Look beyond financials for dividends, says Pictet's Lippens

As appetite in Europe for dividend funds grows, Pictet’s Bruno Lippens believes the best way to generate high yields is to avoid the previously leading dividend-paying sectors such as financials and energy.

Lippens said the Pictet High Dividend Selection fund, which launched in May this year and he runs alongside Hans Peter Portner, has no investments within financials and energy - traditionally the dominent dividend-paying sectors - due to their highly cyclical nature.

Instead, the global fund focuses around two thirds of its portfolio on utilities, with the next largest allocation being in telecoms. It also has exposure to emerging markets, both through the infrastructure sector and through currencies.

‘The emerging markets infrastructure sector is going to grow faster than the developed market as there is more demand,’ says Lippens. ‘There will be growth over the next few years but we are never going to compromise on our yield target.

‘We are sure that the global basis of this fund is not going to destroy the attractiveness of this type of investment.'

With his fund's dividend yield target set at 6%, the manager says a stock does not make it into his universe if it returns less than 3% and a large proportion of those are US firms.

However, Chinese holdings like China Mobile and Hong Kong Electronics offer decent yields, leading Lippens to dismiss rumours that the Chinese government plans to cut down on its infrastructure spend.

‘There is a risk but it is never going to materialise over the long run. The stupidest thing these [emerging] countries can do is kill these companies. If you are a government you can squeeze a project once, but this also guarantees investors will never return.’

Like Citywire A-rated DWS manager Thomas Schüssler, Lippens thinks dividends will become the dominant drivers of returns from equities in the coming years.

‘An analysis of the data for the past 15 years reveals that around half of total return in equity investment comes from dividends. If you go further back, some figures even show almost 80% can come from dividends. Therefore, a high dividend yield significantly lowers the overall volatility of the total return’

‘If you’re patient enough the market will go up and you will be able to sell your stock but the overall driver is dividends.’