How One Money Manager Approaches Dividend Investing

Ben Lofthouse, manager of Janus Henderson’s Global Equity Income Fund, explains his strategy and stock picks.

Dividend stocks can act as a stabilizing force for your portfolio, offering regular income payments and the potential for capital gains.

Janus Henderson’s Global Equity Income Fund (HFQIX) invests in dividend stocks through regional rotation, focusing on whichever markets and industries offer the best opportunities for value stocks with lofty dividends.

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The fund has annualized returns of negative 4.22% for one year, 3.76% for three years, 2.81% for five years and 4.80% for 10 years, according to Morningstar. That trails the S&P 500 High Dividend Index.

TheStreet spoke to Ben Lofthouse, portfolio manager of the fund. He discussed its approach to dividend stock investing. The fund buys large-cap, value stocks.

It’s made up primarily of foreign stocks. Many of them provide a large dividend once a year, rather than quarterly like in the U.S., allowing more flexibility for getting in and out of the stocks. Foreign stocks also provide diversification for U.S. investors.

Money Manager Comments on Stocks

Here are Lofthouse’s comments, including stock picks.

TheStreet: What’s your investment philosophy?

Lofthouse: We’re large-cap, dividend-seeking, value-driven investors. Dividends are under-appreciated for their contribution to returns. The strategy works best when the underlying business has sustainable profits. So you’re being paid with dividends to wait.

The global nature of our portfolio diversifies it. We look for industry leaders that may be a bit out of favor – companies with competitive advantages. Most of our companies are pretty established, so their returns are predictable.

TheStreet: What are the advantages of your dividend strategy?

Lofthouse: Different countries pay off at different times. Our regional rotation strategy allows you to own sectors you like and avoid sectors you don’t. For example, we have avoided REITs recently because of the risks of higher interest rates.

TheStreet: What are the biggest risks for your strategy?

Lofthouse: The biggest risk with a high-dividend yield strategy is that you can struggle to capture upside in thematic markets. In 2021, tech stocks and covid beneficiaries led the market. That was tough for us, because many of those companies don’t pay dividends.

Sometimes there are themes that last a decade and are non-dividend, such as the period of low interest rates in the U.S. [2008-2022]. The plus side is we’re very unlikely to buy into a bubble.

TheStreet: Why do you invest primarily in foreign stocks?

Lofthouse: There’s a strong dividend culture in the U.S., but also a strong buyback culture. Looking overseas, a higher portion comes as dividends. Dividends are paid less frequently overseas, but in larger sums.

That means we don’t have to hold stock a full year to get the annual dividend. If a market goes sideways, dividends are a large part of return. There’s a certainty to returns that doesn’t rely on market movements. You’re also getting [quicker] compounding [on a bigger payout]. In addition, the emphasis on foreign stocks is designed to be a diversifier for U.S. investors.

TheStreet: How long do you generally hold your stock?

Lofthouse: At least 61 days to be qualified. [Qualified dividends are taxed at a lower rate than regular dividends, and mutual funds must hold the stocks for at least 61 days for the dividends to be qualified].

On average, we hold our stocks three months or longer, often for several years. When we enter a stock, we view it as a two-year investors and seek a 25% cumulative return.

Industries, Countries and Stocks Preferred

TheStreet: Are there particular industries and countries that you like now?

Lofthouse: We have quite an exposure to Europe, including the U.K. They had low valuations last year for a lot of global companies. We are intrigued by Asia. The opening in China could have a big positive impact on the rest of Asia.

Looking at industries, for pharmaceuticals, not very much [of their strengths] are priced in. They have high cash-flow yields, pricing power and are reducing debt.

Insurance is in a good cycle. Their prices are going up because of losses in the past. They are also benefiting from higher interest rates on their investments. Bank earnings are getting better, despite macroeconomic concerns.

TheStreet: Can you talk about two of your favorite stocks?

Lofthouse: Stellantis  (STLA) – Get Free Report, which includes Peugeot, Citroen and Fiat Chrysler. Earnings came out Wednesday, and profit margins are real high. That will allow aggressive investment in electric cars. The price-earnings ratio is only about 5, and it has a 7% dividend.

Unilever: Unilever  (UL) – Get Free Report is a good global brand. It’s going through a period of transition with a new CEO coming. It has good emerging-market exposure. That’s been a tough area for the last few years, but has good growth prospects long-term.

The company is well-positioned for long-term growth. The 4% yield is safe and should grow over time.

Both companies are good players in their fields, but not the best. People underestimate their competitive positions.  

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