Stock picks for 2013 - Solid performers give great income
Marriott believes that an investment strategy based on a bottom-up selection of companies that will be resilient to unexpected events, is likely to produce a more predictable outcome. Selecting shares which generate reliable income streams and which are resilient to unexpected events is likely to produce a more predictable outcome, to the benefit of the retired investor. These companies tend to focus on basic necessities, enjoy global or countrywide distribution, have strong balance sheets and in many ways are distinctly independent of their home economy. By the nature of their business, they will be largely unaffected by broad governmental, political and economic decisions. They tend to fare well in both recessionary and growth phases of the economic cycle and are seldom at the mercy of a new idea, trend or fashion. Their products are generally everyday necessities, with market dominance a function of their brand.
Great companies you will see in a Marriott portfolio
Proctor & Gamble
P&G provide products that are used daily in homes around the world. 25 billion batteries are consumed every year and P&G’s subsidiary Duracell is the world’s leading manufacturer. P&G’s Gillette has 70% of the global market for razors and blades. Every day, at least a billion people use a P&G product, many of which have been market leaders for decades. With manufacturing plants all over the world, P&G is a giant in the global consumer product market.
Johnson & Johnson
Johnson & Johnson is a global manufacturer and distributor of pharmaceuticals, medical supplies, and dozens of everyday brand name consumer products. Having been in business since 1886, many people grew up with Johnson’s baby products. The company’s consistent performance has enabled it to generate an exceptional track record that few, if any, companies can match: 29 consecutive years of earnings growth and 50 consecutive years of dividend increases.
With over 8,000 brands, Nestlé probably owns more brands than any other company in the world. From Kit-Kat to Cremora, the company sells over 1 billion products a day in 130 countries. This unrivalled portfolio of brands allows Nestlé to be a part of the day-to-day lives of people in every corner of the globe.
SABMiller is the world’s second largest brewer. It bottles and distributes beer worldwide and owns many of the premium international brands.
Spar is South Africa’s third largest food retailer. Over the past 40 years, domestic food inflation in South Africa has averaged 11% p.a. With food being one of our most basic necessities, Spar has been able to pass on food price increases without sacrificing margins or turnover, and boasts an impressive dividend track record.
Clicks has the largest retail pharmacy chain in South Africa with over 300 in-store dispensaries. Like food, pharmaceuticals are a basic necessity.
What these companies have in common are trusted global brands and products that are basic necessities. It is understandable that they remain largely unaffected by macro events. The charts below show the dividend track records of P&G, Johnson & Johnson, Nestlé, SAB, Spar and Clicks: The charts below show the dividend track records of these counters:
However, not all great companies have the ability to produce predictable dividends
There are many global companies with powerful brands and coveted products, which are not in the Marriott portfolios. We narrow down the choice of securities by selecting only those with a consistent and reliable dividend track record over a reasonable period of time and those which are attractively priced. Thus, although widely regarded as successful companies, with inconsistent earnings companies such as Apple, General Motors or Anglo American are not in our portfolios.
Reliable dividend payers also tend to outperform over the long term
Many investors think of reliable dividend payers as stodgy, uninteresting companies that produce mediocre returns. This, however, is not the case. Studies have shown that companies which pay dividends, and grow them, outperform the market over the long term.
The table below highlights the annualised total return of Johnson & Johnson, Nestlé, Proctor & Gamble and the S & P 500 index for the past 20 years.
Offshore companies are offering best value
While the dividend yields of SA companies that produce reliable income streams remain below their historic averages, first world companies like Proctor & Gamble, Johnson & Johnson and Nestlé are offering attractive dividend yields. The chart below highlights the current dividend yields of a selection of first world companies relative to yields 12 years ago:
Based on current valuations it is possible to invest in a portfolio of some of the largest and most recognisable companies in the world on a yield well in excess of the current yield of the JSE All Share Index. These attractive valuations afford investors the opportunity to improve the overall quality of their personal portfolio by increasing their offshore exposure.
With regard to local equity exposure, notwithstanding demanding valuations, choosing companies with predictable dividends will serve investors best. This will ensure the overall portfolio’s resilience to unexpected events.
This release has been issued on behalf of Marriott Asset Management
FOR MORE INFORMATION CONTACT:
Marriott Asset Management:
Bronwen Matthews Head of Marketing on telephone: 031 765 0736
031 765 0700
Shirley Williams Communications
Shirley Williams 031 564 7700 or 083 303 1663
Gillian Findlay 082 330 1477
About Marriott Asset Management
The Income Specialists aim to reduce financial anxiety of retired investors by offering Solutions for Retirement, using an Income Focused Investment Style which produces reliable and consistent monthly income.