High-yield stocks weather the storm
When stock markets flounder, companies that pay high dividend yields are often a better bet than other stocks.
Despite the financial turmoil and uncertainty about the Greek and Italian economies, Danske Invest’s Europa Højt Udbytte high-yield fund finds itself in relatively sheltered waters. The fund concentrates on companies that pay large dividends to their shareholders, and this type of company generally performs better when the markets are rocky.
“An uncertain market is generally a favourable climate for high-yield stocks,” says Peter Nielsen, chief portfolio manager at Danske Capital, which advises Danske Invest on the fund. “These are generally large, well-consolidated businesses with stable earnings that are able to pay out a regular share of their profits as dividends. Under other circumstances, investors would normally be more interested in growth stocks than high-yield stocks.”
32 stocks
The fund currently consists of 32 stocks selected on the basis of three main parameters: development potential, business quality and share price. Nielsen and his colleagues also attach importance to a significant slice of the return on the fund’s investments stemming from companies’ dividend payouts.
“We always say that we want our companies to offer both security and growth potential,” says Nielsen. “We need a degree of protection in bear markets, but the composition of the portfolio must also ensure that we keep up once the markets recover.”
Benefits whatever the state of the markets
Nielsen is keen to stress that high-yield stocks have benefits whatever the state of the markets:
“An investment in high-yield stocks gives investors a regular cash payout which is theirs and cannot be taken away from them whatever happens in the markets.”
One example of a company that has consistently paid investors a high dividend yield is Metso, a global manufacturer of machinery for the mining and paper industries which has also built up a substantial service operation for its products.
Last year Metso paid out 5.5% of its share price in dividends, and Peter Nielsen expects at least the same level this year too.
The fund returned 9.3% in October, which was above-average for the European market, leaving it down 8.0% year-to-date.
