Technical Information
This portfolio is focused on investing in companies that generate and subsequently pay out large cash flows to investors in the form of high and growing dividends.
As a result, we scan the globe for the highest quality, highest yielding companies we can find in the search for Global Value and Income.
Some companies are created to simply distribute cash to their owners. Property owning companies or REITS fall into this category. Professional management teams manage companies that own vast portfolios of property across every conceivable sector in the economy. From shopping malls to data centres to hospitals and cell towers. Their purpose is to own, manage and run these portfolios and pay leftover cash to shareholders.
Utility companies are allowed to make a fixed margin which allows them to cover their minimum costs and a fair amount of return for their efforts. This predictable reliable cash flow gives management teams strong line of sight into what is required to run the business and oftentimes the balance is paid over to shareholders as dividends.
Infrastructure companies own assets which are usually critical to the orderly functioning of an economy. Things such as rail roads, airports, oil pipelines, solar farms and highways are examples of businesses that own and manage such assets. Their necessity-based existence makes them vital to the way society works and functions.
Well run and managed businesses after reaching a certain size, scale or market dominance can find themselves in a position where they start generating more cash than they need to fund their growth ambitions. Often, they turn to returning cash to shareholders in such instances either via share buybacks, increased dividends, or both.
Capital rich businesses use their reach, influence and reputation to fund or buy companies they see as offering value or a compelling investment return. They can do so with their own or investor capital where they earn either capital returns or fees for their efforts. Cash flows are strong and are used to compound the assets with surplus funds being returned to shareholders.
When conditions are right some businesses prefer to raise growth capital or to refinance existing debt by the issue of preference shares. These shares are lower risk than equity, pay a yield which compensates you for forgoing the potential capital appreciation offered by ordinary shares and sometimes can be redeemed or even converted to ordinary shares at some point in the future.
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This portfolio is aimed at long term investors that are interested in investments which generate and return significant amounts of cash flow via dividends, which can in turn be used for reinvestment and compounding over long periods of time.
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We work hard and save hard, and we really look forward to the times we get to put our feet up and relax. However, the realisation that the 9-5 beckons is always with us. Whether you work for somebody or for yourself we are acutely aware of the fact that down time is limited and the requirement to get going again lingers over us. It’s precisely for this reason that we save for retirement, hoping to accumulate sufficient savings which can see us through our golden years when we can no longer or chose not to work any further.
The search for passive income is oftentimes the bedrock of any retirement or savings strategy. ‘Earning money while you sleep’ is a very attractive proposition. Various strategies exist which allow investors to benefit from this and when reinvesting this passive income back into the strategy compounding accelerates at a pace which can be quite hard to believe.
Various investments exist which allow you to capture this cash flow.
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Risk is mitigated by searching for investments that fit the following criterion:
1.Staying power – these companies must have endured previous periods of market and economic turmoil and come out stronger at the end of it. Preference is given to companies that did not cut or cancel dividends during the GFC in 2007/2009 or during COVID19.
2.Management matters – high quality management teams with the right incentives and mindset are critical to success. Where possible skin in the game or significant management shareholdings are welcomed. Management track record and ratings are important.
3.Strong Balance sheets – Balance sheets need to be superior to average and must be able to endure the economic cycles that persist over time.
4.Margin of safety – Companies must offer a sufficient margin of safety at current prices relative to our or the markets perception of a fair intrinsic value.
5.Safety of Dividend – the return of cash is an important foundation of the investment thesis. Dividends must be easily funded from existing business operations and must not be at any obvious risk of being cut.
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The appropriate benchmark should incorporate a universe of stocks that fit the same high cash distribution expectations. For our purposes we have chosen the Global X Super Dividend US ETF as the benchmark. NYSE: DIV
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The portfolio is positioned as medium risk and should only be considered by investors that have the relevant risk appetite.
Market risk: Markets rise and fall; the portfolio will always be exposed to markets.
Company risk: By investing in a company there is always a risk the company can fail.
Interest rate risk: High yielding investments are often compared to the Fixed Income or Bond Markets. During periods of rapidly changing interest rates a greater amount of volatility is possible.
Inflation rate risk: A large portion of the portfolio is invested in real or fixed Assets. This generally provides an element of Inflation protection over the longer term. Short- and medium-term volatility can occur as a result of Market/Company and or Interest rate risk.
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This portfolio charges a fee of 1.35% per annum + VAT
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