Quality companies for a successful investment outcome
Our investment philosophy is to buy high quality, diversified and resilient companies with a history of paying reliable and growing dividends. We take a long-term view and select companies we are comfortable holding in our portfolios for 10 years or more.
This strategy has served our investors well over the long-term and is proving to be especially beneficial for our investors through the current COVID-19 crisis.
We apply a stringent filter process when selecting companies for our portfolios. This ensures we hold only top-quality companies that can reliably grow their dividends through all stages of interest rate, business and economic cycles for a successful long-term investment outcome. The diagram below outlines how the filter works
The companies that make it through the filter process tend to be market leaders with strong brands, robust balance sheets, reliable cash flows, and produce goods or services that are integral to the lives of their customers. These are qualities that are often under-appreciated when times are good but become increasingly valued in times of economic uncertainty. Johnson & Johnson, for example, was able to increase its dividend by 6.3% in June, representing a 58th consecutive annual increase.
Source Bloomberg
In an environment characterised by low interest rates, companies that are able to grow their earnings, and produce reliable dividends, are an attractive long-term proposition.
• Attractive Dividend Yields
We only invest in companies that pay reliable dividends. In our opinion, companies of this nature are currently offering very good value as the differential between their dividend yields and the 10-year US Government Bond yield is the widest it has been in over 30 years. An added benefit is that these dividends tend to grow over time, whereas the coupon from a Government Bond is flat for the term of the bond. The below highlights the weighted average dividend yield (3.1%) of the international equities held in the Marriott portfolios, compared to the 10-year US Government Bond yield (0.5%).
• Resilient Dividend Growth
Our income focused investment style emphasises multinational companies which are resilient in nature and offer timeless products and brands. As such, we anticipate that 90-100% of the businesses we invest in will either maintain or grow their dividends in 2020 despite the current uncertainty.
Below are details of just two of the companies we hold in our international portfolios:
|
Company |
Dividend Growth |
How they are successfully navigating the COVID-19 crisis |
|
VISA |
Up 20% |
Visa, the number one global credit card network, has recently been included in the Marriott portfolios. The company benefits from high incremental margins, low capital expenditures, and high free cash flow. In the 2019 financial year Visa processed over 138 billion transactions to the value of $11.6 trillion – more than MasterCard, American Express, JCB and Diners Club combined. Their business model, global presence and market dominance enables the business to produce high and stable EBITDA margins approaching 70%. Since the start of the crisis, VISA has experienced a massive increase in digital transactions with millions of consumers moving to e-commerce for the first time. |
|
Abbott Laboratories |
Up 12.5% |
Innovation, together with the ability to adapt quickly, will always be a key attribute for successful companies. A good example of a company demonstrating this characteristic is Abbott Laboratories, who were able to design a COVID-19 test for their portable ID NOW testing instrument. With this fast, molecular point-of-care test, results can be delivered in as little as 5 minutes. Just as importantly, it is portable and can be used outside of traditional hospitals in locations such as doctors’ rooms and clinics. |
Source Bloomberg
Investors can access these companies with Marriott in two ways:
• Using their individual offshore allowance of R11 million per annum to invest directly into:
o Marriott’s direct offshore share portfolio (International Investment Portfolio), or
o Marriott’s international unit trusts
• Using Marriott’s asset swap capacity to invest in our local feeder funds which invest directly into our international unit trust funds
