M&G GLOBAL DIVIDEND FUND keeps it simple

Despite a tricky start – launching into a global financial crisis – as it nears its 15th anniversary, investment fund M&G Global Dividend has delivered what it said it would. Namely, a stream of growing income for investors.

Since the fund began in July 2008, it has increased its annual dividend every year by an average of seven per cent, despite having to negotiate the near world lockdown of 2020.

This is no mean achievement given the fund has had to pay out the income it receives from its investments almost immediately.

Unlike a stock market-listed investment trust, it does not have the ability to squirrel away some of the income it gets in the good times to top up dividend payments to investors when times are tough.

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

He adds: ‘We invest in companies that can grow their dividends consistently into perpetuity – through both good and more difficult times.

‘This feeds through to our investors via the quarterly dividend payments we can make to them.’

No tricks are employed to boost the fund’s income – such as the use of complex financial instruments. Rhodes believes the current financial year and the next one will be good ones in terms of dividends.

Rhodes has a universe of 240 stocks that he can select from, although only 42 currently make it into the portfolio. The key financial ingredient he looks for is a robust balance sheet.

‘Few companies can negotiate difficult periods such as 2020 unless they have strong balance sheets,’ he says. ‘It’s what we always look for. Most companies that cut their dividends do so not because of plunging profits, but because they carry too much debt.’

Among the portfolio are five companies that Rhodes has held for most of the fund’s life – US giants Coca-Cola and Microsoft; Swiss pharmaceutical business Novartis; Canadian methanol producer Methanex; and Taiwan Semiconductor Manufacturing.

Rhodes says: ‘When we bought into Microsoft in 2008, it was a bombed-out tech stock. Since then, it has been on an impressive journey, delivering double-digit dividend growth in the process. It has been perfect for our fund.’

The overall performance numbers look good, both in the short and long term. Over the past year, it has registered gains of 11.6 per cent, above the average for its peer group of 5.7 per cent. Over the past five years, returns of 72.3 per cent compare with 51.1 per cent 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 controls the £661 million M&G North American Dividend Fund.

‘We have such an established investment process,’ says Rhodes. ‘We don’t run around trying to reinvent the wheel. We stick to what works for both us, as fund managers, and our investors.’

On the consequences 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 charges total 0.66 per cent and the annual income works out at around 2.2 per cent.