64 1GM Saturday September 5 2020 | the times
Money
Try fishing in a bigger pond
Source: Link Group and Janus Henderson09
Q410
Q311
Q212
Q112
Q413
Q314
Q215
Q115
Q416
Q317
Q218
Q118
Q419
Q320
Q2100
120
140
160
180
200
UK dividend index
Global dividend index
Apple now worth same as the
FTSE 100 despite share slump
A
pple is neck-and-neck with the
value of all the companies in the
FTSE 100, despite a recent shock
for US technology stocks.
The iPhone maker’s share price
dropped 17 per cent this week, with
America’s biggest tech firms including
Microsoft and Facebook also experi-
encing market falls. The drop has
sparked fears that these companies had
become overvalued.
On Friday, Apple’s market cap was
approximately $1.95trn (£1.49trn) com-
pared with £1.5trn for the FTSE 100.
Earlier in the week, Apple’s value had
surged to £1.7trn. Apple split its stock
last week so that each share, worth
about $500 (£371), was divided into four,
meaning that existing investors quad-
rupled their shareholding.
The UK companies in the FTSE 100
index have failed to recover from themarket shock of the pandemic. The ex-
change is trading at three quarters of
the value it was showing at the begin-
ning of the year. Apple, however, had
benefited from the lockdown as people
sought new ways to stay connected.
Companies such as HSBC and Brit-
ish American Tobacco have been hit
particularly hard by the crisis, althoughsome FTSE 100 behemoths, such as the
pharmaceutical company Astrazeneca,
which is among those working on a cor-
onavirus vaccine, have performed well.
Kate Palmer$1.95trn
what Apple was worth yesterday
year’s, 25 were more and 10 were
exactly the same.
So how do I account for this
apparent resilience?
One reason is that most of my
money is invested overseas, so I have
not suffered as badly from the
collapse in UK payouts. I have always
argued that it makes no sense for
British investors to have most of their
money in the UK stock market, as
many do, when it makes up only
about 5 per cent of the world’s market
capitalisation.
The dividend monitor from the
Link Group, a data company, shows
that payouts by UK-listed
companies fell by 57 per
cent in the second
quarter; for 2020 as a
whole it expects
dividends to slump
by 44 to 49 per cent.
In contrast,
Henderson
International
Income Trust is
forecasting a fall for
the dividends of the
world’s top 1,200
companies of between 19
per cent and 25 per cent — still
pretty grim, but nothing like as grim
as in the UK.
Another factor in boosting the
value of my payouts is currency. The
large number of overseas funds that I
hold will be putting their money into
stocks denominated in currencies
such as the US dollar and the euro.
Although sterling has risen against
the dollar lately, it has fallen
substantially against the dollar and
the euro over most of the past five
years, so most dividend payouts (or
capital gains for that matter) are
given a boost when translated into
sterling. The same applies to some of
the relatively small number of
individual UK stocks I hold, such as
Astrazeneca, that pay dividends in
dollars or euros.
A third reason that I have been able
to mitigate some of the pain of falling
company dividends is that most of my
holdings are in investment trusts.
They have an advantage for incomeI have found a way to
avoid the dividend pain
I
have been examining the
dividend payouts from my Isa
portfolio over the past six
months. Given the waves of bad
news about dividend cuts, I was
fearing the worst.
But, to my surprise, I found that my
income over the past six months was
actually higher than for the same
period last year. How can this be?
True, I have continued to investmoney over the past year, so this
year’s payouts are from a slightly
bigger pool of money, and the impact
of coronavirus on company profits
has not yet been fully felt, but higher
dividends are still unexpected.
Of the 45 payouts in 2020 for
shares and funds (in some cases there
were two dividends from the same
holding where it made quarterly
distributions) 10 were less than lastMark
Ather ton
Activist Investornvvvvvvvvvvvve
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thetimes.co.uk/moneymentorinvestors because they are permitted
to hold back up to 15 per cent of their
income each year, rather than have to
distribute it all to shareholders. This
means that in good years they can
build up a revenue reserve that they
can then use to boost payouts in lean
years. Some investment trusts have
more than a year’s worth of dividends
in the kitty — and this has enabled
them to weather the dividend turmoil.
Among the trusts I hold that have
increased their payouts are Caledonia
Investments and the Scottish
Investment Trust, although others,
such as Fidelity European Values,
have been compelled to make
cuts.
Of course income,
although important, is
only one part of the
picture and at the
moment I don’t
have any pressing
need for income. I
am more interested
in a share or a fund’s
total return. Here too
it pays to think global
rather than restrict
yourself too much to the
UK. So far this year the UK
stock market has underperformed the
US, above, the world, emerging
markets, Japan and Europe. I don’t
see this picture changing any time
soon. I don’t think the lowly valuation
that investors have placed on UK
stocks is an aberration — it is hard-
headed reality. Last month the Office
for National Statistics reported that
the UK economy shrank by 20.4 per
cent in the three months to June, the
second biggest quarterly contraction
of any large economy, behind India’s
23.9 per cent.
Stock markets and economies don’t
march hand in hand, but fishing in a
bigger pond seems wise for now.sted
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