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Investment Strategy
Tuesday, July 1, 2008
Switching over

Simon Pearse, CEO of Marriott, believes that so-called ‘mega-cap’ stocks are the next big thing for offshore investors. “I believe that this sector has a good five years to run.” Specifically, Pearse points to large cap companies of the developed world: America, Britain, Europe.
“At Marriott, our investment philosophy has always been to focus on stocks with above-average dividend yields and reliable growing dividends. If you identify a good company that provides reliable growing dividends it’s unlikely to let you down.”
He notes that some of the biggest companies in the world are on extraordinarily high dividend yields, some are at their highest level in 20 years. “We really think that is the opportunity.”
Bank of America is an example of such a stock. This company has a capitalisation of $170bn, which equates to about 25% of the JSE Securities Exchange. Over the past 27 years, Bank of America has grown its dividends by some 13% a year and, unsurprisingly, the share price appreciation has been 15% p.a. Today an investor can buy that income stream on a 6.8% dividend yield. This compares with a South African market dividend yield of a mere 2.5%.
Another example would be General Electric. With a capitalisation of $330bn, that is 50% of our stock exchange, it is an enormous business. GE dividends have grown at an annual rate of 12% for the past 27 years and it is currently on a dividend yield of 3.4%.
Global bank HSBC is now on a 5.7% dividend yield. “This company has grown its dividends by 17% p.a. over the past 17 years and the share price appreciation has been 18% p.a.,” notes Pearse. “We would rate this as very, very cheap.” HSBC has weathered the sub-prime crisis better than many other global banks, proving Pearse’s assertion that “if you find reliable income streams in the large companies and you buy them on good dividend yields they won’t let you down.”
Investors are encouraged to look for value. With mega-cap dividend yields in developed markets at their highest levels in 20 years, they offer investors the potential for juicy returns over the next five years.
Pearse believes his is the right strategy. He correctly identified an overheated international property market after a seven-year bull run, and closed the Marriott International Real Estate Fund at the end of 2005. Investors in the fund were urged to switch into equity funds and those who did saw a 28.37% return, which is 15.27% higher than returns in the International Real Estate Fund. Recent volatility in real estate global markets for the year to date have resulted in US listed Property down 16.5%, and UK Listed Property down 37.2%, for example.

Copyright © Insurance Times and Investments® Vol:21.6 1st July, 2008
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