Henderson High Income takes a distinct approach to generating income – combining equities and bonds into a single portfolio. We use our bond allocation to provide a reliable income stream. We then use our equities to provide potential income and capital growth.
So, how do we choose those equities?
We ask ourselves three core questions:
- What are the company’s key attributes?
- Is it in strong financial health?
- What’s the company worth?
When we ask these questions, we’re looking for some specific answers.
In answer to question 1 – what are the company’s key attributes – typically we look for understandable business models and a defendable competitive position.
For question 2, we seek good cash generation and a strong balance sheet.
To determine what a company is worth, we assess various valuation metrics including its share price relative to its earnings (its P/E ratio) and its dividend yield.
Example: Reckitt Benckiser
Reckitt Benckiser has been part of the portfolio since Autumn 2024. The company meets a lot of our criteria.
The company owns recognisable brands such as Nurofen, Dettol and Vanish. Some of these brands are leaders in their categories, giving them a durable market position. The business model is clear and these products are those that typically don’t fall out of favour in challenging periods.
It also has a strong track record of generating cash and typically pays out a high proportion of this to shareholders – with a dividend yield of 4.1%.
Finally, in early 2024 the company went through a share price fall. Its valuation fell to a 14x P/E ratio, (its share price vs its earnings) significantly below its 20 year average of 18x. Having met management and analysed the stock closely, we were confident that there was no deterioration in its key attributes and financial health to justify its current low valuation. As a result, we invested.
| Discrete year performance (%) | Share price (total return) | NAV (total return) |
| 30/06/2024 to 30/06/2025 | 22.64 | 14.88 |
| 30/06/2023 to 30/06/2024 | 2.26 | 13.56 |
| 30/06/2022 to 30/06/2023 | 8.30 | 7.66 |
| 30/06/2021 to 30/06/2022 | -2.21 | 0.16 |
| 30/06/2020 to 30/06/2021 | 28.79 | 21.42 |
All performance, cumulative growth and annual growth data is sourced from Morningstar.
Source: at 30/06/25. © 2025 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance does not predict future returns.
Balance sheet
A financial statement that summarises a company’s assets, liabilities and shareholders’ equity at a particular point in time. Each segment gives investors an idea as to what the company owns and owes, as well as the amount invested by shareholders. It is called a balance sheet because of the accounting equation: assets = liabilities + shareholders’ equity.
Bond
A debt security issued by a company or a government, used as a way of raising money. The investor buying the bond is effectively lending money to the issuer of the bond. Bonds offer a return to investors in the form of fixed periodic payments (a ‘coupon’), and the eventual return at maturity of the original amount invested – the par value. Because of their fixed periodic interest payments, they are also often called fixed income instruments.
Dividend
A variable discretionary payment made by a company to its shareholders.
Equity
A security representing ownership, typically listed on a stock exchange. ‘Equities’ as an asset class means investments in shares, as opposed to, for instance, bonds. To have ‘equity’ in a company means to hold shares in that company and therefore have part ownership.
Price-to-earnings (P/E) ratio
A popular ratio used to value a company’s shares, compared to other stocks, or a benchmark index. It is calculated by dividing the current share price by its earnings per share.
Portfolio
A grouping of financial assets such as equities, bonds, commodities, properties or cash. Also often called a ‘fund’.
Valuation metrics
Metrics used to gauge a company’s performance, financial health and expectations for future earnings, eg. price to earnings (P/E) ratio and return on equity (ROE).
Yield
The level of income on a security over a set period, typically expressed as a percentage rate. For equities, a common measure is the dividend yield, which divides recent dividend payments for each share by the share price. For a bond, this is calculated as the coupon payment divided by the current bond price. For investment trusts: Calculated by dividing the current financial year’s dividends per share (this will include prospective dividends) by the current price per share, then multiplying by 100 to arrive at a percentage figure.