As the recession’s grip tightens, companies have slashed dividends to cut costs. Michael Clark, the manager of the Fidelity Income Plus fund, says that FTSE All-Share dividends will fall by as much as 30% – but adds he is confident he can find income.
He focuses on shares with a secured dividend yield. “That means we have significantly invested in utilities, telecoms, pharmaceuticals, consumer staples and, to a large extent, oil,” he says.
However, as crude oil prices recently hit a record low, how can a 18.7% exposure to oil and gas be profitable?
Clark, who took over the fund in July last year, says that he holds large and integrated oil companies which are characterised by strong cash flows and a record of resisting commodity declines.
“I am reasonably confident that dividend is secure on the oil companies [within my portfolio],” he says.
Over the year to March 2, the £377m fund fell 25.2%, compared with an average fall of 30.8%, for its peer group, the Investment Management Association’s (IMA) UK Equity Income sector.
Clark says he outperformed the peer group because of the fund’s low weighting in banks and mining.
Another 13.9% is invested in healthcare, 13.2% in consumer goods, 12.8% in utilities and 12.4% in consumer services. Financials make up 11.5% of the fund and telecommunications 11.1%
Clarke says, “Consumer staples and utilities have a low correlation with the economy because the demand for energy and water continues, whatever the economy does. And that is similar with consumer staples.”
National Grid is one of his largest utility holdings. He also holds Imperial Tobacco. This is because he says “it is proven that people also do not cut smoking in times of economic crisis”.
Clark concludes that though it has been a difficult time with many dividend cuts, “we are through the worst”.
“The general market is very cheap and there are signs that the economy is stabilising – lead indicators are levelling off.” He says he does not expect the economy to “grow dramatically” soon, but it will stabilise.