Speaking to InvestorDaily, Russell Investment portfolio manager Scott Bennett said while investors are continuing to flock to equities, investors need to ensure they look beyond yield to determine a stock’s worth.
“Yield only tells one part of the income story and investors need to be mindful of the ability to actually grow that dividend stream over time,” Mr Bennet said.
“I think it’s something that investors often ignore but we think it’s critical in terms of looking to generate an income stream used to fund a lifestyle.”
Mr Bennett said that in constructing the custom built index that supports Russell portfolios including the Russell High Dividend Australian Shares exchange-traded fund (ETF), he looks at three factors.
“A couple of key things we think all investors should consider whet they’re looking at dividend or income strategies… we look for forecasted dividend, not just over the next 12 months but the next three years.”
“Obviously we like companies that pay regular dividend so we look at the company’s dividend history over the last five years and how regular those dividends have been.”
“The third thing we look for is something that a lot of investors tend to not prioritise so much and that’s looking at dividend growth… so how those dividend have grown over time.”
Mr Bennett said that ETFs are beneficial for investors looking for returns as high yielding stocks tend to be the most valuable, making the possibility of “collecting that dividend” lower.
He said this “dividend trap” along with the lowering interest rate driving investors away from term deposits is likely to continue to drive growth into ETFs.
“Across our broad suite of ETFs we’ve seen tremendous pick up in terms of volume throughout 2013 and I think we kind of expect to see that continue to come on board just as investors are more willing now to take on a bit more equity risk in their portfolio,” Mr Bennett said.
