Despite a difficult environment Henderson International Income has generated good growth in net assets and increased shareholders’ dividend distributions. During the six months to 29 February 2016 the return on the net asset value per ordinary share (on a total return basis) was 7.8%. The company’s return on the ordinary share price (on the same basis) was -2.3% – the discount widened. In comparison, the benchmark total return was 5.4% (MSCI World (ex UK) Index).
The board declared a first interim dividend payment for the year ending 31 August 2016 of 1.15p and a second interim dividend payment of 1.15p was declared on 8 March 2016. The board says it continues to monitor the level of dividend paid out to shareholders and aims to maintain the same level of dividend throughout the remaining six months of this financial year.
The board has a long established and well-publicised policy that it is in the interests of all shareholders that the company widens its investor base and increases its size. This should improve liquidity in the shares, and spread fixed costs over a larger base. They say significant progress towards this strategy has been made over the period. The company has taken advantage of ongoing demand from investors to issue shares periodically on an ad hoc basis. And more significantly, has agreed terms for a combination of assets with Henderson Global Trust. The £95m increase in assets resulting from this transaction represents significant progress towards the company’s strategy. In addition to the reduction in the ongoing charge percentage that occurs as a result of the scale effect of a larger asset base, the management fee has reduced from 0.75% to 0.65% of net assets with effect from 26 April 2016.
Ben Lofthouse, HINT’s manager, says the majority of companies in the portfolio have increased or maintained their dividends. The dividend growth has been widely spread across sectors and regions. The strongest growth has come from some of the portfolio’s Asian holdings; including utility company Korea Electric Power, Chinese internet services company NetEase, and Korean Bank KB Financial Group. Many of the US companies held continued to grow dividends by over 10% year-on-year, including Cisco Systems, Reynolds American and Microsoft. He thinks the outlook for dividend growth from the portfolio remains good.
The portfolio has generated strong capital returns over the period. Stock selection was the main driver of performance. The largest single contributor to performance was chemicals company Syngenta, which received a takeover approach at a significant premium to the prevailing share price. Syngenta was a new position added in October. Telecommunication companies were amongst the strongest performers across all regions. HINT has a large exposure in this sector which was increased significantly over the last year. Key positions in the sector include Verizon Communications in the US, Spark New Zealand, Orange in France, and HKT Trust & HKT in Hong Kong. He believes the cash flow generation and capital discipline of the sector has generally improved significantly over the last few years, which has improved the dividend sustainability. In some regions consolidation is also improving the outlook for the industry. The company’s property holdings were also significant positive contributors to performance. In some regions low interest rates are increasing the demand for yielding assets and at the same time the cost of debt for property companies falls. The largest positive contributors to performance in this sector included shopping centre Real Estate Investment Trusts (‘REITs’) Scentre Group in Australia and Eurocommerical Properties in The Netherlands, and French house builder Nexity.
HINT : Henderson International Income outperforms and expands