Is it possible to invest in socially responsible businesses and make a return on your investment? In this podcast, Maya (@mayaonmoney) and Mapalo (@womanandfinance) chat to Duggan Matthews and Lourens Coetzee from Marriott Income Specialists, who argue that in fact, only those companies that are socially responsible will deliver sustainable, long-term returns. Investing for the long term means aligning the interests of the investor with those of the planet.
A key discipline of Marriott’s income-focused investment philosophy is to invest in companies which produce reliable and consistent income streams, ideally growing. With this foundation Marriott is able to provide more accurate investment projections from both an income and capital perspective allowing investors to effectively plan for retirement. Studies have also shown that companies which pay, and grow, their dividends tend to outperform the market over the long term. This is evident in the performance of Marriott’s local equity fund – the Dividend Growth Fund – which has won a number of awards for risk-adjusted returns. The charts below illustrate the dividend track records of some of the companies the Marriott Dividend Growth Fund currently invests in.
Although historical dividend track records are useful for identifying investments with the ability to produce reliable income, even the most reliable track record is no guarantee of future predictability. This is because dividend track records are historical, as opposed to being forward-looking.
To ensure reliable income growth in the future from investments made today, a number of other questions need to be answered. Some of these questions include:
- What are the company’s income growth drivers?
- Are these drivers under threat by current economic conditions, low barriers to entry or changes to regulation?
- Does the company have a solid balance sheet?
- What is the company’s dividend policy?
The analysis process does not stop here. In the wake of the global financial crisis and numerous “big business” scandals, corporate behaviour which is unethical, irresponsible, harmful to the environment or exploitative in nature is no longer being tolerated by regulators and consumers alike. Changes to industry regulations, or a damaged reputation, can prove extremely costly and pose a significant risk to company dividend payments down the line. Consequently, these issues must be evaluated when trying to identify income streams which are likely to be reliable and consistent in the future. It is for this reason that the pursuit of reliable dividends aligns with environmental, social and governance (ESG) sustainability.
Marriott’s investment team monitors and reports on ESG issues on regular basis. An area of particular importance to Marriott relates to company reporting and disclosures. Companies with a reputation for withholding important shareholder information will not be considered for inclusion in a portfolio as the future prospects of these businesses cannot be determined with a high degree of certainty.
Companies which take advantage of ill-informed consumers are also immediately excluded, not only from an ethical standpoint, but also due to the unsustainability of exploitative business models. The Marriott team also carefully considers environmental initiatives undertaken by companies to ensure their products and future business prospects are sustainable.
In summary, being able to successfully identify risks to a company’s dividends is critical for Marriott, as this ensures we are able to produce reliable income and predictable investment outcomes for our investors. Questionable ESG practices could pose a significant risk to company dividends in the future and consequently, the evaluation of these issues is built into Marriott’s investment processes.
This post was sponsored by Marriott Income Specialists.