Trustnet Magazine Issue 34 November 2017 | Page 14

/ BAILLIE GIFFORD /
DEPENDABLE DIVIDENDS
SAINTS’ co-managers James Dow and Toby Ross believe they have
identified the characteristics of businesses best placed to offer a
consistent payout to shareholders
T
HE GOAL OF THE
SCOTTISH
AMERICAN
INVESTMENT
COMPANY, also
referred to as SAINTS, is one that
may be attractive to pension
investors. It aims to deliver a high
and dependable income stream,
together with real capital growth
over the long term.
The trust invests mainly in
global equities, but it also holds
assets including property and fixed
income.
“SAINTS is designed to provide
both a dependable income and
growth,” says SAINTS co-manager
Toby Ross. “The focus is therefore on
identifying companies that generate
real growth in cash flow as well as
dependable dividends.”
Income investors look for more
than total returns. They also expect
dividends that will grow over time
and remain robust even during
periods of economic stress. The trust
aims to meet those expectations
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by investing the bulk of the equity
portfolio in companies seen as most
likely to meet those demands.
The trust’s goal to provide
investors with dependable
dividends is underpinned by a
number of factors. Among them
is the way in which the assets are
invested.
Taking a ‘bottom-up’ investment
approach to portfolio construction,
the trust selects companies on their
ability to grow their cash flows and
their future dividends.
Co-managers James Dow and
Toby Ross look for companies that
will be able to grow dividends in
real terms but which can also be
relied upon to continue providing
them during times of stress.
By studying dividend
performance over the long term
the managers have identified the
characteristics of businesses that are
best placed to offer dependability of
dividends.
Their research picked out
several predictors of dependability,
including the pay-out ratio (the
percentage of earnings paid out
as dividends to shareholders);
balance sheet strength (if needed to
support the dividend); the margin
of the business; and whether it’s
structurally growing or shrinking.
Companies that produce
consistently high scores across the
different criteria are those that can
be most depended upon to provide
sustainable dividends.
In judging whether a company
can be relied upon for sustainable
dividends the team also takes
a close interest in the attitude
towards dividends of the board of
directors at each company SAINTS
invests in. It’s this board that makes
dividend decisions, so gauging
their commitment to