Martin Currie’s Porter Looks to U.S. Stocks for Dividend Growth
Chart for Martin Currie - Global Equity Income Fund (MTCINCI)
Alan Porter, who runs two global growth and income stock funds for Edinburgh-based Martin Currie Investment Management Ltd., has been looking to U.S. companies such as AT&T Inc. (T) and Pfizer Inc. (PFE) to provide dividend growth.
Porter has almost half his funds invested in U.S. stocks, which traditionally pay lower dividends than companies in Europe and parts of Asia, relying more on share buybacks and capital appreciation to provide investor returns.
“U.S. companies are becoming more shareholder friendly in a dividend-paying way,” Porter, 43, said in an interview in his office in Edinburgh. “That has been quite an important sea change. There has been a lot of shareholder demand on corporate America to start paying higher dividends.”
Record-low interest rates around the world as central banks try to stimulate economic growth in the wake of the global financial crisis has made it harder for income investors such as Porter, whose mandates don’t allow him to invest in higher-yielding corporate bonds, to generate return for clients.
Still, Securities Trust of Scotland Plc has returned 46 percent since Porter started managing the closed-end fund at the start of August 2011, compared with 25 percent for the MSCI World High Dividend Yield Index, the fund’s benchmark, according to data compiled by Bloomberg. In dollar terms, Securities Trust has returned 36 percent. It ranks third among 11 similar funds over the period, according to research company Morningstar Inc., and has the same ranking this year with a return of 21 percent.
Porter focuses on the High Dividend Yield index as it both outperforms the MSCI World Index and is less risky, he said. “Clients are much more interested not in you blowing the lights out in some years and putting it all at risk in some years afterward but in consistency,” he said.
“We are looking for global high-yielding companies with persistent and sustainable dividends,” Porter said. “It is very easy to move from sustainable dividends to sustainable business models.”
Apple Inc. (AAPL) paid out its first dividend in 17 years in March 2012 after the late Steve Jobs, the co-founder, spurned demands to return some of the cash stockpiled by the Cupertino, California-based maker of iPads and iPhones. In April, the company unveiled a plan to add $55 billion to its dividend-and-buyback plan, for a total of $100 billion.
Microsoft Corp. (MSFT) raised its annual payout 15 percent last September on top of a 25 percent increase the year before. U.S. technology companies are paying out dividends at the fastest pace in more than a decade in an attempt to appease investors disappointed by slowing growth.
Porter also looks for companies with lower-than-average leverage and that are trading in line with, or below, the valuation of his benchmark. He will sell any holding where the dividend yield falls below 75 percent of the prospective 12-month dividend yield of the broader market.
The Standard & Poor’s 500 (SPX) Index, the benchmark for U.S. stocks, is trading at a yield of 2.04 percent, compared with 3.95 percent for the MSCI World High Dividend Yield Index. Indexes in the U.K., Canada France, Germany, Hong Kong, Italy and Singapore all trade at a yield of more than 3 percent.
The fund has 50 stocks, compared with 47 in the Martin Currie Global Equity Income Fund. The only difference between the holdings is three stocks Porter holds in Securities Trust to take advantage of its ability to use leverage.
AT&T, the second-largest U.S. wireless carrier, which trades at a yield of 5 percent, was Porter’s largest holding at the end of June. Since then he has sold some of his stake to finance an investment in Shin Corp. (INTUCH), the owner of Thailand’s largest mobile-phone operator. Pfizer, which yields 3.3 percent, is now the fund’s largest investment.
“I had quite a decent telecoms weighting, and I didn’t want to add more risk to the portfolio,” Porter said. “AT&T was our largest active position. It didn’t feel right for it to be the biggest stock.”
This year, Porter sold H.J. Heinz Co. following its $23 billion takeover by Warren Buffett’s Berkshire Hathaway Inc. and 3G Capital Inc. as well as Watsco Inc. (WSO) after the air-conditioner distributor cut its quarterly dividend by 60 percent in January, after last December returning the equivalent of two years of payouts in a special dividend. Watsco was the first company Porter sold because of his minimum dividend-yield criterion.
The other stock he sold this year is ProSiebenSat.1 Media AG, the German broadcaster owned by KKR & Co. and Permira Advisers LLP. In its place Porter bought a stake in Modern Times Group AB (MTGB), a Swedish pay TV broadcaster with operations in 36 countries. Since then it raised its dividend by 11 percent, and Porter is looking for annual increases of 7 percent.
Other purchases this year include Kinder Morgan Inc., the largest U.S. pipeline operator, which he bought to get exposure to U.S. infrastructure growth without having to choose a specific oil company. Kinder Morgan is trading at a dividend yield of 4.05 percent. Porter has also bought BNP Paribas SA (BNP), the largest French bank, and Eutelsat Communications SA, a French satellite operator, which has a yield of 4.6 percent.
The mutual fund had 103 million pounds ($158 million) of assets the end of last month, up from 17 million pounds when Porter started running it in November 2010. Securities Trust of Scotland, which had net assets of 156.5 million pounds on June 30, may issue as many as 100 million new shares over the next 12 months to meet investor demand, Porter said.
Closely held Martin Currie oversaw 5.3 billion pounds at the end of last month, the firm said in an e-mailed statement.
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