Dividend yield is the most important factor to use when evaluating investment opportunities, says London-based portfolio manager Job Curtis. In today’s interview, he describes some of his investment ideas, and details why dividends are so crucial.
Kate Stalter: Today, I’m speaking with Job Curtis, who manages the Henderson Global Equity Income Fund (HFQAX).
Job, the fund’s objective and philosophy seem to be fairly self-explanatory in the name, but I would like you to tell us, in your words, a little bit about what the goals are.
Job Curtis: We invest in equity income as far as stocks, so we’re investing in companies with above-average dividend yield.
The aim of the fund is to really produce a good return for investors, but probably we have more efforts on the income side than the capital side, unlike many funds, and we invest globally. Although we have at any point somewhere between 15% to 25%, roughly, in the US equity market, currently it is around 20%.
We do invest overseas, predominantly. We have currently about 80% in overseas equities, and we are often able to find better yields overseas than are available in the US.
Kate Stalter: I notice that year-to-date, the performance has been better than the overall indices. Is this something that you’re looking at—total return? How should investors evaluate your fund if they’re interested in coming into this?
Job Curtis: Well yes, we tend to invest in the steadier stocks. Our fund, we have a technical expression, is a lower beta fund, and so it’s in less volatile companies. Our type of stocks may not outperform in a rapidly rising market, but they do tend to hold their value better in a falling market, and in particular they have decent dividend yields.
I think that’s a source of comfort to investors in turbulent times, in that you get paid a decent dividend yield. It helps put up with some of the volatilities you get in the stock markets.
Big areas for us in the portfolio include utilities, where we have about 9% in that area, 13% in telecoms, and 9% in pharmaceuticals, and about 8% in the combination of food, beverage, and tobacco. So these are all areas which traditionally are kind of more stable.
Stocks have better-than-average dividend yields, and certainly in 2011, these have been good areas to be in. They’ve held up a lot better than the market averages.
Kate Stalter: A lot of these sound like the types of products and services that people are just going to continue using no matter what the economy.
Job Curtis: Yes, well, exactly. I mean, obviously we hold some names that are familiar to American investors. For example in telecom, we hold Verizon Communications (VZ), which is obviously one of your leading telecom companies, but we also hold stocks like France Telecom (FTE), Singapore Telecommunications, and Vodafone (VOD), the mobile phone company based in the UK.
We’re really playing themes that will be familiar to the American investor, but on a global basis. In pharmaceuticals, for example, we hold Johnson & Johnson (JNJ) and Pfizer (PFE), but we also hold GlaxoSmithKline (GSK) overseas. In tobacco we have Reynolds American (RAI), but we also have Imperial Tobacco, which is based in the UK.
So in addition to US companies, you can find overseas some very good companies in this area, where you get the stability and get attractive dividend yield, and dividend growth as well.
Kate Stalter: You’ve talked a bit today about the dividend yield. You just mentioned the dividend growth. What are some of the other metrics that you’re looking at to make an investment decision?
Job Curtis: Well, that’s a good question. Dividend yield is our most important metric, and we think that dividends are very important in terms of long-term returns from equities. Dividends on a very long-term basis are a very big part of the return.
We also think that dividends are a very good discipline in corporate management. If they have to pay aggressively to shareholders, that’s a benchmark, a yardstick to measure acquisitions and capital expenditure against.
Having said that, there are loads of other measures of value, but I think it’s really, which we look at: You can look at different measures, you know, simple things like P/Es and more sophisticated models as well, and we have different measure for different sectors. I mean we may look at asset values for insurance companies and some other parts for other stocks.
But ultimately our job is: We spend a lot of time analyzing the companies, but equating a company’s prospect with its share price valuation is critical to us. We do find yield the most important element of valuation.
Kate Stalter: You just summed up quite a few ways to be looking at equities. In these challenging markets as professionals and individuals all know, it’s just been tremendously frustrating to navigate some of this. What would be your final words of wisdom today, Job, for individual investors who are just trying to get through this time?
Job Curtis: Well I think the best thing is not to get too swayed by the day-to-day movements, but if you’re in a good company and certainly I think dividend yield is a reasonably good measure to go by, because at least if we’re being paid a regular growing dividend, that is something. At the moment the yields in equities in many stocks are much better than you get in fixed interest, either in the corporate bonds of the equivalent companies, certainly much better than you get in treasuries.
I think in these volatile times to be in stable companies, not be too ambitious about your returns, and to have a decent dividend yield coming in, it is certainly helpful to investors at the moment.