He said the hunt for yield would be tougher this year because a lot of cyclicals and industrials which pay out a fixed ratio of net earnings are likely to see their earnings fall as commodity prices increase.
"I do not expect special dividends to be repeated and so we will be sticking away from those companies and focusing on stable growth companies."
Stout currently has between 15% and 17% of his fund in UK companies; a percentage he said is much lower than historically.
"Ten years ago it would have been 40%, but the last 10 years has seen a big reduction in genuine opportunities in the UK. The whole financial sector has been wiped out, apart from Barclays. Then there is HSBC and Standard Chartered, which are not truly UK companies. Any funds that are constrained and have to be in the UK, if they are seeking a secure yield will have to own certain stocks in the FTSE regardless of the business, which is not an ideal situation."
Under his mandate Stout said he has choice and does not have to be invested anywhere in particular, which allows him to pick at the company level, rather than the sector or country level – a strategy Aberdeen uses across its funds.
To this end he is encouraged by the changing dividend culture in Asia and to a lesser extent the US.
Gradual shift
"15 years ago you would be lucky if you got 1% yields in Asia, today yields of between 4% and 5% are not uncommon and that dividend growth is supported by free cash flow and the fact Asian companies are embracing the culture of rewarding shareholders.
"Some companies in the US are beginning to adopt that strategy but it has been slower there than elsewhere, which is partly to do with the structure of the market – tech companies are capital intensive and need to reinvest revenue to innovate. What’s slightly more difficult to understand is where you do get companies or strong expectations of dividend growth and they favour share buy backs instead."
But he expected it will be a gradual shift in the US and is encouraged that some fund groups seem to see enough potential in the market to launch US equity income funds.
"If I had said to you 10 years ago there are various opportunities to secure 4% yield plus double digit dividend growth in Japan you would think I was mad, but today you can find companies like that over there."
