Each week, a professional investor tells MoneyWeek where he'd put his money now. This week: Alex Robins, client portfolio manager, JPM Global Equity Income Fund.
Investors seeking a balanced portfolio of shares must go beyond just getting exposure to the UK, particularly if they are looking for a combination of growth and income. We see significant opportunity for growth in global dividends.
A global equity income fund is a great way to source investment income in an environment of low yields, such as the one we are now in. Companies with sustainable dividends that also offer the potential for dividend growth are the key focus of our portfolio.
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In the past few years, stock market investors have been rewarded through the safety of dividends alone.
However, the dividend growth component is now starting to be rewarded in share-price returns too. The low yields available elsewhere have pushed up demand for reliable dividend-paying stocks.
The restricted supply of such stocks has also resulted in valuations in certain high-yield areas becoming expensive relative to what they have been in the past. Dividend growth companies, on the other hand, are the cheapest they've been in a generation, and they typically perform well at this stage of a recovery.
Around 30% of our fund is invested in continental Europe. While we are cautious on the pace of any European recovery, the economic outlook is improving and the companies that we hold in this region offer attractive yields.
Their earnings mix is diversified, with strong cash-flow profiles and profitability. We believe their dividends are sustainable.
Examples of stocks we like include insurer Direct Line Insurance Group (LSE: DLG), which recently announced it will raise its dividend this year by almost a third, after agreeing to dispose of its life-insurance business.
This development highlights that, even in a volatile environment, companies are continuing to grow dividends. The deal will also allow Direct Line to release a further £23m of capital that it had previously had to set aside to back the policies.
Direct Line, which we bought after its spin-off from Royal Bank of Scotland in an initial public offering last year, is planning to return the total £62m proceeds to shareholders through a one-off special dividend, worth 4p a share. This will lift our total forecast payout for 2013 to 16.6p and the prospective dividend yield from 6.1% to 8.0%.
We also like American conglomerate United Technologies (NYSE: UTX). As the global economy continues to improve, the company will benefit from solid growth in the aftermarket for replacement parts in the aerospace businesses and new equipment orders in the commercial businesses (items such as elevators and escalators).
The stock is attractively valued with high free cash-flow generation and strong dividend growth prospects.
Finally, while insurer MetLife (NYSE: MET) doesn't have a high yield today, the company recently raised its dividend for the first time since 2007 and we think we'll see continued dividend growth over the coming quarters.
MetLife has been hit by slow growth in America and so is cutting costs aggressively as well as restructuring certain parts of its business. It is also expanding into faster-growing economies outside America, such as Chile and Turkey.
The stock is attractively valued and we expect further improvements in cash-flow generation, which will aid ongoing expansion and dividend growth.
