UK dividend growth will disappoint in 2012, undershooting forecasts, investment trust manager Charles Luke has warned.
Luke, in charge of the £460m Murray Income trust, said current expectations of a double-digit rise in payouts are over-optimistic given the headwinds facing companies.
“The austerity measures could have a bigger impact in 2012 as they become more embedded in the economy,” said Luke. “As such, we believe dividend growth will be 9% this year, undershooting forecasts.”
A number of peers - including Newton’s Tineke Frikkee - have also sounded a note of caution on market forecasts, urging investors not to get carried away with their expectations.
Luke’s warning follows Capita Registrars’ forecast UK dividends will rise by 11% to £75bn this year. Much of the expected rise will be due to oil major BP reinstating its payouts following the Gulf of Mexico disaster.
Capita was also optimistic about the build up of cash on companies’ balance sheets.
Within his portfolio, Luke has turned to defensive companies across Europe, which he expects to be highly prized by investors in the event of a downturn in confidence and markets.
The manager has initiated new holdings in Nestlé and Schneider Electric to boost his exposure to companies which are global leaders in their respective fields, with pricing power to cope in the face of a downturn.
His move comes at a time when many investors are switching back into cyclical names, with valuations on some of the more defensive stocks near all-time highs.
He said: “The miners and banks have had a strong start to the year. The big risk rally has been like a survivors’ party - as some firms which have bounced looked like they were on the cusp of bankruptcy four months ago.
“But I am sticking with my defensive positions as they offer earnings dependability in an uncertain economic environment.”
The AIC's Nick Britton analyses the reasons behind the record amounts raised by ITs so far this year
Schroders' Rosemary Banyard asks if the continued outperformance of UK mid caps over their large-cap peers is due to structural or cyclical factors
With passive vehicles once again in the spotlight as the price war hots up, managers explain how they use the products and comment on the expanding smart-beta marketplace
A couple of weeks ago, I came across a new genre of internet TV called the 'Top Ten list' programme.
Jonathan Waghorn, co-manager of the Guinness Global Energy fund, explains why a supply/demand convergence is on the horizon.