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The UK equity funds paying high and growing dividends each year

05 June 2017

Research from FE Trustnet focuses on the funds in the IA UK Equity Income sector which have grown their dividend every year over the last five while also offering above-average pay-outs.

By Lauren Mason,

Senior reporter, FE Trustnet

Marlborough Multi Cap Income, Majedie UK Income and Standard Life Investments UK Equity Income Unconstrained are among some of the few UK equity income funds to have grown their dividends each year while offering above-average pay-outs, according to research from FE Trustnet.

Our analysis shows that, out of the 73 funds in the IA UK Equity Income sector with five-year track records, 28 of them (or 38 per cent) have succeeded in increasing their dividend pay-outs each individual year out of the last five to the end of 2016.

While this is of course attractive, a significant factor when reviewing past performance (which is of course no guide to future returns) should be the amount itself that is distributed to the end investor.

The median annual dividend pay-out of the entire sector with a five-year track record based on an initial £10,000 investment over this time frame is £578.17 per annum.

In a bid to further separate the wheat from the chaff, we excluded all funds from the list that failed to beat this median annual pay-out. We were left with just eight (or 11 per cent) of the sector with at least a five-year track record, all of which are listed in the table below.

 

Source: FE Analytics

As shown above, the stand-out winner for its average annual dividend pay-out – which has also grown each year over the last five – is FE Alpha Manager Siddarth Chand Lall’s Marlborough Multi Cap Income fund with a median annual pay-out of £754.48 on an initial £10,000 investment. Between the start of 2012 and the end of 2016, its annual pay-out has increased by 84 per cent.

The £1.6bn fund has a diversified portfolio of 139 stocks and a portfolio turnover rate of 57.41 per cent. It tends to focus on companies that are further down the market cap spectrum in a bid to find stocks that are under-researched and have greater capacity to grow their dividends compared to their larger peers. Examples of its largest individual holdings include Telecom Plus, Polar Capital Holdings and water utility and waste management firm Pennon Group.

In terms of its overall performance over this time frame, the fund has outperformed its average peer by 37.16 percentage points with a top-decile total return of 107.36 per cent.

While it has struggled to outperform its average peer over the last 12 months, Lall explained to FE Trustnet in an article published earlier this year that providing strong and growing levels of income takes precedent over capital appreciation. It currently yields 4.07 per cent.

The second fund on the list for its dividend pay-outs over five years is Majedie UK Income, with a median annual pay-out of £693.81 based on an initial £10,000 investment. The four crown-rated fund has also achieved the highest dividend growth between the start of 2012 to the end of 2016 of all funds on the list, with an increase of 134 per cent.


FE Alpha Manager Chris Reid adopts a high-conviction, bottom-up stock selection process when it comes to building and repositioning the portfolio; he also invests across the cap spectrum. The £915m fund’s 10 largest individual holdings account for 47.4 per cent of the overall portfolio, with Legal & General and BP making up a respective 6.7 and 6.3 per cent of the fund.

Over five years to the end of 2016, it has outperformed its sector average and FTSE All Share benchmark by 36.37 and 44.73 percentage points respectively with a top-decile total return of 106.57 per cent.

Performance of fund vs sector and benchmark over 5yrs to 2017

 

Source: FE Analytics

As with the aforementioned fund though, it has struggled on a relative basis over the past year, having underperformed its benchmark by more than 10 percentage points with a total return of 15.26 per cent.

Majedie UK Income currently yields 4.33 per cent.

Next up is Thomas Moore’s Standard Life Investments UK Equity Income Unconstrained fund, which has achieved a median pay-out of £650.05 during each year of the last five based on a £10,000 investment. Between the start and the end of this time frame, its dividend has increased by 69 per cent.

Moore adopts a value approach to investing and, as the fund’s name suggests, it is able to invest across the cap spectrum. It currently has a notable overweight to the financials sector with Aviva, Close Brothers and Sage accounting for some of its largest individual holdings.

Over five years to the end of 2016, the £1.1bn fund has returned 98.95 per cent compared to its average peer’s return of 70.2 per cent. However, it has underperformed its sector average over three years and is in the bottom decile over the last 12 months. Fluctuations in the fund’s performance are perhaps to be expected though, given its value approach.

Standard Life Investments UK Equity Unconstrained yields 3.75 per cent.


The fourth fund on the list is MFM Slater Income, which has paid out an average of £611.43 of income per annum based on a £10,000 investment. Over this time frame, its dividend has grown by 38 per cent.

The fund is managed by FE Alpha Manager Mark Slater, Barrie Newton, Ralph Baber and Nigel Milton. It aims to produce an attractive and increasing level of income through a multi-cap portfolio of investments, which currently stands at 55 holdings. It largest individual weightings are Phoenix Group, Imperial Brands, life insurance company Chesnara and ITV.

Over five years to the end of 2016, the £125m fund has outperformed its sector average by 23.48 percentage points with a total return of 93.68 per cent. While it fell into the bottom decile for its loss of 59 basis points in 2016 compared to its average peer’s return of 8.84 per cent, it is in the top quartile for its total returns in 2013, 2014 and 2015. MFM Slater Income yields 4.22 per cent.

Performance of fund vs sector and benchmark over 5yrs to 2017

 

Source: FE Analytics

Next up for its strong and growing dividend pay-outs is M&G Charifund, although this vehicle is used to grow income and protect capital for charities.

The other funds on the list to have fared well are Vanguard FTSE UK Equity Income Index, M&G Dividend and Schroder Income.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.