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Newton cuts divi on Higher Income fund by 20-25%
by Dylan Lobo on Sep 07, 2011 at 10:21
BNY Mellon Asset Management has rationalised its UK equity range by merging away two funds, and has cut the dividend target on its flagship Higher Income fund .
Newton said it had taken the decision to rebase the dividend distribution on Tineke Frikkee's Newton Higher Income in response to the challenging market environment, characterised by low returns and low yields across asset classes, which means the current dividend payment is unsustainable.
It said a more realistic payout is estimated to be around 20%-25% lower than that made over the last 12 months.
The change will give Frikkee the flexibility to invest across the spectrum of UK equities.
Newton chief investment officer Jeff Munroe said: 'The US Federal Reserve’s indication last month that they plan to hold interest rates at near zero through to mid-2013, has reaffirmed our belief that unprecedented low interest rates will remain. This reflects the deleveraging and low growth environment that the developed world is experiencing. Companies will therefore find it more difficult to provide dividend payments in line with those they were able to deliver during periods of strong global economic growth. '
He added: 'In this environment supporting the current dividend level would increasingly affect the Newton Higher Income Fund’s overall return to investors. The change will give us increased flexibility to invest across the spectrum of UK equities. The fund will have access to a wider range of high quality companies paying dividends that are higher than the average in the UK equity market, and also provide greater potential for capital growth.'
15 years of dividend growth
The £2.5 billion Higher Income fund has one of the strictest yields disciplines among its peer group and has attracted a strong following on this basis. Over the last five years the fund has yielded 4.6%, 5.7%, 7.2%, 7.6% and 7.9% on an annual basis.
While IMA rules require income funds to yield 110% of the FTSE All Share Newton has traditionally gone beyond this, only targeting stocks that generate more than 115% of the yield of the All Share.
Newton has always taken great pride in its track record and strict discipline. Frikkee recently said the fund remains on track to deliver 3% annual dividend growth in the year to the end of June 2011, which would 'maintain its excellent record of growing its income for the past 15 consecutive years.'
'This contrasts markedly with the 10% decline in UK market dividends paid during 2008 and our previous forecast of a 10% decline in UK market dividends in 2009,' Frikkee explained.
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