Frikkee urges caution on 2012 dividend forecasts

Newton’s Tineke Frikkee is taking a more cautious view than consensus on UK dividends in 2012, forecasting growth of around 8% for the year.

This is 3% below recent forecasts for the market from Capita Registrars, which estimated UK dividends will rise 11% to £75bn this year after reaching record highs in 2011.

To reflect her more cautious outlook for the year, Frikkee has raised her cash weighting from zero to 5% on the £2.4bn Newton Higher Income fund.

“We would rather get results out of the way and have money in the bank. We have cut back some financials and companies with a bit more exposure to Asia. We have also reduced some of our smaller positions,” she said.

Frikkee said her less optimistic prediction is based on growth concerns for FTSE giants BP, HSBC and Barclays, as well as for the UK mining sector. “The biggest risk to our forecast will be if our view on HSBC’s dividend is too high or our BP forecast is too low,” she said.

Back in September, the manager switched out of long-term higher yielding stocks for lower yielding names with better upside opportunities. She also moved to cut her fund’s dividend target by 20%-25%, and is on track to achieve this in 2012.
Frikkee has subsequently made other changes to the fund and describes her approach as “more flexible within the high yield universe”.

“We have reduced some higher yielding stocks in the riskier part of the market but have increased our weighting to some higher yielding stocks in more defensive areas,”  she said.

“Overall, our investment decisions since September have been focused on limiting downside risk by reducing our portfolio beta from 0.8 to 0.7,” she added.

“We will still participate in rallies but we will not be the best fund when the market goes up, although we will do well when it goes down. That up and down pattern will continue, and a beta below one is very important.”