Colin Morton is the lead manager of Franklin UK Rising Dividends Fund. Edmund Greaves learns how the fund looks for companies that are reinvesting in their own business but also growing their dividends
What is Franklin UK Rising Dividends trying to do?
The fund is trying to invest in companies that have a proven track record in growing their dividends for a reasonably long period of time.
Franklin UK Rising Dividend Fund aims to provide a growing level of income, together with capital growth.
What do you look for in companies you buy?
We start with the FTSE All-Share index. We then screen down by identifying companies that have increased their dividend in at least eight out of the past 10 years.
We’re also looking for companies that pay around two-thirds or less of their earnings as dividends. We want companies that are reinvesting a reasonable amount of money back in the growth of the business.
We don’t want a portfolio full of companies that are paying out all their earnings as dividends because then they’re not reinvesting in the business.
What have you bought recently?
The one thing we have bought in the past few months is Victrex, a UK-based manufacturer of a product called Peek, which is a compound used in a wide range of industries from automotive to aerospace and medical.
This company has been around for 20 or 30 years and has a phenomenal track record. It generates lots of cash and has grown its dividend every year for the past 15 or 20 years.
The stock had a bit of a sell-off amid fears of global growth. We got a chance to buy 30% below where it was trading in the middle of last year.
We think this is a really good-quality, long-term UK manufacturing business, and we bought it on an attractive dividend yield of close to 4%.
What have you sold?
Last summer company Greggs had a couple of profit warnings and the stock fell from around £14 to about £10, so we bought stocks planning on holding it for the next three to five years if we could, but the valuation in our opinion got far too expensive, the stock rose from £10 to £18 when we sold it.
It’s had a lot of publicity on the back of the vegan sausage roll. That sounds a ridiculous comment to make, but it certainly helped. We decided to sell the position and take an incredibly attractive profit in a very short period of time. That’s very unusual for us.
“Greggs’ vegan sausage roll got a lot of PR. That helped”
What has been your best investment decision?
Dunelm has been an absolute stunning performer for us. We had an unbelievable opportunity to buy that last summer, while everyone was so negative on the UK high street and the retail environment generally, and obviously all the Brexit worries.
If you’re brave enough to be patient with those opportunities that come along, the best decisions for the fund tend to be buying things that have got very good, long-term track records but are out of favour in the market.
And the worst investment decisions with the fund?
The one that we got wrong recently has been IG Group, the financial derivatives trading firm.
The company has got a great long-term track record. It’s grown its dividend; it’s very well financed; and it’s very well run.
But in Spring 2017, the regulator really started getting its teeth into financial derivatives trading firms.
In December 2019 the FCA proposed permanent measures that banned the sale of binary options to retail consumers and restricted the sale of contracts for difference (CFDs)]. It’s probably going to make something like 30% less money than last year.
What’s the first thing you ever personally invested in?
I made my first personal investment around 1984, when I was about 18 years old.
I was working for a stockbroking company and was investing in small companies, so-called ‘penny stocks’. I was investing small sums of £100 to £200.
Once I started managing money myself, I invested in my own funds because it makes it much easier to align your own interests with the interests of the people you’re investing for.
What’s your top tip for a beginner investor?
Invest in something you know. And if you haven’t got enough money to have a spread and diversification of individual companies, you should be looking at investing in a fund.
Because just to pick up on one or two companies, however great you might think those businesses are, is quite a dangerous thing to do.
Franklin UK Rising Dividends key stats:
Launched: October 2011
Fund size: £85.48 million
Source: FE Trustnet, 28 March 2019
The manager behind the fund
Colin Morton is a vice president and lead manager of the Franklin UK Equity Income Fund and Franklin UK Rising Dividends Fund, specialising in large-cap UK equity analysis and investment.
Mr Morton began his career in 1983 as a trainee stockbroker with Wise Speke & Co. He joined Rensburg in 1988 as a private client executive, becoming an investment manager in 1991.
In January 2011 he joined Franklin Templeton Investments when it acquired Rensburg Fund Management (now Franklin Templeton Fund Management).
Five-year discrete performance of Franklin UK Rising Dividends
|Year||0-12 months||12-24 months||24-36 months||36-48 months||48-60 months|
|Franklin UK Rising Dividends W Acc||8.4||-0.9||20.7||0.3||14.2|
|IA UK All Companies||3.1||2.3||18.4||-3.8||6.8|
Source: FE Trustnet March 2019