Simplifying offshore investing - Invest in companies that produce reliable and growing dividends

The importance of a predictable investment outcome cannot be overemphasised in the current environment. Making the right investment decisions today requires having a reasonable expectation of how investments are likely to perform in the future. Expensive markets and an economic growth outlook of approximately 2% in South Africa suggest investors may be disappointed with returns from local equities in the years ahead. Given this outlook, investors would be wise to take advantage of the attractive yields on offer from some of the largest and most recognisable companies in the world. The complexity of investing offshore, with many unknowns, numerous choices and volatile currencies, can be overcome by investing in companies that pay reliable and growing dividends.

The chart below highlights the attractive yields of a selection of quality international companies compared to the yield of the South African All Share Index.

At Marriott, we strive to simplify investing by ensuring consistent and reliable dividend growth from our investments through a security-selection process which filters out securities where future dividends are hard to predict. This filtering process minimises a number of uncertainties, ensuring equity investments deliver reliable and growing dividends into the future, which ultimately translates into predictable capital growth. The charts below illustrate how capital growth follows dividend growth over time:

The offshore companies which have made it through this filtering process, and which we believe will serve investors best in the years ahead, are highlighted below:

Source: Marriott

The companies above are easy to recognise: consumers globally use their products and services on a daily basis. For example, Nestlé and Colgate-Palmolive control around 44% and 45% of the instant coffee and toothpaste markets respectively, and Kellogg’s is dominant when it comes to breakfast cereals. Unilever, with over 2 billion customers, is also a market leader in a number of product categories; and, being in the business of baby skincare for over 100 years, Johnson and Johnson is trusted by mothers all around the world. The future dividend prospects of companies of this nature are largely unaffected by changing economic conditions, technological advances, and trends which are difficult to predict. More predictable dividend growth means more predictable capital growth over the long term.

In summary, the importance of a predictable investment outcome becomes significant in the current environment. By restricting one’s investments to reliable and growing dividend payers, investors will be able to ensure a more predictable outcome when investing offshore, thereby enhancing one’s investment experience and outcome.