Nick Train is “encouraged” by the number of his portfolio holdings that have initiated share buybacks and hiked dividends after another disappointing month of performance for Finsbury Growth & Income.
The £1.9bn trust trailed its benchmark for the second month in a row as Russia’s invasion of Ukraine unsettled global markets. FGT’s net asset value sank 3.8% and its share price fell 3.9% in February compared to a 0.5% fall for the FTSE All Share.
Rather than dwell on the trust’s lacklustre performance, Train (pictured) took heart in the raft of portfolio companies returning cash to shareholders.
Twelve holdings, representing 80% of the portfolio by value, reported dividend and/or capital return announcements over the period, including his top three positions Relx (12.4%), Diageo (12.3%) and Mondelez (9.6%).
Though Train said he prefers companies to “scrimp on dividends” and funnel earnings into future growth opportunities, he added dividend declarations were an important indicator about long-term confidence in future free cash flow.
While holdings like Hargreaves Lansdown, Diageo and Relx reported more modest dividend increases, several reported double-digit jumps in payouts compared with the previous year.
Rathbones hiked its final dividend by 15% after a record year for profits and assets under management in 2021. Heineken’s leapt 77% on last year, however, Train noted the staggering bounce back was “Covid-affected”.
Eight FGT holdings have initiated share buybacks
Train was similarly bullish about the number of holdings engaging in share buybacks, which “should signal boards’ perception about the intrinsic value of their company”.
“We are encouraged how many of our companies are buying back shares currently – because we agree with their boards. These shares being retired could well be undervalued,” he said.
Eight of FGT’s holdings have either announced or recently completed share buyback programmes, Train highlighted.
Relx and Remy Cointreau are looking to retire roughly 1.2% and 1.9% of equity, while Burberry and Mondelez are targeting a reduction in shares circa 2.5%, the latter on an annual basis.
Diageo has recently accelerated its capital returns programme, announcing a £1.7bn buyback last month, which Train said could retire 6% of equity by 2023.
Sage, meanwhile, recently completed buybacks amounting to 7.5% of its market capitalisation.
Notably, all FGT’s portfolio companies not offering to buy back their own shares are in the investment industry – with the exception of Heineken.
| Portfolio Holding | Latest dividend increase | Share buyback |
| Burberry | +3% (quarterly) | Yes |
| Diageo | +5% (interim) | Yes |
| Experian | +10% (quarterly) | Yes |
| Hargreaves Lansdown | +3% (interim) | No |
| Heineken | +77% (final) | No |
| Mondelez | +11% (quarterly) | Yes |
| Rathbones | +15% (final) | No |
| Relx | +6% (final) | Yes |
| Remy Cointreau | +12% (final) | Yes |
| Sage | +3% (quarterly) | Yes |
| Schroders | +7.6% (final) | No |
| Unilever | +4% (quarterly) | Yes |
Source: Finsbury Growth & Income February 2022 factsheet
See also: M&G shares lift off as it unveils £500m share buyback programme
‘Steady dependability’ is undervalued
Train said he hoped the “steady progress” being made by his investee companies was “reassuring” to FGT shareholders.
“Our investment approach is based on owning durable and predictable companies, while avoiding the speculative and cyclical,” he explained.
“The idea is that steady dependability is often undervalued by other investors because those other investors are, as a generalisation, too busy trying to identify the next Tesla or to time the next gyration of the economic cycle. As a result – so our argument and historic track record asserts – you can be well-rewarded over time for holding what others regard as boring companies.”
See also: Nick Train bemoans Unilever’s ‘crushingly pedestrian’ returns in month where Tesla goes gangbusters
