Fund Focus: Henderson Opens a Window on Better Dividend Yields Outside the U.S.


Many of the fund managers I've met have lived and breathed finance ever since they were in college if not earlier. Some even bought their first stock before they grew hair under their armpits, usually with money saved from their allowance or a summer job.

But Alex Crooke, the British fund manager of the Henderson Global Equity Income Fund (HFQAX), which picks global stocks in a manner that's sensible enough to make any investor think hard about how much money to keep in the U.S. at turbulent times like these, did not grow up with money on his mind.

Crooke was an astrophysics student at Manchester University in the UK before he decided against isolating himself on a remote island with only his telescope to talk to. When he left college in 1990, he took the math he had learned in astrophysics and applied it to his first job as an analyst covering the U.S. stock market for at the Equitable Life Assurance Society of the UK.

He was never thrilled with what he saw in the U.S. For starters, not as many American companies paid dividends as did European and Asian ones. "The U.S. sort of lost its way from the mid-80s onwards. Management paid itself endless options and, therefore, is generally fixated on generating a higher share price and not often thinking about generating a total return to shareholders."

So in 1994, he panned his telescope across the rest of the globe and went to work as a portfolio manager at Henderson Global Investors, an asset management firm in London that now manages about $10 billion in assets. He found that on average, more companies outside the U.S. paid dividends. Also, he found that the best-run companies focused on making sure they had enough cash left over after paying management and reinvesting it in the company to pay dividends. He saw them as a better long-term bet than American ones simply because they were likely to have enough cash on hand to stay in business come hell or high water.

In December 2006, Crooke started using his craft as a portfolio manager of the newly launched Henderson Global Equity Income Fund, an SEC-registered mutual fund that is open to U.S. investors with a low $500 minimum initial deposit. With $652.4 million in assets, the fund invests all over the world but only buys companies that pay dividends.

"You are in a subset of companies that generate cash and, therefore, that is a better form of company than one that is consuming capital in the hope of generating cash," says Crooke. "It's a safer way of investing, really."

To pick stocks, Crooke uses a financial ratio called dividend yield, a reliable indicator of how much cash flow an investor gets in return for every dollar invested. This is calculated by dividing a company's dividend by its share price. The idea is to strike the right balance between high dividends and low stock prices.

Since the fund started, Crooke has harvested some of the best dividend yields in Challenger Financial Services Group (ASX:CGF) of Australia, Asia Cement (1102.TW) of Taiwan, and Centrica PLC (CNA.L), a British natural gas company.

Crooke has big plans for the Global Equity Income Fund. "When you look at 30, 40 or 50-year studies of market returns, it's the stocks with dividend yield, and the investment of that income, that generates half of the returns," he says. Since 2006, the average dividend yield on the fund is 4% to 5% a year, says Crooke.

For the 12 months through May 27, the fund is up 5.95%, which was 0.79 percentage points behind its benchmark, the MSCI EAFE index, which covers markets in Europe, Australasia and the Far East. Over the past three years, the fund is down 8.79%, but was still 3.94 points above the index.

The fund is a clear example of income investing, which is all about buying stocks that provide a steady stream of cash. Income started to look a lot more interesting than other equity strategies in May when the stock market became about as predictable as the Spring weather.

Another element of stability in this fund is that focuses on established businesses and avoids investing in new issues. "We haven't had anything blow up on us," says Crooke. "We don't like losing money. That's the golden rule."

Originally published