M&G North American Dividend - harnessing the power of dividend growth
Richard Wood | Thu 28 February 2019
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- The manager looks for companies that aim to grow their dividend
- Rising dividends often go hand in hand with a rising share price
- He's delivered a return ahead of the broader US stock market, although he's still early in his career
Our view
John Weavers is a firm believer in the power of dividends. He’s not necessarily looking to invest in companies that offer a big dividend today. What really piques his interest are companies that aim to grow their dividends over time. If a company can raise its dividend, the benefit of owning its shares goes up and, in theory, so should its share price although nothing is guaranteed.
This means his M&G North American Dividend Fund isn’t focused purely on income. Weavers also aims to grow the value of an original investment over the long term.
Early results have been promising. The fund's slightly ahead of the broader US stock market since he took it over almost four years ago. However we have found few managers investing in the US that have performed better than the market over the long run. Past performance is not a guide to the future. We want to see how the fund performs over a longer period before considering it for the Wealth 50 list of our favourite funds in the major sectors.
Looking for great companies
Weavers looks for companies with the ability to invest profits wisely and with the aim of consistently growing their dividend over the long term.
40 to 50% of the fund is invested in companies he thinks will deliver steady, reliable growth. Johnson & Johnson fall into this category. They produce household products that people tend to need whatever the economic climate.
25 to 35% is invested in companies whose fortunes are more heavily tied to the performance of the economy, like investment manager BlackRock. This part of the fund can be a bit more volatile.
Finally, 20 to 30% is invested in companies expected to deliver rapid growth, such as payment specialist MasterCard. Companies in this section could boost the fund's performance in the long run but won't do so well if growth falls short of expectations.
Few companies meet the manager's high standards and the fund currently invests in the shares of just 44 companies. This means each one can make a meaningful contribution to returns but it's a higher-risk approach.
Be prepared
The manager won't overpay for a share. So he often keeps his eye on companies he likes until their shares can be bought at a more attractive share price.
He used US-China trade tensions as an opportunity to buy shares in Yum China. The company's listed on the US stock market but operates Pizza Hut, KFC and Taco Bell restaurants in China. Its produce isn’t manufactured in the US, so Weavers doesn’t think profits will be impacted by tariffs. He saw the lower share price as a buying opportunity.
Performance
The US stock market’s hard to beat because the companies in it are some of the world's most recognised and heavily researched by analysts. Share prices often react to new information quickly, which makes it hard to gain an edge over other investors.
Since Weavers took over the fund in April 2015, it's grown 65.8%* while the broader US stock market’s grown 60.0%. This is over a short timeframe though and past performance isn’t a guide to the future.
Past performance isn't a guide to the future. Source: Lipper IM* 28/04/2015 to 31/1/2019
The fund’s had recent success in the healthcare sector. UnitedHealth Group grew sales and increased profits in 2018. And Anthem, a health insurance company, could be well placed to benefit from America’s aging population. The two companies made the biggest contribution to the fund’s performance over the last 12 months.
Weavers has made a promising start to his career. Time will tell whether he can turn this into a longer track record.
| Annual percentage growth | |||||
|---|---|---|---|---|---|
| Jan 14 -
Jan 15 |
Jan 15 -
Jan 16 |
Jan 16 -
Jan 17 |
Jan 17 -
Jan 18 |
Jan 18 -
Jan 19 |
|
| M&G North American Dividend | 20.4% | -2.0% | 43.6% | 11.9% | 8.1% |
| FTSE USA | 24.6% | 4.3% | 36.0% | 11.9% | 5.5% |
Past performance is not a guide to the future. Source: Lipper IM to 31/1/2019