Trustnet Magazine Issue 43 September 2018 | Page 16

Advertorial feature
18 / 19
[ JANUS HENDERSON ]
David Smith of the Henderson High Income Trust explains why dividends
should be an important consideration for every type of investor
Income
facts
Just because a company is out of
favour, it doesn’t mean it can’t change
high dividend yield which has grown at 10% p.a.
Message 1 – you don’t need a re-rating for shares to
outperform.
I
ncome fund managers
constantly bang on about
dividends. Maybe it’s in our
genetic makeup, but actually
dividends should be important for all
equity investors. In my mind there
are five key reasons for this:
be more interesting to look at a real-
tim e example. I bought Imperial
Brands for the Trust 5 years ago
when the stock was trading on an 11x
price to earnings multiple. Today the
multiple is still at 11x. The market
is valuing the company at the same
rating it did 5 years ago. So does that
Total returns
mean the company has been a bad
I can bore you by reciting data from
investment? In short, no. The shares
numerous studies showing dividend have delivered a total return of 64%,
yield and dividend growth make up
outperforming the UK equity market
the majority of an investor’s total
by over 20% in that time period.
return over the long-run, but it would That return has been driven by the
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Contrarian investing
Generally, high-yielding stocks tend to be
unfashionable as either they have disappointed
the market, resulting in a falling share price/
rising yield, or they are mature, low-growth
businesses. Consequently, investors either
underestimate their ability to produce decent
returns or assign a too-low valuation to these
returns. Back in 2012, AstraZeneca had a
dividend yield of 7%, but was facing a patent
expiry on its main drug, was unloved by analysts,
was perceived to have no new drugs in its
pipeline and people questioned the dividend
sustainability. Not a compelling investment case.
Since then, the company has committed to the
dividend, developed a pipeline full of exciting
immuno-oncology drugs which are the envy of
the industry and the shares have returned 186%.
Message 2 – Just because a company is out of
favour, it doesn’t mean it can’t change.
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