
Kirrage said the approach of his fund was based on value and identified the ‘normalised’ profit potential of companies by looking at their history and looking at what has changed. The fund then looks to pay a low multiple of these ‘normalised’ profits to generate significant value.
“The market is obsessed with short-term profits but the true profit potential of a business is often very different from that generated in any one year,” he added.
© Fair Investment Company Ltd