KAMES UK EQUITY INCOME: Seven years of raising dividend payments as mixture of blue-chips and lesser known income shares pays off
Though the year is not quite over – and the stock market could yet go into meltdown – the managers of Kames UK Equity Income are already organising a quiet pre-New Year celebration in their home city of Edinburgh.
They will be raising their glasses to the fact that for the seventh consecutive year, they have managed to increase the fund’s annual dividend payout.
What joint managers Iain Wells and Douglas Scott have achieved since launching the fund in summer 2009 is no mean feat.
Unlike those running equity income investment trusts, they do not have the ability to squirrel away income in the good times to help bolster payments to investors in more difficult periods.
Instead, they must pay out the income received from the fund’s investments promptly, by way of quarterly dividends. This makes the task of keeping investors sweet with ever-growing dividends difficult.
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Scott says the 1.7 per cent rise investors have received this year was touch and go.
He explains: ‘Last year, some companies we held in the fund paid special one-off dividends, which in turn boosted the income we could pay out.
This meant that it was always going to be a battle this year to increase that. But helped in part by upping our exposure to the dividend friendly oil giant Royal Dutch Shell, we did it.
Douglas Scott, left and Ian Wells, right, have consistently lifted payouts
‘Yes, we could be hard on ourselves and say we did not hit our target of 4 per cent annual dividend growth. Yet, someone who invested £1,000 in the fund when it launched seven-and-a-half years ago is now receiving just over £72 of annual income. In other words, an income equivalent to 7.2 per cent.’
Scott and Wells say the fund’s success is down to identifying well-run firms that are committed to growing their dividends. ‘It’s not racy what we do,’ concedes Wells. ‘It’s not exciting. We hold good companies and collect the cash. If a company cuts back on its dividends, we get out.’
Though the 50-strong portfolio comprises a number of blue-chip firms renowned for growing their dividends – such as HSBC, British American Tobacco and Imperial Tobacco – it also includes holdings not traditionally linked with UK equity income funds.
Among them are AIM-listed Manx Telecom, greeting card specialist Card Factory and engineer Kier.
Scott says: ‘Shares in Manx are yielding an attractive 5 per cent while Kier is perfectly positioned to benefit from the infrastructure commitments announced by Chancellor Philip Hammond in last Wednesday’s Autumn Statement. Card Factory generates lots of cash and its shares yield 9 per cent.’
Until 2012, investment house Kames Capital was known as Aegon Asset Management UK.
Though still 100 per cent owned by Aegon, the name change was in part driven by a desire to disassociate itself from the insurance giant and attract business from wealth managers and financial advisers.
The rebranding has worked. Of the £51 billion that Kames now manages, 46 per cent is on behalf of investors and other institutions besides Aegon.
Scott is determined that Kames will become renowned for everything that is good about active fund management, a form of investment increasingly under scrutiny from City regulators.
‘We do what good active fund managers should be doing all the time,’ he says. ‘We’re constantly searching for best ideas and backing them in style by building decent sized positions.’
