10 companies account for 60% of all dividend income, as concentration worsens
UK Equity income investors face unacceptably high concentrations of risk, with just 10 companies paying 60% of all dividend income, according to Sarasin & Partners.
Mark Whitehead, manager of Sarasin’s £150.5m International Equity Income fund, says: “It is increasingly risky just holding UK equities, and a lot of UK equity income funds are having to invest up to 40% of assets in just eight stocks.”
The best 10 dividend payers provide 59% of all UK dividend income, compared to about 25% in each of the US and Japan, and 30% in Europe.
Guy Monson, Sarasin’s chief investment investor, says: “The concentration risk has got a lot worse over the past 18 months.”
He says BP and Shell combined pay 24% of all UK dividend income.
He warns: “If we get an oil commodity price correction, it could replicate the sort of dividend risks we saw in the UK with banks.
“BP have said they would be prepared to have an uncovered dividend... but if oil falls below $45, a progressive dividend policy becomes quite difficult to maintain.”
Currently BP, Royal Dutch Shell and miner BHP Billiton pay 25% of all UK dividends. No banks sit among the top 12 income payers.
Whitehead says: “A fund diversified beyond the UK does not have to own large chunks of BP, for example.”
His fund holds 45 to 65 stocks, and yields 4.8%.
Although Whitehead can hold up to 10% in UK companies, he cites Europe’s Novartis and America’s IBM as favourites, in part due to current yields and because of dividend growth prospects.
