As Jeff Prestridge notes in The Mail on Sunday, these are good times for investors in generous, British, dividend-paying firms. Despite the recession, many of these companies are “awash with cash”. Rather than spending it on acquisitions, many firms are raising their dividends instead.
One beneficiary is the Cazenove UK Equity Income Fund. The fund has been operating for seven years and has recently “delivered in spades”, says Prestridge. Over one year, the fund, worth £130m, delivered a 28% return against the sector average of 19%. Over three years it has generated a 40% return.
Manager Matt Hudson uses a highly successful business-cycle investing method peculiar to Cazenove’s fund family, says Cherry Reynard in Money Observer. The overall result is that the fund includes a number of familiar names, such as GlaxoSmithKline and Vodafone, as part of a portfolio of 56 stocks.
Hudson is constantly on the lookout for the next dividend story. “It’s easy to get all your income from GlaxoSmithKline or AstraZeneca,” he tells Money Observer. “That will work in specific market conditions… but it is not always the right solution.”
The fund is overweight in sectors hit hard by the recession, such as travel and leisure, consumer cyclicals (such as retailer WH Smith) and financials. Hudson is betting that they will bounce back sharply, says Prestridge. Meanwhile, Gary Potter of Thames River Capital tips Hudson as one of the “equity income stars of the next decade”.
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Cazenove UK Equity Income top ten holdings
| Name of holding | % of assets |
|---|---|
| Vodafone | 5.69 |
| GlaxoSmithKline | 5.63 |
| British American Tobacco | 4.85 |
| BG Group | 3.17 |
| Imperial Tobacco Group | 3.16 |
| Rio Tinto | 3.1 |
| AstraZeneca | 2.84 |
| BT Group | 2.79 |
| WPP | 2.4 |
| SSE | 2.3 |