Aberdeen Asset Management’s head of North American equities Paul Atkinson is backing US blue chips over cyclicals to deliver dividend growth ahead of the market.

Atkinson, manager of the recently revamped £210m North American Income trust, formerly the Edinburgh US Tracker trust, has positioned a third of the portfolio in the defensively focused consumer staples, telecom and utility sectors.

The manager said the balance sheets of a number of defensive blue-chip firms, such as Johnson & Johnson, are the strongest they have been in 50 years, with high levels of cash. This will result in bumper dividend growth over the next couple of years, he predicted.

Atkinson added shareholders are set to be rewarded, as historically US dividend growth has lagged profit and earnings growth.  “Over the last six to 12 months there has been a realisation that US companies have got an enormous amount of cash on their balance sheets, which will result in higher dividend growth over the short and long term,” said Atkinson.

“Approximately 60% of the returns made in US equities have come through dividends being reinvested, which is a supporting backdrop for income investors in the region.”

The manager is shying away from cyclical sectors, most notably financials, amid concerns earnings growth could be stunted by risk aversion. The portfolio comprises just one bank holding, Royal Bank of Canada, as Atkinson is wary of the impact tougher regulation will have on dividend growth across the sector.

“One of the biggest problems facing the banks is they are now a lot more restricted when it comes to loaning capital, meaning the prospect of delivering a sustainable dividend which can grow through time is not a guarantee,” he said. Atkinson also has a 15% stake in corporate bonds within the trust, to profit from the high yields on offer within the space.