Global Dividend Perspectives
A world of opportunity
Darren McKiernan, who heads the Mackenzie Global Equity & Income Team, says global dividend-paying stocks are a great way for Canadian investors to diversify portfolio risk and enhance return potential.
In this video, McKiernan explains how Mackenzie Global Dividend Fund is well positioned for the long run, and where he’s finding attractive value.
Global Dividend Perspectives
A world of opportunity
DARREN McKIERNAN: Well, today the fund, from a geographic standpoint, it's about over, just over 50% of the fund is invested in US companies. About 35% of the fund is invested across the United Kingdom and continental Europe. And the balance is spread throughout the world, mainly Asia and Latin America. We actually also own one Australian company.
But when I get excited about the fund is certainly relative to its benchmark. I think about the overall metrics. Today from a valuation standpoint, it's trading for about 15 times earnings. It's got a dividend yield of around 3.2%. Its earnings should grow, give or take 1% or 2%, about 10% a year. But what really differentiates this fund in the average, say, composite benchmark is the profitability and the quality.
Just to give you a couple of indicators, the fund as a whole has almost a 30% return on equity. And there's a whole operating margins of excessive of 28%. That's over twice the overall benchmark metric. And you think about it from a balance sheet perspective, it's doing it on a lot less debt. Its net debt to EBITDA is about 0.6, which compares to 1.6 to the overall benchmark.
So think of it this way, this fund is trading lower than your whole benchmark. It's generating twice the returns of one third the debt of the overall benchmark. So when you think about a business that's trading for those sorts of multiples, that sort of quality, that sort of safety in terms of its balance sheet. We feel that it's very well positioned over the long term.
Well, simply put, the bigger the sandbox, the wider the investment opportunities. And by focusing on global dividend investments outside of Canada just gives you access to businesses and stocks that you just don't have access to if you just mainly kept your focus on Canada. Also, by and large, you've got access to geographies that have much higher yields and businesses that have much higher yields than if you were just to maintain a focus on Canadian equities and even US equities. And so we feel a global dividend portfolio is a great way of diversifying your risk outside of Canada, getting great exposure to businesses that you don't have access to in Canada, and keeps the risk profile very moderate with a great opportunity for return over the long term.
We own a company called Sands China. Now, Sands is one of the most profitable Casino operators in Macau and in the world, in fact. The company is in the middle of a growth build-out. In fact, they're opening a new casino at the Parisienne probably towards the end of next year, which is going to grow its table base and its room base over 30%. Now, you combine this with the fact that it's continually generating more and more money from its current casinos, one could reasonably expect the free cash flow alone to double over the next four or five years.
Now, what's great about this company today is it pays at 100% of its free cash with the form of dividends. Now, why is that? Well, Sands China is owned 70% from Las Vegas Sands. And Las Vegans Sands, in turn, depends greatly on the cash flows from Sands China to pat it own dividend. So what we're sitting here with now today-- a company that's trading for about just over 15 times earnings with a 5% dividend yield.
This is a company that's got tremendous margins, tremendous recast regeneration, likely to double over the next four or five years in a highly-predictable, highly-resilient business. And we think at just over 15 times earnings selling well below its intrinsic value and offers a tremendous opportunity for investors.
Well, all else being equal, we prefer a higher dividend yield than a lower one. But we're not just going to chase yield for the sake of it. In fact, investors probably unknowingly put themselves at risk by focusing on those highest yielding companies. Oftentimes people own those high-dividend-paying companies, like pipelines or real estate investment trusts, or utilities simply for the dividend yield. And if that dividend yield was to be cut for any reason, usually ends up with disastrous consequences for investors.
Now, it's for that reason why we've been focusing more on the dividend growers, the companies like Johnson & Johnson or Becton Dickinson, or Unilever, they've got a great track record, not just over years, but over decades. I'm not just paying their dividend, but growing their dividend. And that's through all sorts of environments-- increasing interest rates, lowering interest rates, recessions, economic expansions. Those are the types of businesses, the vast majority of the businesses we own in the fund.
Now, we're looking and we're waiting for the opportunity to buy those dividend-paying companies, because we think, perhaps, in a rising rate environment, that's going to offer us some great opportunities. But today as it stands, we don't have a lot of exposure to those types of businesses. And we've really been focusing on those dividend-growing companies that have shown the track record to grow throughout all economic circumstances.