Dividends — unloved, out of favour and compelling!

28/08/2018

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Nick Watson, portfolio manager within Janus Henderson’s UK-based Multi-Asset Team, explains the rationale behind investing for income in reassuringly boring and out of favour household names.


Markets are experiencing a more conventional period of volatility in 2018, as the echoes of the Great Financial Crisis fade and the quantitative easing (QE) driven benign investment conditions of the past years draw to a close.

One of the central dynamics of equity market performance in 2018 has been a continued preference for glamorous technology and growth stocks, as investors extrapolate recent corporate performance and share price returns into the future. In stark contrast, high quality and mature dividend paying companies in less exotic business sectors have been punished by the market, despite relatively attractive valuations and stable business models.


Short-term volatility masking compelling yields

This is best illustrated in the UK. The FTSE 100 itself suffered a 10% drawdown in the first quarter, to the point that the index is currently yielding around 4%. When we delve a bit deeper into the index, this price weakness came from companies as diverse as WPP, National Grid, BT, HSBC and Imperial Tobacco (see chart below). This short-term volatility has presented great entry points for investors as these household names are now offering some very compelling yields.


Chart: dividend yield indications for FTSE 100 entities with the biggest dip in 2018 



Source: Bloomberg, as at June 2018
Notes: Companies in FTSE 100 Index that are over £10 billion in size, have a prospective yield greater than 4% and have suffered a dip in their share price of over 10% since the end of 2017. Yields may vary and are not guaranteed.

Clearly a yield of 7% is compelling for an income-focused investor, particularly when one considers the level of yields available from cash (0.75% the Bank of England base rate*) or bonds (1.4% 10 year UK gilt*).


Capturing attractive dividends and capital growth
It is worth observing that yields at these levels do not tend to persist. The yield may rise through short-term price weakness or down to fundamental concerns around the security of the dividend. If the price weakness is driven by short-term news flow and the corporate outlook remains sound, savvy investors who buy into these stocks can benefit from the attractive dividends, and also capital growth, as market sentiment improves and the share price recovers. This is a great environment for the active stock picker, as more volatility and dispersion within markets provides greater insight and scope for avoiding losers and backing winners with compelling total return potential.

For the Multi-Asset Core Income Fund range, we have taken advantage of this short-term weakness in high quality dividend-paying stocks and added to our exposures. As we move through this new post-QE environment of increased volatility and lower returns, capturing these sustainable dividends and benefiting from the compounding of income over the long run can be a significant driver of portfolio returns in more choppy markets.


*Bloomberg, as at 2 August 2018
 

These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

The information in this article does not qualify as an investment recommendation.

For promotional purposes.


Important information

Please read the following important information regarding funds related to this article.

Janus Henderson Core 3 Income Fund

This document is intended solely for the use of professionals and is not for general public distribution.

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change.

If you invest through a third party provider you are advised to consult them directly as charges, performance and terms and conditions may differ materially.

Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment.

Any investment application will be made solely on the basis of the information contained in the Prospectus (including all relevant covering documents), which will contain investment restrictions. This document is intended as a summary only and potential investors must read the prospectus, and where relevant, the key investor information document before investing. Copies of the Fund’s prospectus and key investor information document are available in English, French, German, and Italian. Articles of incorporation, annual and semi-annual reports are available in English. All of these documents can be obtained free of cost from Janus Henderson Investors registered office: 201 Bishopsgate, London EC2M 3AE.

Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services. We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

Copies of the Fund’s prospectus are available in English, French, Spanish German and Dutch. Key investor information documents are available in English, Danish, German, Finnish, French, Italian, Norwegian, Spanish, Swedish and Dutch. Articles of incorporation, annual and semi-annual reports are available in English. All of these documents can be obtained free of cost from the local offices of Janus Henderson Investors: 201 Bishopsgate, London, EC2M 3AE for UK, Swedish and Scandinavian investors; Via Dante 14, 20121 Milan, Italy, for Italian investors and Roemer Visscherstraat 43-45, 1054 EW Amsterdam, the Netherlands. for Dutch investors; and the Fund’s: Austrian Paying Agent Raiffeisen Bank International AG, Am Stadtpark 9, A-1030 Vienna; French Paying Agent BNP Paribas Securities Services, 3, rue d’Antin, F-75002 Paris; German Information Agent Marcard, Stein & Co, Ballindamm 36, 20095 Hamburg; Belgian Financial Service Provider CACEIS Belgium S.A., Avenue du Port 86 C b320, B-1000 Brussels; Spanish Representative Allfunds Bank S.A. Estafeta, 6 Complejo Plaza de la Fuente, La Moraleja, Alcobendas 28109 Madrid; Singapore Representative Henderson Global Investors (Singapore) Limited, 138 Market Street #34-03/04 CapitaGreen, Singapore 048946; or Swiss Representative BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich who are also the Swiss Paying Agent.

Specific risks

  • Investment management techniques that have worked well in normal market conditions could prove ineffective or detrimental at other times.
  • Some or all of the annual management charge is taken from capital. This may constrain potential for capital growth.
  • The Fund may invest in other funds, which may increase losses due to investment in risky assets such as property or commodities, restrictions on withdrawals, less strict regulation and use of derivatives.
  • The Fund could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Fund.
  • Derivatives use exposes the Fund to risks different from, and potentially greater than, the risks associated with investing directly in securities and may therefore result in additional loss, which could be significantly greater than the cost of the derivative.
  • Changes in currency exchange rates may cause the value of your investment and any income from it to rise or fall.
  • If the Fund or a specific share class of the Fund seeks to reduce risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or detrimental.
  • Certain funds are able to invest in shares issued by investment trust companies, including split capital investment trusts. The level of risk depends on both the share class and prevailing market conditions. Moreover, many split capital investment trusts use gearing (borrowing) which can lead to considerable volatility in their asset values and share prices. This can increase the level of risk compared with those that do not have a split capital structure and those that do not employ gearing. In certain market conditions some split capital investment trusts can lose their value.
  • Leverage arises from entering into contracts or derivatives whose terms have the effect of magnifying an outcome, meaning profits and losses from investment can be greater.
  • Any security could become hard to value or to sell at a desired time and price, increasing the risk of investment losses.
  • The Fund is managed so that it aims not to deviate from predetermined parameters of volatility, as measured by an independent risk rating body, over a medium to long term rolling period of at least 5 years. However, during this period the Fund’s volatility may be outside of such parameters if the portfolio manager believes it is expedient to do so in order to maintain investment performance. Observing the volatility parameters will be prioritised over the generation of income. Volatility measures the changes in returns over a certain period. We use models and techniques provided by an independent risk rating body to analyse the Fund’s volatility profile. This methodology provides upper and lower parameters for each volatility profile (i.e. Profile 3 in the case of this Fund) based on the historic price movements of assets similar to those of this Fund. This Fund is intended for investors with a medium to long term investment horizon (of at least 5 years). Although the Fund’s volatility is measured regularly, the Fund will aim to be within the volatility parameters over such medium to long term rolling period of at least 5 years. Further details of the volatility parameters and measurement process can be obtained from the Manager.

Risk rating

Janus Henderson Core 4 Income Fund

This document is intended solely for the use of professionals and is not for general public distribution.

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change.

If you invest through a third party provider you are advised to consult them directly as charges, performance and terms and conditions may differ materially.

Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment.

Any investment application will be made solely on the basis of the information contained in the Prospectus (including all relevant covering documents), which will contain investment restrictions. This document is intended as a summary only and potential investors must read the prospectus, and where relevant, the key investor information document before investing. Copies of the Fund’s prospectus and key investor information document are available in English, French, German, and Italian. Articles of incorporation, annual and semi-annual reports are available in English. All of these documents can be obtained free of cost from Janus Henderson Investors registered office: 201 Bishopsgate, London EC2M 3AE.

Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services. We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

Copies of the Fund’s prospectus are available in English, French, Spanish German and Dutch. Key investor information documents are available in English, Danish, German, Finnish, French, Italian, Norwegian, Spanish, Swedish and Dutch. Articles of incorporation, annual and semi-annual reports are available in English. All of these documents can be obtained free of cost from the local offices of Janus Henderson Investors: 201 Bishopsgate, London, EC2M 3AE for UK, Swedish and Scandinavian investors; Via Dante 14, 20121 Milan, Italy, for Italian investors and Roemer Visscherstraat 43-45, 1054 EW Amsterdam, the Netherlands. for Dutch investors; and the Fund’s: Austrian Paying Agent Raiffeisen Bank International AG, Am Stadtpark 9, A-1030 Vienna; French Paying Agent BNP Paribas Securities Services, 3, rue d’Antin, F-75002 Paris; German Information Agent Marcard, Stein & Co, Ballindamm 36, 20095 Hamburg; Belgian Financial Service Provider CACEIS Belgium S.A., Avenue du Port 86 C b320, B-1000 Brussels; Spanish Representative Allfunds Bank S.A. Estafeta, 6 Complejo Plaza de la Fuente, La Moraleja, Alcobendas 28109 Madrid; Singapore Representative Henderson Global Investors (Singapore) Limited, 138 Market Street #34-03/04 CapitaGreen, Singapore 048946; or Swiss Representative BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich who are also the Swiss Paying Agent.

Specific risks

  • Investment management techniques that have worked well in normal market conditions could prove ineffective or detrimental at other times.
  • Some or all of the annual management charge is taken from capital. This may constrain potential for capital growth.
  • The Fund may invest in other funds, which may increase losses due to investment in risky assets such as property or commodities, restrictions on withdrawals, less strict regulation and use of derivatives.
  • The Fund could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Fund.
  • Derivatives use exposes the Fund to risks different from, and potentially greater than, the risks associated with investing directly in securities and may therefore result in additional loss, which could be significantly greater than the cost of the derivative.
  • Changes in currency exchange rates may cause the value of your investment and any income from it to rise or fall.
  • If the Fund or a specific share class of the Fund seeks to reduce risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or detrimental.
  • Certain funds are able to invest in shares issued by investment trust companies, including split capital investment trusts. The level of risk depends on both the share class and prevailing market conditions. Moreover, many split capital investment trusts use gearing (borrowing) which can lead to considerable volatility in their asset values and share prices. This can increase the level of risk compared with those that do not have a split capital structure and those that do not employ gearing. In certain market conditions some split capital investment trusts can lose their value.
  • Leverage arises from entering into contracts or derivatives whose terms have the effect of magnifying an outcome, meaning profits and losses from investment can be greater.
  • Any security could become hard to value or to sell at a desired time and price, increasing the risk of investment losses.
  • The Fund is managed so that it aims not to deviate from predetermined parameters of volatility, as measured by an independent risk rating body, over a medium to long term rolling period of at least 5 years. However, during this period the Fund’s volatility may be outside of such parameters if the portfolio manager believes it is expedient to do so in order to maintain investment performance. Observing the volatility parameters will be prioritised over the generation of income. Volatility measures the changes in returns over a certain period. We use models and techniques provided by an independent risk rating body to analyse the Fund’s volatility profile. This methodology provides upper and lower parameters for each volatility profile (i.e. Profile 3 in the case of this Fund) based on the historic price movements of assets similar to those of this Fund. This Fund is intended for investors with a medium to long term investment horizon (of at least 5 years). Although the Fund’s volatility is measured regularly, the Fund will aim to be within the volatility parameters over such medium to long term rolling period of at least 5 years. Further details of the volatility parameters and measurement process can be obtained from the Manager.

Risk rating

Janus Henderson Core 5 Income Fund

This document is intended solely for the use of professionals and is not for general public distribution.

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change.

If you invest through a third party provider you are advised to consult them directly as charges, performance and terms and conditions may differ materially.

Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment.

Any investment application will be made solely on the basis of the information contained in the Prospectus (including all relevant covering documents), which will contain investment restrictions. This document is intended as a summary only and potential investors must read the prospectus, and where relevant, the key investor information document before investing. Copies of the Fund’s prospectus and key investor information document are available in English, French, German, and Italian. Articles of incorporation, annual and semi-annual reports are available in English. All of these documents can be obtained free of cost from Janus Henderson Investors registered office: 201 Bishopsgate, London EC2M 3AE.

Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services. We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

Copies of the Fund’s prospectus are available in English, French, Spanish German and Dutch. Key investor information documents are available in English, Danish, German, Finnish, French, Italian, Norwegian, Spanish, Swedish and Dutch. Articles of incorporation, annual and semi-annual reports are available in English. All of these documents can be obtained free of cost from the local offices of Janus Henderson Investors: 201 Bishopsgate, London, EC2M 3AE for UK, Swedish and Scandinavian investors; Via Dante 14, 20121 Milan, Italy, for Italian investors and Roemer Visscherstraat 43-45, 1054 EW Amsterdam, the Netherlands. for Dutch investors; and the Fund’s: Austrian Paying Agent Raiffeisen Bank International AG, Am Stadtpark 9, A-1030 Vienna; French Paying Agent BNP Paribas Securities Services, 3, rue d’Antin, F-75002 Paris; German Information Agent Marcard, Stein & Co, Ballindamm 36, 20095 Hamburg; Belgian Financial Service Provider CACEIS Belgium S.A., Avenue du Port 86 C b320, B-1000 Brussels; Spanish Representative Allfunds Bank S.A. Estafeta, 6 Complejo Plaza de la Fuente, La Moraleja, Alcobendas 28109 Madrid; Singapore Representative Henderson Global Investors (Singapore) Limited, 138 Market Street #34-03/04 CapitaGreen, Singapore 048946; or Swiss Representative BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich who are also the Swiss Paying Agent.

Specific risks

  • Investment management techniques that have worked well in normal market conditions could prove ineffective or detrimental at other times.
  • Some or all of the annual management charge is taken from capital. This may constrain potential for capital growth.
  • The Fund may invest in other funds, which may increase losses due to investment in risky assets such as property or commodities, restrictions on withdrawals, less strict regulation and use of derivatives.
  • The Fund could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Fund.
  • Derivatives use exposes the Fund to risks different from, and potentially greater than, the risks associated with investing directly in securities and may therefore result in additional loss, which could be significantly greater than the cost of the derivative.
  • Changes in currency exchange rates may cause the value of your investment and any income from it to rise or fall.
  • If the Fund or a specific share class of the Fund seeks to reduce risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or detrimental.
  • Certain funds are able to invest in shares issued by investment trust companies, including split capital investment trusts. The level of risk depends on both the share class and prevailing market conditions. Moreover, many split capital investment trusts use gearing (borrowing) which can lead to considerable volatility in their asset values and share prices. This can increase the level of risk compared with those that do not have a split capital structure and those that do not employ gearing. In certain market conditions some split capital investment trusts can lose their value.
  • Leverage arises from entering into contracts or derivatives whose terms have the effect of magnifying an outcome, meaning profits and losses from investment can be greater.
  • Any security could become hard to value or to sell at a desired time and price, increasing the risk of investment losses.
  • The Fund is managed so that it aims not to deviate from predetermined parameters of volatility, as measured by an independent risk rating body, over a medium to long term rolling period of at least 5 years. However, during this period the Fund’s volatility may be outside of such parameters if the portfolio manager believes it is expedient to do so in order to maintain investment performance. Observing the volatility parameters will be prioritised over the generation of income. Volatility measures the changes in returns over a certain period. We use models and techniques provided by an independent risk rating body to analyse the Fund’s volatility profile. This methodology provides upper and lower parameters for each volatility profile (i.e. Profile 3 in the case of this Fund) based on the historic price movements of assets similar to those of this Fund. This Fund is intended for investors with a medium to long term investment horizon (of at least 5 years). Although the Fund’s volatility is measured regularly, the Fund will aim to be within the volatility parameters over such medium to long term rolling period of at least 5 years. Further details of the volatility parameters and measurement process can be obtained from the Manager.

Risk rating

Janus Henderson Core 6 Income & Growth Fund

This document is intended solely for the use of professionals and is not for general public distribution.

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change.

If you invest through a third party provider you are advised to consult them directly as charges, performance and terms and conditions may differ materially.

Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment.

Any investment application will be made solely on the basis of the information contained in the Prospectus (including all relevant covering documents), which will contain investment restrictions. This document is intended as a summary only and potential investors must read the prospectus, and where relevant, the key investor information document before investing. Copies of the Fund’s prospectus and key investor information document are available in English, French, German, and Italian. Articles of incorporation, annual and semi-annual reports are available in English. All of these documents can be obtained free of cost from Janus Henderson Investors registered office: 201 Bishopsgate, London EC2M 3AE.

Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services. We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

Copies of the Fund’s prospectus are available in English, French, Spanish German and Dutch. Key investor information documents are available in English, Danish, German, Finnish, French, Italian, Norwegian, Spanish, Swedish and Dutch. Articles of incorporation, annual and semi-annual reports are available in English. All of these documents can be obtained free of cost from the local offices of Janus Henderson Investors: 201 Bishopsgate, London, EC2M 3AE for UK, Swedish and Scandinavian investors; Via Dante 14, 20121 Milan, Italy, for Italian investors and Roemer Visscherstraat 43-45, 1054 EW Amsterdam, the Netherlands. for Dutch investors; and the Fund’s: Austrian Paying Agent Raiffeisen Bank International AG, Am Stadtpark 9, A-1030 Vienna; French Paying Agent BNP Paribas Securities Services, 3, rue d’Antin, F-75002 Paris; German Information Agent Marcard, Stein & Co, Ballindamm 36, 20095 Hamburg; Belgian Financial Service Provider CACEIS Belgium S.A., Avenue du Port 86 C b320, B-1000 Brussels; Spanish Representative Allfunds Bank S.A. Estafeta, 6 Complejo Plaza de la Fuente, La Moraleja, Alcobendas 28109 Madrid; Singapore Representative Henderson Global Investors (Singapore) Limited, 138 Market Street #34-03/04 CapitaGreen, Singapore 048946; or Swiss Representative BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich who are also the Swiss Paying Agent.

Specific risks

  • Investment management techniques that have worked well in normal market conditions could prove ineffective or detrimental at other times.
  • Some or all of the annual management charge is taken from capital. This may constrain potential for capital growth.
  • The Fund may invest in other funds, which may increase losses due to investment in risky assets such as property or commodities, restrictions on withdrawals, less strict regulation and use of derivatives.
  • The Fund could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Fund.
  • Derivatives use exposes the Fund to risks different from, and potentially greater than, the risks associated with investing directly in securities and may therefore result in additional loss, which could be significantly greater than the cost of the derivative.
  • Changes in currency exchange rates may cause the value of your investment and any income from it to rise or fall.
  • If the Fund or a specific share class of the Fund seeks to reduce risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or detrimental.
  • Certain funds are able to invest in shares issued by investment trust companies, including split capital investment trusts. The level of risk depends on both the share class and prevailing market conditions. Moreover, many split capital investment trusts use gearing (borrowing) which can lead to considerable volatility in their asset values and share prices. This can increase the level of risk compared with those that do not have a split capital structure and those that do not employ gearing. In certain market conditions some split capital investment trusts can lose their value.
  • Leverage arises from entering into contracts or derivatives whose terms have the effect of magnifying an outcome, meaning profits and losses from investment can be greater.
  • Any security could become hard to value or to sell at a desired time and price, increasing the risk of investment losses.
  • The Fund is managed so that it aims not to deviate from predetermined parameters of volatility, as measured by an independent risk rating body, over a medium to long term rolling period of at least 5 years. However, during this period the Fund’s volatility may be outside of such parameters if the portfolio manager believes it is expedient to do so in order to maintain investment performance. Observing the volatility parameters will be prioritised over the generation of income. Volatility measures the changes in returns over a certain period. We use models and techniques provided by an independent risk rating body to analyse the Fund’s volatility profile. This methodology provides upper and lower parameters for each volatility profile (i.e. Profile 3 in the case of this Fund) based on the historic price movements of assets similar to those of this Fund. This Fund is intended for investors with a medium to long term investment horizon (of at least 5 years). Although the Fund’s volatility is measured regularly, the Fund will aim to be within the volatility parameters over such medium to long term rolling period of at least 5 years. Further details of the volatility parameters and measurement process can be obtained from the Manager.

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