At Marriott, our investment philosophy is to buy high quality, diversified and resilient companies with a history of reliable and consistent dividend payments. We take a long-term view and select companies we are comfortable holding in our portfolios for 10 years or more. This strategy has served our investors well over the long-term and is proving to be equally beneficial for our investors through the current COVID-19 crisis, as highlighted by the good performance of our offshore portfolios shown below:
|International Investment Portfolio (IIP) – Total Return ending 30 September 2020 (Annualised)||1 year||3 years||5 years|
|IIP Growth Portfolio (Sterling)||5.5%||8.6%||12.6%|
|IIP Balanced Portfolio (Sterling)||5.6%||8.0%||12.0%|
Performance is gross of fees and withholdings tax. Total return based on target portfolios weightings. Source: Bloomberg
|International Unit Trusts – Total Return ending 30 September 2020 (Annualised)||1 year||3 years||5 years|
|Marriott First World Equity Feeder Fund Class A (Rands)||15.8%||11.5%||9.9%|
|Marriott First World Equity Fund Class A – Distributing (Sterling)||1.6%||5.4%||9.7%|
First World Equity Fund and First World Equity Feeder Fund (both are equity unit trust funds, holding a very similar portfolio to IIP – Growth). Source: Profile Data and Marriott
We apply a stringent filter process when selecting companies for our portfolios. This ensures we hold only top-quality companies that can reliably grow their dividends through all stages of interest rate, business and economic cycles for a successful long-term investment outcome. The diagram below outlines how the filter works and highlights the companies we believe are among the best dividend-paying companies globally.
The companies that make it through the filter process tend to be market leaders with strong brands and pricing power, boast robust balance sheets and cash flows, and produce goods or services that are integral to the lives of their customers. These are qualities that are often under-appreciated when times are good but become increasingly valued in adverse market conditions. It is exposure to companies of this nature that explains the resilience of Marriott’s equity-based portfolios.
The chart below demonstrates how Johnson & Johnson – a typical, quality Marriott holding – has managed to continue to deliver growing dividends for investors over time.
In an environment characterised by low interest rates, companies that are able to grow their earnings, and reliably return money to shareholders in the form of dividends, are an incredibly attractive proposition. Below we highlight why we believe these companies will serve investors well over the next decade.
We only invest in companies that pay reliable dividends. 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. 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. The below highlights the weighted average dividend yield (3.1%) of the international equities held in the Marriott portfolios, compared to the 10-year US Government Bond yield (0.7%).
Our income focused investment style emphasises multinational companies which are defensive in nature and offer timeless products and brands. As such, we anticipate that 90-100% of the businesses we invest in will either maintain or grow their dividends in 2020 despite the uncertainty stemming from the COVID-19 crisis. From a longer term perspective, we anticipate inflation-beating dividend growth in the region of approximately 4% per year.
The table below outlines some of the companies held in our international portfolios which have recently announced meaningful growth in dividends:
|Company||Dividend||How they are successfully navigating the COVID-19 crisis|
|VISA||Up 20%||Visa, the number one global credit card network, has recently been included in the Marriott portfolios for their market leadership position in particular. The company benefits from high incremental margins, low capital expenditures, and high free cash flow. In the 2019 financial year Visa processed over 138 billion transactions to the value of $11.6 trillion – more than MasterCard, American Express, JCB and Diners Club combined. Their business model, global presence and market dominance enables the business to produce high and stable EBITDA margins approaching 70%. Since the start of the crisis, VISA has experienced a "massive" increase in digital transactions with millions of consumers moving to e-commerce for the first time.|
|Procter & Gamble||Up 6%||Procter & Gamble have seen first-hand the benefits of a diversified product suite during these times. With government mandated lockdowns in place across the most of the world and an increase in working from home, their grooming products, which include Gillette as well as Venus, have experienced revenue declines. In contrast their Health Care and Fabric & Home Care categories saw organic sales increases by 9% and 10% respectively. This diversification has enabled them to grow overall earnings per share by 10% quarter-on-quarter.|
|Abbott Laboratories||Up 12.5%||Innovation, together with the ability to adapt quickly, will always be a key attribute for successful companies. A good example of a company demonstrating this characteristic is Abbott Laboratories, who were able to design a COVID-19 test for their portable ID NOW testing instrument. With this fast, molecular point-of-care test, results can be delivered in as little as 5 minutes. Just as importantly, it is portable and can be used outside of traditional hospitals in locations such as doctors' rooms and clinics.|
|Microsoft||Up 11%||It is clear that COVID-19 has accelerated digital transformation, whether it be remote teamwork and learning, or critical cloud infrastructure and security. This plays to another of our holdings strengths – Microsoft who, along with Amazon Web Services, are leading the cloud revolution. This helped to increase Microsoft revenue by 15% and operating income by 25% in the first calendar quarter of 2020, compared to the same period last year.|
|Texas Instruments||Up 12.5%||The ability to maintain robust profit margins, even it difficult times, is a key characteristic of Texas Instruments, another quality company we invest in. Although the semi-conductor industry came under pressure early this year during the Chinese lockdown, they were still able to produce a free cash flow margin of 40% in Q1 2020. This margin, which has stayed relatively constant over time, is superior to their major competitors, enabling them to generate more free cash flow and return much of it to investors.|