Solid absolute and relative returns for shareholders of Dunedin Income Growth – the NAV total return of 12.0% of Dunedin Income Growth (DIG) outperformed the total return of 11.3% from the FTSE All-Share Index. The chairman stated in the annual final report for the year to 31 January 2018 that this was driven by out-performance from the company’s equity portfolio.
The company’s investment objective is to achieve growth of income and capital from a portfolio invested mainly in companies listed or quoted in the United Kingdom and, as such, the total dividend increased by 3.4% on last year. This will be the 34th year out of the past 38 that the DIG has grown its dividend, with the distribution maintained in the other four years.
The discount to NAV widened slightly from 7.4% at the beginning of the year to 8.1% as at 31 January 2018 (on an ex-income basis with borrowings stated at fair value).
Income from investments went up by 3.5%, helped by special dividends. Total revenue increased by 1.6% as lower income was received from derivatives. The manager has reduced holdings in higher yielding companies, cutting near term earnings, in order to increase investments in lower yielding but faster growing companies.
Chairman’s outlook
David Barron, chairman of DIG commented:
“Central banks are moving slowly and cautiously, but have a difficult balancing act to move to more normal interest rates without damaging growth. How valuations develop in an environment that pitches faster increases in interest rates against a continued strong global economic expansion remains to be seen. Following a long period of positive equity market performance and subdued volatility it is likely that we may well see more challenging market conditions in the period ahead. Recognising such an environment, (the manager) will be increasingly rigorous in its focus on owning the best quality businesses that it can, consistent with delivering your company’s strategy.”
Manager’s outlook
The manager believes that any overall weakness of Sterling and particularly from outperformance from the Euro will benefit the performance of the NAV of the company. A strengthening pound and an environment of rapidly rising interest rates would also be significant headwinds to portfolio returns. The manager believe that the portfolio also has much to gain from a more modest upward adjustment accompanied by faster global growth given its international exposure and ownership of companies with pricing power.
They state their belief that the portfolio is well positioned for the medium term, with low levels of equity gearing, substantial revenue reserves and a positive outlook for underlying earnings growth. They invest for the long term, focusing on holding high quality businesses with good market positions, competitive advantages, growth prospects and strong balance sheets.
DIG : Solid absolute and relative returns for shareholders of Dunedin Income Growth