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The power of dividends

HL SELECT UK INCOME SHARES

The power of dividends

Managers' thoughts

Important information - The value of this fund can still fall so you could get back less than you invested, especially over the short term. The information shown is not personal advice and the information about individual companies represents our view as managers of the fund. It is not a personal recommendation to invest in a particular company. If you are at all unsure of the suitability of an investment for your circumstances please contact us for personal advice.
Steve Clayton

Steve Clayton - Fund Manager

10 February 2017

The simplest ideas are often the best. The humble pencil, for instance, still holds pride of place next to laptops and iPads across many of our homes. Simplicity in investing though? Well, investing in dividend paying companies can in fact be deceptively simple and surprisingly powerful.

By owning shares in well-managed businesses, you are aligning your wealth with their success. As a shareholder you're entitled to a share of any profits distributed as dividends. And if you don't need those dividends today you can use them to buy more shares, meaning you earn more dividends in future.

Over the long term, these reinvested dividends become increasingly powerful. The FTSE All-Share has grown by 214% over the last 25 years, but with dividends reinvested this figure trebles to 644%*. Of course, past performance is not a guide to future returns and the next 30 years will be different.

Albert Einstein called this compounding effect the “eighth wonder of the world”, and even he couldn't have predicted interest rates at 0.25% . Today's environment only serves to increase the attraction of dividend paying companies.

Of course, there are risks. Unlike cash on deposit, which should not fall in value, the capital value of stock market investments and the income from them will fluctuate, meaning there is a risk of loss. All dividends are variable and not guaranteed.

Over the long term, however, the surety offered by cash can be a double edge sword . Cash won't fall in value, but it won't rise much either. Especially with interest rates so low. Meanwhile, successful companies are innovating. They're finding new ways to improve their customer proposition, generate more cash and ultimately increase their dividends to shareholders.

Consider too that, all things being equal, a rising dividend is often accompanied by a rising share price. So investors could benefit from potential growth in the value of their capital as well as their income, although there are no guarantees.

It's no surprise therefore that investing in dividend paying companies has proven so popular. We've long been admirers and with the launch of our new HL Select UK Income Shares Fund, we aim to deliver our clients the power of dividend investing with the benefit of a new type of investor experience.

HL Select UK Income Shares will offer investors an expertly managed portfolio of our favourite dividend paying businesses. And from the outset we'll offer superior insight, revealing all the significant fund holdings on the Portfolio Breakdown page after launch, and telling investors how, when and why we choose each holding through regular Blog updates.

Please be aware, the closing date for applications at a fixed £1 launch price is 1 March.

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*Source Lipper IM to 31/01/2017

Important - This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts from Bloomberg. They are not a reliable indicator of future performance. Yields are variable and not guaranteed.