I read a good piece on high yield investing over the weekend on The Edge. Personal Wealth featured Bruno Lippens of Pictet Asset Management,which is one of the world’s best performing high-dividend funds.
The fund focus on investment opportunities with predictable but stable cash flows while limiting volatility.
I find that Bruno highlighted all the good opinions on how to structure your dividend portfolio
- Does not go for 10% high yield stocks. “They are probably in real estate, financial services or other very cyclical sectors” “What we strive for is not just dividends but a stable flow of dividends over a long period”
- Studies show that companies that consistently pay higher dividends over a period of time tend to outperform those that pay very little or no dividends.
- Global high yield infrastructure investments have tended to outperform when dividend yields exceed bond yields. “What we like about these companies is that you don’t have to be a genius to predict how they perform – Whether you are headed for double-digit inflation, a sharp recession or are in a midst of a slow recovery.”
- Dislikes: financial services companies, business trusts, REITs and blue chip companies vulnerable to business cycles. Purchase companies that don’t swing much even during recession.
- Likes: Utilities, Telecoms, toll roads, independent power plants, waste management and pipelines. They are not cyclical or less cyclical and don’t face much competition.
- How dividend stocks will thrive in inflationary environment – “The case for investing in a high-dividend fund right now is simple-you get better yield than you might get from a similar fixed income fund with similar risks.” “If inflation goes higher, our investee companies will make more money and pay out higher dividends”
- His fund is heavy on regulated utilities that are able to raise tariffs as their costs go up. The fund managers did a study on high inflation 1970s. “Because of all the inflation protection built into their business models, their tariffs go up, their revenues go higher, their cash flow is bigger and their nominal dividend is higher.”
- Over the long term, dividends to them matter more than stock buy backs.
- Currently they are looking into pipelines, utilities and water stocks
- They don’t think telecom stocks are so yesterday. “There are several drivers in the telecom space, particularly mobile, which are doing well on the back of the boom in smartphones such as iPhones and tablets such as iPads”
- The next opportunity may be water infrastructure.
- They are not into Hutchison Whampoa’s HPH Trust. “If we were to find a port in a regulated environment where there was a lot of visibility on how the traffic goes throughout the cycle and it had a very stable and predictable cashflow, we might look at it” “But ports are a cyclical business. During a recession, port traffic can fall off a cliff.”
- Some of their biggest holdings are Centrica, Southern Co and Vodafone Group.
- Their Asian biggest holding is China Mobile. “It has a predictable cash flow, it is growing, it is committed to returning cash to its shareholders and ability to raise dividends” (Readers might want to check out China Mobile Analysis here)
- The only company in Singapore they wanted to put money into was Singtel. “I am a little disappointed with SingTel’s unwillingness to commit to a dividend policy” “Unless we have an assurance that the company is committed to return cash through dividends, we won’t invest in it, no matter how good its earnings or fundamentals” (Readers can check out Singtel Analysis here)
That was a particularly interesting mentioned of dividend stocks in Singapore! So many and they are only interested in probably 2 listed here which is Singtel and China Mobile ADR.
This could give local investors a good hint where to park their money if they are looking for low volatility and growing dividends.
I run a free Singapore Dividend Stock Tracker available for everyone’s perusal. It contains Singapore’s top dividend stocks both blue chip and high yield stock that are great for high yield investing. Do follow my Dividend Stock Tracker which is updated nightly here.