Investors looking to build a diversified portfolio with an emphasis on income ought to look at Henderson Far East Income (HFEL), an investment trust which is currently yielding more than 8% and has raised its dividend annually for the last 15 years.

While Asia may not occur straight away as a predictable source of cash flows and income, profits and dividends have been growing strongly and the region is expected to grow faster than the rest of the world this year.

Structural reforms put in place since the crisis in the late 1990s mean Asian economies and companies are on a much better footing than in the past with stronger balance sheets and low levels of unhedged foreign debt.

Combined with high margins and positive economic growth, the dividend growth story has become an intriguing one for investors, according to manager Mike Kerley.

‘Asia is hugely diverse with hundreds of strong dividend-paying companies to choose from. Given they tend to be under-researched relative to other stock markets, it presents hidden gems for actively managed trusts such as Henderson Far East Income to find,’ he says.

Dividends in Asia are expected to rise by 8% to a record £333 billion in 2023, yet companies are still quite conservative in their financial management with pay-out ratios (the percentage of net income paid in dividends) averaging just 39% versus 47% for the rest of the world over the past five years, meaning there is ‘plenty of wiggle-room to grow’ says Kerley.

In the past few months, the trust has reduced its exposure to Taiwanese technology stocks, after weak results in the sector pointed to an oversupply of chips and falling margins. It has added a Chinese consumer goods company and a copper miner, which was neatly timed given the strong run in the copper price of late.

The trust currently has close to a one-third weighting in financial stocks, which pay good dividends and are benefiting from rising interest rates, followed by a 14% weighting in telecoms, a 13% weighting in real estate and an 11% weighting in energy.

Unusually for a Far East-focused trust, China isn’t the key focus: on a country basis, just over one-fifth of the portfolio is invested in South Korea and a similar amount in Australia, with China accounting for less than one-fifth of assets.

The trust has a 1.01% ongoing charge, trades at a small premium to net asset value and has recently broken out of a multi-year downward trend which suggests investors should look sooner rather
than later.

‹ Previous2023-01-26Next ›