Weekly Thoughts 20 June 2014

I was working through a client’s portfolio this week when my calculations showed a 17% growth in the last quarterly dividend paid to the client. I can’t remember what the change in capital value was, but that’s not important. So I sent a couple of emails to the fund manager telling him what I found, resulting in a phone call from him this morning. He said I was quite right in my findings. We chatted through what was going on in the fund and the underlying companies and a couple of extra-ordinary dividends that had been paid. He then said that they did not expect a decline in the dividends going forward.

So let’s assume a growth of income of only 3% per quarter going forward. This then gives clients in this fund a dividend income growth of 26% for the measured year. What a good growth of income. But it’s only this asset class that can be so independent of how it grows its income. Property, cash, bonds… are all more restricted.

Then I said to him; so what if Malema’s comic day in parliament this week, together with the demand by striking miners to be back paid for 5 months, together with our recent risk re-rating, caused a flight of investor capital of billions of Rands and then a subsequent decline in the SA stock market of say 5% per quarter. Would you expect the income and income growth from the dividend fund to decline? He said that he would not, that these underlying companies generated consumer profits and income that were not driven by price. I agreed with him.