Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
Tap into rich dividend streams with this global investment trust
Quarterly-dividend paying Securities Trust of Scotland (STS) looks very attractive for investors wanting a geographically diverse source of income from a group of high quality businesses.
A 4.8% discount to net asset value (NAV) offers an attractive entry point, while a plump 3.8% dividend yield is tasty versus the returns you’d get on cash in the bank.
Managed by Martin Currie’s head of income Mark Whitehead, the fund’s objective is to achieve rising income and long-term capital growth through a reassuringly balanced portfolio of global equities; as at 31 October, the book was diversified across 45 holdings and 14 countries.
Whitehead looks for attractively valued, sustainably growing companies and quality is very important to the manager.
The benefits of ‘going global’ are twofold; a global income portfolio offers more choice than a country specific income portfolio and avoids the risk of income concentration that can trip-up a single country portfolio.
Admittedly, the outlook for future rates of global growth has become more clouded, yet all the stocks in Whitehead’s portfolio should exhibit a combination of attractive dividend yield and dividend growth.
Furthermore, the fund has this year increased its exposure to defensive companies, a canny move in light of the return of market volatility in October.
Whitehead believes ‘a defensive style, particularly higher-yielding stocks should continue to perform more consistently over the short to medium term after years of meaningful underperformance, particularly as volatility is rising and as we near the end of the economic cycle’.
One key quality measure for Securities Trust of Scotland is the effectiveness of companies’ environmental, social and governance practices, which are critical to sustaining business growth and driving investor returns.
In the six months ended 30 September, net asset value total return was 11.1%, although the share price total return was a lesser 8.9%, as the discount to NAV widened. However, earnings-enhancing share buybacks are helping to reduce the discount volatility.
Top 10 holdings as at 31 October included tech titan Microsoft; healthcare giant Merck, taking more market share in the US lung cancer market; and also the US consumer goods multinational Procter & Gamble, where organic sales growth has accelerated.
The trust will also provide investors with exposure to industrial gas company Air Products as well as Zurich Insurance, a high-quality, generous dividend payer geared into rising interest rates which Whitehead expects will generate premium growth in line with global premium inflation.
Other portfolio names include US aerospace and defence leviathan Lockheed Martin.