Jupiter Income – dividend update

Jupiter is due to pay the next dividend on their Income Trust at the start of September 2010. Investors may notice the payment is down by approximately 10% compared to the same period last year.

One of the main reasons for this cut is BP suspending dividend payments. At the end of March (before the BP oil spill in April), BP shares were one of the fund’s largest holdings at 8.5%. Its dividend was cancelled days before it was due to be paid because of political tensions over the situation in the Gulf of Mexico. The Jupiter Income Fund is not alone in cutting their income payment, many other UK equity income funds will also be affected by BP’s dividend cut.

Unfortunately this dividend reduction follows a difficult period of performance for the fund. This was largely because Tony Nutt, the fund’s manager, has favoured less economically sensitive areas of the market. These companies have been overshadowed by those strongly tied to the health of the economy as we have emerged from recession. He has also had a low exposure to the mining sector which has performed very well over recent years. Companies in this sector tend to pay little or no dividend, effectively ruling them out for inclusion in the fund.

Tony Nutt believes that a quick return to normal economic growth is unlikely and, as banks remain reluctant to lend, the prospects for the UK economy remain uncertain. With this in mind, the portfolio continues to have a bias towards less economically sensitive stocks, including giant multinational companies with stronger balance sheets and resilient cash flows. We feel it’s only a matter of time before these more defensive companies are re-rated which could in turn benefit the fund over the longer term.

Such companies should be well placed to grow dividends which should also benefit the fund going forward. Encouragingly, Tony Nutt is not currently seeing any other dividend cuts in the portfolio. This means he expects the fund’s dividend to grow from here provided there are no further unexpected shocks.

We will be meeting Tony Nutt towards the end of September to fully discuss both the performance of the fund and the outlook for dividends. We will keep investors fully informed following the meeting. In the meantime this fund remains on the Wealth 150.