UK Equity Income Strategy
Dependable income from resilient British businesses
To provide an income above that of the FTSE All-Share Index, with the potential for capital growth, over rolling five-year periods.
The UK market pays one of the higher dividend yields among developed markets, but a high yield on its own tells you little. Some of the most generous payers in the index are businesses in slow decline, handing back cash they will not have in five years' time.
We look for the opposite: companies that earn more cash than they need, spend it sensibly and can raise their dividend through a downturn. They are often unglamorous. A specialist insurer, a building materials distributor, a water utility with a clear regulatory settlement, a software business that sells to accountants.
The strategy launched in March 2014 and is run by Eleanor Whitcombe and Daniel Okafor. It is available as a segregated mandate or through a pooled fund for eligible investors.
How we invest
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Cash before dividends
We start with free cash flow, not the headline yield. A dividend is only as safe as the cash that pays for it, so we test cover after capital spending, pension contributions and lease payments.
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Balance sheets that can wait
We favour companies that could survive two difficult years without cutting the dividend or asking shareholders for money. Net debt above three times operating profit needs a very good reason.
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A spread of yields, not just the highest
We mix established payers with lower-yielding companies whose dividends are growing faster. Positions range from 1.5% to 5% of the portfolio, sized by our conviction and by how easily we could sell.
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Owners, not renters
We vote every share and meet the chair as well as the finance director. When we disagree with a board on pay, capital allocation or succession, we tell them, and we tell you.
Key risks
This is a concentrated portfolio of UK shares. Its value will rise and fall with the UK stock market, and because it holds fewer companies than the index it can behave quite differently from it, for better or worse, over long periods. You may get back less than you invest.
Dividends are not fixed. Companies can reduce or suspend them without notice, as many did in 2020. If several holdings cut at once, the income from the strategy will fall, and it may take years to recover.
Some holdings are medium-sized companies whose shares trade less often than those of the largest firms. In a falling market they can be harder to sell at a fair price. Many UK companies also earn much of their profit overseas, so changes in exchange rates affect their value.
Questions investors ask
How often is income paid?
Quarterly, at the end of February, May, August and November. Investors in the pooled fund can take income or have it reinvested.
What happens when a company cuts its dividend?
We do not sell automatically. We ask whether the cut was prudent or forced. A board that cuts to protect the balance sheet can be a better owner than one that borrows to keep paying. If the cut reveals a problem we missed, we sell.
What is the minimum for a segregated mandate?
Usually £50 million. Below that, the pooled fund gives the same portfolio at lower cost.
Discuss an income mandate
Tell us what your income needs to do, whether that is meeting pension payments, funding grants or supporting a client's drawdown, and we will show you how this strategy has behaved in years like the ones you are planning for.
Contact us