M&G Global Dividend fund – The power of growing dividends
For more than 50 years, M&G has managed equity funds that aim to provide rising income streams for investors. The M&G Global Dividend fund, which is on the Chelsea Core Selection, aims to increase the income distributions it pays to investors while delivering a yield above the market average, and delivering capital growth over the long term. It invests in company shares from across the world.
Stuart Rhodes, manager of the fund, backs companies that he believes can pay more cash out to their shareholders over time, in the form of a growing dividend.
The value of dividend growth
At the point of investing, Stuart is less interested in a company’s current dividend. He believes that if a company has the potential—and discipline—to increase its dividend year after year, the value of its shares can also rise.
So long as shares are bought at sensible prices, this strategy can also deliver capital growth. So income and capital growth, combined, form the total returns that investors receive.
Since launch, the fund’s annual distribution—the net income paid out to investors as cash, or reinvested—has risen in each financial year, by an average of 6.7% (Sterling I Income shares).
UK retail price inflation, meanwhile, averaged 2.7% a year between July 2008—when the fund launched—and December 2016. Of course, it’s important to remember that past performance is not a guide to future performance.
Investor returns since launch
The value of dividend diversification
Stuart selects stocks with different drivers of dividend growth to construct a fund that can cope in a variety of market conditions. He splits his portfolio into three categories of holdings:
- 'Quality' companies are those that have a disciplined and reliable growth strategy that can endure no matter what is going on in the wider economy.
- 'Assets' are businesses that are sensitive to the wider economy and whose earnings are less consistent, but that should increase their dividends over time.
- 'Rapid growth' companies are those whose pace of expansion—and dividend growth—has the potential to surge thanks to strong growth in a new market or product. This is usually the smallest of the three components.
Quality companies have historically represented just over half of the fund, but these shares that offer greater security of income have in many cases become expensive. Paying over the odds makes it harder to achieve capital growth. So at the moment, Stuart sees better opportunities in the other categories of assets and rapid growth.
How the fund has performed?
In M&G's view, the fund is in the early stages of recovery after a difficult 2014 and 2015, when total returns were heavily weighed down by the poor performance of energy-related holdings affected by lower commodity prices. These stocks rallied strongly in 2016.
In 2016, total returns were roughly two-thirds higher than the fund’s peer group, the IA Global sector (see table below).
Single-year performance (5 years ending December 2016)
| 2016 | 2015 | 2014 | 2013 | 2012 | |
| M&G Global Dividend Sterling A Acc | 39.7% | -7.5% | 2.3% | 23.3% | 11.1% |
| M&G Global Dividend Sterling I Acc | 40.7% | -6.8% | 3.1% | 24.3% | 11.9% |
| IA Global Sector | 23.9% | 3.9% | 8.3% | 23.4% | 10.4% |
Past performance is not a guide to future performance.
Encouragingly, all three categories of stocks contributed positively to fund performance. Importantly, dividend growth also remained robust across the fund in 2016 – most holdings increased their dividends by between 5% and 15% compared to the year before. Again, remember past performance is not a guide to future performance.
Even after strong capital growth in 2016, Stuart also believes the portfolio remains attractively valued.
M&G believes the prospect of a rising income, combined with the potential for meaningful capital growth, makes the M&G Global Dividend fund a compelling proposition for long-term investors looking for an income solution.
The value of investments and the income from them will fluctuate. This will cause the fund price to fall as well as rise. There is no guarantee the fund objective will be achieved and you may not get back the original amount you invested.Past performance is not a guide to future performance.Please note that the fund invests mainly in company shares and is therefore likely to experience larger price fluctuations than funds that invest in bonds and/or cash.The views expressed in this document should not be taken as a recommendation, advice or forecast. M&G is not able to give any financial advice. If you’re at all unsure about the suitability of your investment, please seek professional advice.This financial promotion is issued by M&G Securities Limited which is authorised and regulated by the Financial Conduct Authority in the UK and provides ISAs and other investment products. The company’s registered office is Laurence Pountney Hill, London EC4R 0HH.