M&G GLOBAL DIVIDEND FUND keeps it simple

Despite a rocky start – sparking a global financial crisis – as it approaches its 15th anniversary, investment fund M&G Global Dividend has delivered what it promised. Namely, a stream of growing income for investors.

Since the fund’s inception in July 2008, it has increased its annual dividend by an average of seven percent each year, despite negotiations over the 2020 near-world lockdown.

This is no small feat as the fund has had to pay out the income it receives from its investments almost immediately.

Unlike a publicly traded investment trust, it does not have the option to squirrel away some of the income it earns in good times to supplement dividend payments to investors in difficult times.

The fund’s lowest dividend increase was 1% (in the year to the end of March 2021) and the highest was 14% in the year to the end of March 2011. Stuart Rhodes, manager of the £2.3 billion fund from the start, says that its success lies in the ‘simplicity of its aims’.

He added: “We invest in companies that can consistently grow their dividends in good times and bad.

“This feeds through to our investors through the quarterly dividend payments we can make to them.”

No tricks are used to increase the fund’s income – such as using complex financial instruments. Rhodes believes the current fiscal year and the next will be good in terms of dividends.

Rhodes has a universe of 240 stocks to choose from, although only 42 currently make it to the portfolio. The main financial ingredient he is looking for is a robust balance sheet.

“Few companies can weather difficult periods like 2020 unless they have strong balance sheets,” he says. “We’re always looking for that. Most companies that cut their dividends don’t do so because of declining profits, but because they have too much debt.’

The portfolio includes five companies that Rhodes has held for most of the fund’s life: US giants Coca-Cola and Microsoft; Swiss pharmaceutical company Novartis; Canadian methanol producer Methanex; and semiconductor manufacturing in Taiwan.

Rhodes says, “When we bought Microsoft in 2008, it was a bombed technology stock. It has since made an impressive journey, posting double-digit dividend growth along with it. It’s been perfect for our fund.”

The overall performance figures look good, both in the short and long term. In the past year, it posted a gain of 11.6 percent, above its peer group average of 5.7 percent. Over the past five years, returns of 72.3 percent compared to 51.1 percent for the average global equity income fund.

Rhodes is now assisted by Chris Youl in running the fund. He also works closely with colleague John Weavers, who manages the £661 million M&G North American Dividend Fund.

“We have such an established investment process,” says Rhodes. “We’re not running around reinventing the wheel. We stick to what works for us, as fund managers, and our investors.’

On the impact of a possible slowdown in the global economy, Rhodes says the portfolio is built to withstand it.

Strong balance sheets. That’s the name of the game.’

The fund’s annual expenses total 0.66 percent and its annual income is approximately 2.2 percent.