/ BAILLIE GIFFORD /
SAINTS GOES
MARCHING ON
Toby Ross and James Dow of The Scottish American Investment Company (SAINTS) tell
Heather Farmbrough how they unearth businesses that can deliver growth as well as income
T
OBY ROSS AND
JAMES DOW HAVE
BEEN WORKING
TOGETHER since they
joined Baillie Gifford’s
Global Income Growth team, and
began making decisions on stock
selection for SAINTS’ portfolio in
2013. Having also been deputy
managers of the trust before
becoming joint managers last
August, very little changed. Indeed,
it’s been pretty much business as
usual, according to Ross.
“The critical thing,” he says, “is
trying to find between 60 and 70
businesses that can deliver growth
as well as income. We have a low
turnover of companies in the
portfolio and we’re not planning
to make big changes. What has
changed since we became joint
managers is we have had a fresh
think about the companies we
believe are exciting.”
On to this list has come, for
instance, the American company
RPM. As Dow explains, RPM has
an unusual business model within
the coatings industry, with brands
such as Stonhard and Rust-Oleum.
The company has been run by the
same family for almost 50 years
and they are strongly committed to
increasing the dividend alongside
the growth they target in earnings.
Indeed, RPM has increased its
dividend for the last 44 years
consecutively, longer even than
SAINTS’ own record of 37 years.
“What we like about RPM is the
culture the management have built
over several decades”, says Dow.
“They look for entrepreneurial
start-up companies whose founders
have developed successful niche
products. RPM acquires these
companies with the expectation the
entrepreneurs will stay on and enjoy
access to RPM’s excellent global
distribution network, with support
to grow their business further.”
The emphasis on growth is
quite unusual for an income trust
manager and SAINTS’ portfolio
reflects this. “A lot of income trusts
are heavily skewed towards the
likes of banks, utilities and telecoms,
but we think dividends in those
companies are often quite risky,”
explains Ross. “With oil companies,
for instance, there isn’t a lot of cash
generated because they have to sink
billions of dollars into the ground
just to maintain their production
levels. So there is always a tension
between dividends and growth.”
Ross and Dow don’t want to
invest in companies where there
is this kind of tension. Over half
of the dividends paid by FTSE
All-Share companies in 2017 were
paid by just 10 companies – with
just three companies (Royal Dutch
Shell, HSBC Holdings and BP)
representing 30 per cent of the total.
Instead, Ross and Dow like
companies that don’t require a lot
of capital to grow and which will
SAINTS’ TOTAL DIVIDEND PER ORDINARY
SHARE (NET) - PENCE PER SHARE
2012 2013 2014 2015 2016
SAINTS’ total dividend per ordinary
share (net) - pence per share 9.8 10.2 10.5 10.7 10.825
Source: Baillie Gifford & Co, data as at 31 December 2016.
generate cash. They prefer to invest
in stocks such as Anta Sports, the
rapidly growing Chinese footwear
business, a holding since October
2014. They believe that it has strong
profit growth potential and can pay
a high and rising dividend at the
same time.
While their approach hasn’t
changed since becoming
managers, Ross and Dow have
come to believe even more
strongly that it is important to
find companies that can deliver
both growth and income, rather
than one or the other. They
firmly believe this is the way to
achieve long-term capital growth
alongside income growth.
As Dow points out: “One of
Baillie Gifford’s great strengths
is its research into growing
companies. We’re keen as
managers to make sure we get the
benefit of those ideas. We then ask:
do any of them pay a high income?
If the answer is yes, we have ended
up with some good ideas for
SAINTS, although we have arrived
at this decision via a different route
from our colleagues elsewhere in
the firm, because of the long-term
focus we place on the