Robin Geffen, fund manager, Liontrust
Investors shouldn’t blame all of their dividend income problems on this “very challenging year”, veteran fund manager Robin Geffen tells Morningstar. “The seeds of this whole issue of dividend cuts and cancellations” were sowed many years ago, as exposure to individual “dividend risk” became too extreme.
More and more funds were “clustered in a very small group of high-yielding stocks that were basically paying dividends they couldn’t afford”. This included the big FTSE 100 dividend stalwarts such as the banks (Barclays, NatWest, Lloyds, HSBC) and others such as Vodafone and BP that paid “unsustainably high dividends” and “weren’t reinvesting in their own future”, says Geffen. When they “hit the buffers”, payouts were slashed.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
The crisis shows that investors need to pay more attention to dividend cover, leverage and cash, and to focus on “dividends that can repeat and grow”. Geffen has nearly 25% of his fund in tech stocks, such as Apple, Mastercard, Microsoft and Visa, which are “remarkable companies… many of them have virtually no debt… and have incredibly high dividend cover”.
Of course, that high dividend cover implies that many could be paying out more than they are, and that should happen: “I believe that [firms] like Amazon and Alphabet will start paying dividends because they are generating so much cash.” But it’s equally important that “they’re continuing to invest in their own future… making that investment in order to carry on growing at these astonishing rates”.
How to invest in solving the housing shortage
Feature Buy-to-let may be losing its shine but there are other ways to invest in the property market
By Marc Shoffman Published
Financial Conduct Authority launches £600k campaign to encourage savers to switch – how much more could you earn?
News The City watchdog wants to encourage more people to switch their savings
By Marc Shoffman Published
M&S is back in fashion: but how long can this success last?
M&S has exceeded expectations in the past few years, but can it keep up the momentum?
By Rupert Hargreaves Published
The end of China’s boom
Like the US, China too got fat on fake money. Now, China's doom is not far away.
By Bill Bonner Published
Magic mushrooms — an investment boom or doom?
Investing in these promising medical developments might see you embark on the trip of a lifetime.
By Bruce Packard Published
What pension providers don't tell you about your retirement money
Check the small print from your pension provider or risk losing thousands.
By Merryn Somerset Webb Published
Should you invest in sector funds?
Sector funds can be a useful way to fine-tune a portfolio or track a theme, but check what the index holds.
By Cris Sholto Heaton Published
Three high-quality global companies for growth
James Harries, a senior fund manager at STS Global Income & Growth Trust highlights three favourites.
By James Harries Published
Four high-quality stocks set for decades of dividend and earnings growth
Charles Luke, an investment manager for Murray Income Trust, highlights four favourite high-quality stocks.
By Charles Luke Published
Humana sees healthy growth in US healthcare
Humana is a major player in the American market and the stock’s valuation looks reasonable.
By Stephen Connolly Published