Predictable dividends offshore in the most uncertain times

BY SCOTT COOPER Investment Professional, Marriott

In the past 12 months, the spread of COVID-19 has forced us to change the way in which we live our lives in order to protect ourselves and others. In a matter of weeks, office buildings and schools were closed, engrained daily routines set aside, and many interactions important to our mental wellbeing replaced by online applications.

These forced restrictions accelerated many changes which were already in motion, such as online shopping and working from home. The behavioural shifts led to a change in spending patterns, as consumer spending shifted towards online platforms and digital services like Amazon and Zoom. As a result, there were a number of winners and losers in international investment markets.

A number of stocks (such as airlines, energy companies and shopping mall owners) came under significant pandemic-related pressure during the year. However, the growth in online interactions was a major catalyst for strong returns in the S&P Information Technology sector, which surged almost 44% during 2020. Interestingly, three companies (Apple, Amazon and Microsoft) accounted for over 53% of the whole S&P 500’s total return in 2020.

If you removed the largest 30 stocks by market cap, the total return for the index was negative in 2020 – a stark contrast to the 18.4% total return delivered by the index as a whole. Although the technology sector was a clear winner in 2020, it has become increasingly expensive. For example, at the time of writing, Amazon is trading on a Price to Earnings ratio in excess of 80. At Marriott, our philosophy when managing our International Investment Portfolios is to build robust, global investment portfolios that will deliver reliable, long-term returns and a growing income stream for our investors. These portfolios are characterised by global, market-leading companies, with strong brands and a history of delivering reliable dividend growth over time. Further, it is vital that the equities within our portfolios are purchased at appropriate valuations. This approach has served our investors well, both in 2020 and over the longer term.

It is estimated that dividends declined by approximately 20% globally in 2020, as many companies held on to their cash to endure lockdowns. We are pleased to report that none of the offshore companies in which we invest cut their dividends in 2020, as highlighted in the chart.

On average, our offshore stocks managed to grow their dividends by approximately 6%, demonstrating the resilience of the companies in which we invest. From a capital growth perspective, the end results were also good, with our two international share portfolios – Income Growth Portfolio and Balanced Portfolio – delivering 10.9% and 10.3% in Sterling respectively, gross of investment management fees.

Our investment philosophy and filter process delivered what it was designed to deliver, when our investors needed it most: reliable income, low volatility and more predictable investment outcomes. Investors can invest in these stocks with Marriott in the following ways:

• Marriott's offshore share portfolio - International Investment Portfolio

• Marriott’s international unit trusts (using your annual individual offshore allowance of R11m)

• Marriott’s local feeder funds, which invest directly into our international unit trust funds (rand-denominated).