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Newton Higher Income Fund delivers four per cent dividend growth

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The Newton Higher Income Fund delivered dividend growth of four per cent over the third quarter, helping to disparage the general consensus that equity income funds will struggle to maintain their dividend levels in the current market climate.

According to the fund’s manager Tineke Frikkee (pictured), the portfolio remains on track to deliver three per cent annual dividend growth in the year to the end of June 2010, maintaining its record of growing its income for the past 15 consecutive years. 
 
“Yields in the IMA UK Equity Income sector have fallen in recent weeks following many other funds going ‘ex’ dividend at the end of June,” says Frikkee. “This is because equity income funds display a lag between the announcement of dividend cuts and the actual dividend income they receive. 
 
“For example, if funds had kept holdings unchanged over the course of the last year, they would have experienced significant reductions in income in August alone, with BT’s final dividend slashed by 89 per cent, HSBC’s second quarter dividend hammered down by 53 per cent and Standard Chartered’s interim dividend cut by 13 per cent. In September, interim dividends from Rio Tinto and Legal & General were down by 100 per cent and 55 per cent respectively over the year while in October, we expect Rexam to ‘can’ its interim dividend entirely.”
 
However, the Newton Higher Income Fund is relatively insulated from such issues, says Frikee.

“While this sort of lag can easily jeopardise the yields published by UK equity income funds, we’re able to avoid such pitfalls because we only employ our own proprietary dividend forecasts and carefully model our income projections. This is central to Newton’s approach as we only ever invest in stocks which yield more than the wider market. It’s also why we’ve been able to steer around the worst dividend cuts of the last year.”

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