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05 April 2012  |  1760 views  |  0

Trusted consumer staples offer stability to investors

When we talk about consistency in people, the associated traits might include trustworthiness, dependability and “knowing where we stand”.

We assemble our UK Dividend Achievers Index based on stocks that have consistently increased their annual regular dividend payments for the last five or more consecutive years.

Trusted brands known and used in every household in the UK have been among some of the most consistent, dividend-yielding stocks over the past year. These are a perfect solution for risk averse investors looking to draw a steady income and be able to manage domestic budgets without fear of being caught out by market volatility. It makes sense that they are drawn to consumer staples that will deliver consistent returns.   

Household names therefore make up a large part of the index, which is headed by telecoms giant Vodafone and includes companies such as SABMiller, Diageo, Unilever, Tesco and Reckitt Benckiser Group, producers of Dettol and Clearasil.

This does mean that some of the one-off block buster yields - often used to hide a deeper malaise within a company - are omitted. Volatile financial services stocks which peak one year but fail to grow the next are not considered. The index is quantitative in its approach and is designed to offer a less volatile alternative to indexes like the S&P 500 Dividend Index or FTSE Dividend Index.

 It is a conservative approach and it works. Our consistent dividend-paying stocks index produced an annualised return over the 12 months to January 31 of 5.32%, out-performing its MSCI benchmark by 3.81 percentage points. It has also produced an impressive return of 21.86% over the past three years, 3.2 percentage points above its benchmark, according to back-tested data.

 It is a model which has been tried and tested in other markets; for example, our US suite of similar indexes, the family of Mergent Dividend Achievers indexes, identifies companies with a proven track record of consistent earnings growth and strong cash reserves over a ten-year period.

The stocks that succeed are, quite simply, well-run companies that tend to offer attractive capital appreciation in addition to their consistent dividend yields.

Where sporadic dividends often attempt to cover over hidden managerial defects, on the other hand, consistent payments reflect well on company management and performance. Hence, discerning investors are not only benefiting from a stable income stream by focusing on consistency, but benefitting from the long-term capital appreciation of a truly prudent investment strategy.

The UK Dividend Achievers Index gives investors the best of both worlds in a global economic climate that is anything but dependable.


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