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Train: my fund's 'low' yield is the price for dividend growth

Train: my fund's 'low' yield is the price for dividend growth

Star manager Nick Train has argued his Lindsell Train UK Equity fund's low yield relative to the wider UK stock market is justified by the dividend growth offered by the companies he invests in.

The £5.5 billion fund yields 2.5% before charges, less then two-thirds of the 4% offered by the FTSE All-Share, and half the 5% from the 10 biggest companies on the FTSE 100.

'Once upon a time, probably more than 10 years ago, our strategy had a higher dividend yield than the market average, said Citywire AA-rated Train in his latest update to investors.

'Actually the historic yield of 2.5% still seems attractive to me - both relative to inflation and relative to the underlying rate of weighted dividend growth being delivered by the portfolio constituents.'

'The latter is is in the order of 8% currently - with Unilever (ULVR), Hargreaves Lansdown (HRGV), London Stock Exchange (LSE), Mondelez (MDLZ.O), Burberry (BRBY), Heineken (HEIN.AS), Sage (SGE), Pearson (PSON), Rathbone (RAT), AG Barr (BAG) and Euromoney (ERM) all growing dividends at least at that rate.' 

That lower yield is largely a product of the strong performance of the shares Train has backed. Over 10 years the fund has returned just over 400% more than double the average for funds in Citywire's UK All Companies sector.

Train highlighted the high yields on offer from some of London's largest listed companies as evidence that the UK stock market was 'oversold and unloved'.

'I sympathise with the view that today UK equities are, to say the least, not overextended,' he said, pointing to the FTSE 100's fall below 7,000 towards the end of October, the level it reached at the turn of the century.

'This index has generated no capital return for getting on for two decades. No wonder Hargreaves Lansdown tells us its largely UK client base is deeply frustrated by the performance of the domestic market.'

Train added this countered the claim that bond-buying quantitative easing, by pushing down yields on fixed income, would force investors to indiscriminately hunt for higher yields on equities, creating a bubble in stock markets.

'At least for the UK the huge gap between the dividend yields on these biggest companies and the interest yield on long dated government bonds – albeit these have begun to rise – says that this analysis was incorrect and that equity investors are more discriminating than they are given credit for,' he said.

'Put another way, it seems to us but by no means certain,
that the UK stock market would go down if long term interest rates continue to rise – for the simple reason the stock market hasn’t
gone up very much for a long time.'


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Nick Train
Nick Train
6/483 in Equity - Global (Performance over 3 years) Average Total Return: 83.68%
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