Over the past decade, exceptionally low interest rates have forced many cash savers into the stock market in the search for a better return. For those needing a decent level of income today, funds with high yields can be a good option. However, for those investing for the longer term, funds that can consistently grow their dividends could be a better alternative. This is because if you can invest in a fund providing meaningful dividend growth, your spending power, and therefore standard of living, should increase in the future – it allows you to keep pace with inflation.
Here, we highlight four funds on the Chelsea Selection that have a good track record of increasing their income distributions. Please note that yields may fluctuate and are not guaranteed.
This fund has one of the best long-term track records in terms of growing its dividend. It has increased in 23 out of the past 24 years – quite some feat. Managed by Carl Stick since the year 2000, it is multi-cap income fund that gives investors exposure to companies with high quality and visible earnings. The manager is unconstrained in terms of sector weightings and is able to fully express his market views with the portfolio positioning. It has a current yield of 3.89%*.
Launched in 2009, Standard Life UK Equity Income Unconstrained has also done well in terms of dividend growth. Run by Thomas Moore, the dividends have grown in eight out of nine years. Thomas is free to construct a concentrated portfolio of his best ideas and will hold companies of all sizes, but with a bias towards those that are medium in size. The current yield is 3.95%*.
Dividends are not only paid by UK companies, of course. Returning money to shareholders this way is a growing global trend. So investors looking to diversify their income stream could consider a fund like Fidelity Global Dividend. It was only launched six years ago, so has a shorter track record, but the dividend has been increased each year. The fund is unconstrained in terms of where it can invest and may avoid some countries or sectors altogether. The current yield is 2.89%.
Another global equity income fund that offers something a little different is Guinness Global Equity Income. Unlike many of its peers, its highly-concentrated portfolio consists of 35 equally-weighted positions in order to minimise stock-specific risk. The managers look for companies which are able to sustainably grow their dividends. Had an investor placed an initial £10,000 into the fund five years ago, they would have received £1,834.09 in income alone**. The current yield is 2.82%.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. James' views are his own and do not constitute financial advice.
*Source FE Analytics, 13 March 2018
**FE Analytics, income in sterling terms, 22 February 2018