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Why Amazon and Apple aren’t in Marriott Offshore’s portfolios

Only companies that deliver consistent dividends make the list.
Visa, one of Marriott Offshore portfolio's preferred stocks, recently announced a 20% jump in dividends. Image: Shutterstock

Among the best-performing stocks of 2020 are Amazon, PayPal, Netflix and eBay, none of which are included in the Marriott Offshore portfolios. Nor does Apple make the list.

So what does it take to make it onto the list?

“These are great companies, and perhaps they’ll be included in our portfolios in the future, but we look for bullet-proof companies with strong dividend flows, companies that can withstand a lot being thrown at them,” says Marriott Investment Managers CIO Duggan Matthews. “We take a long-term view and select companies we are comfortable holding in our portfolios for 10 years or more. We’re happy to miss out on a few star performers like Apple and Amazon by sticking to our core investment philosophy.”

This strategy has served it well during the Covid-19 outbreak, with more than 90% of the stocks in the portfolios expected to maintain or grow dividends this year. Matthews expects an average growth in dividends of 4% this year from the portfolio companies, notwithstanding the impact of Covid-19.

Bedrock stocks

One of the bedrock stocks in the Marriott Offshore portfolio is Johnson & Johnson, which has increased dividends for more than 50 consecutive reporting periods. Visa, another preferred stock, recently announced a 20% jump in dividends, with Abbott Laboratories declaring a 12.5% dividend increase. Covid has been an opportunity for several of Marriott’s geldings: Abbott was quick to the market with a Covid-19 testing kit, and Microsoft Teams has added tens of millions of new users in recent months.

“The Covid crisis came out of nowhere and has been devastating for many investors, yet our portfolios have stood up well,” says Matthews.

“Quality companies have served our investors well over the long term and are proving to be equally beneficial for our investors through the current crisis.”

The table below shows the benefits of this approach over one, three and five years.

Source: Profile Data & Marriott

Marriott narrows down the universe of investible stocks by running them through a number of filters. Companies that are filtered out:

  • Small-cap companies
  • Companies that do not pay reliable dividends
  • Cyclical companies vulnerable to economic downturns
  • Companies in volatile industries, and
  • Those with weak balance sheets and expensive income streams.

This filtering process ensures only top-quality companies that can reliably grow their dividends through all stages of interest rate, business and economic cycles make it into the portfolios.

This means that more than a few supernovas don’t make the cut.

Cyclical stocks such as commodity, oil and gold shares are excluded, as well as tech companies at risk of being upended by competitors. Those that do make the list include fast-moving consumer goods stocks like Coca-Cola, Nestlé, Johnson & Johnson, Colgate-Palmolive and Proctor & Gamble.

The emphasis on companies that pay reliable dividends has proven itself over time. “In our opinion, companies of this nature are currently offering very good value as the differential between their dividend yields and the 10-year US government bond yield is the widest it has been in over 30 years,” says Matthews.

“An added benefit is that these dividends tend to grow over time, whereas the coupon from a government bond is flat for the term of the bond.”

Source: Bloomberg

Source: Bloomberg

Matthews says there is growing interest in offshore investing given the well-documented concerns about SA.

“Prior to Covid-19 the economic outlook for SA was not particularly compelling, so it is obviously much worse now. Given the limited pool of shares available on the JSE, offshore investing makes obvious sense for reasons of diversification and dividend growth.”

Investors can access these companies through Marriott in two ways, using their individual offshore allowance of R11 million per annum to invest directly into:

  • Marriott’s direct offshore share portfolio (International Investment Portfolio), or
  • Marriott’s international unit trusts.

Marriott also has an asset swap capacity to invest in its local feeder funds which invest directly into its international unit trust funds.

Brought to you by Marriott Investment Managers.

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COMMENTS   1

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Should we compare $1000 invested ten years ago in Apple versus this fund?

If they had looked at Apple ROCI and operating cashflow in 2010 they could have foreseen that the dividend per share in 2020 will exceed the share price of 2009.

Above 30% ROCI for the last 15 years or so

I get most of their logic but the first filter should be return on capital invested followed shortly thereafter by operating cashflow per share. There is simply no logic to investing in a slowly drying up milk cow. It ends up looking like GE, AT&T and IBM. What was this fund’s growth in dividend compared to Apple’s growth in dividend? Visa was a good call though.

End of comments.

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