OFFSHORE SUPPLEMENT
31 March 2020
CHARACTERISTICS OF A QUALITY DIVIDEND-PAYING COMPANY
ROBIN HARTSLIEF Investment Professional, Marriott
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lobally, concerns around low Fulfil a basic need growth, low interest rates, Fundamental to predictable a potential recession and dividend growth is a product offering intensifying geopolitics have increased that forms part of our day-to-day market volatility and dampened lives. From pet food to nappies, these investment returns. This has made companies offer goods and services investors increasingly anxious about that form an integral part of our the long-term outlook of their daily lives. Due to the nature of their investments. products, future dividend prospects Marriott feels this need not are largely unaffected by changing be the case if one is invested in economic conditions, technologies and quality companies – ones that offer trends that are difficult to predict. compelling, reliable long-term returns and are generally resilient to market Strong brands cycles. In particular, large, wellWhy choose one product over established, blue-chip multinational another? More often than not it dividend-paying companies such as comes down to trust. Accordingly, Unilever, Nestlé and Coca-Cola. Marriott only invests in companies In the long run, when investing in with strong brands. Coca-Cola, for these types of companies, the biggest example, controls approximately 50% driver of capital growth is dividend of the carbonated soft drink market, growth. Thus, and Diageo is more predictable dominant when it dividend growth comes to the spirits WHEN INVESTING means more market. Customer IN THESE TYPES OF predictable loyalty created by capital growth. strong brands keeps COMPANIES, THE To demonstrate BIGGEST DRIVER OF competitors at bay, this, the chart ensuring reliable CAPITAL GROWTH IS dividends. With a below highlights Nestlé’s impressive global footprint, DIVIDEND GROWTH dividend track these companies record through numerous market are best able to capitalise on longcycles and how dividend growth has term trends such as consumerism, ultimately driven capital appreciation. ageing demographics and the fourth In our opinion, quality companies industrial revolution. such as these exhibit a number of characteristics that allow them Pricing power to produce reliable and growing These companies are market dividends over time with a high degree leaders in their industries and have of certainty. They also enable them to the best quality, strongest branded withstand the ups and downs of global products that are integral to the lives politics and changing economics. of their customers. This gives them We’ve expanded on five of these strong pricing power – the ability characteristics that ensure predictable to increase prices without losing dividend growth: customers.
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Growing markets Growing markets are very important for dividend growth. Consequently, many of Marriott’s international equities have meaningful exposure to emerging economies. Driven by economic growth in emerging markets, approximately one quarter of a million people join the middle class every day (Source: Boston Consulting Group). This is very positive for the dividend and capital growth prospects of consumer-facing multinationals with meaningful footprints in the developing world.
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Diversification The future prospects of welldiversified companies are not tied to the fortunes of one particular economy or dependent on the success of one particular product, making dividend growth more reliable. Johnson & Johnson, for example,
sells healthcare products in virtually every country in the world, ranging from plasters to medical devices and prescription medication. Unfortunately, nothing will stop short-term market volatility, caused by geopolitics and alike, from causing short-term share price volatility. In the long term, however, investing in companies which: 1) fulfil a basic need, 2) have strong brands, 3) enjoy pricing power, 4) sell their product in growing markets, and 5) are well diversified, are more likely to produce predictable dividend and capital growth.
