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Newton Higher Income Fund grows dividend by 3.5 per cent


The Newton Higher Income Fund grew its dividend by 3.5 per cent during the 12 months to the end of June 2010.

The fourth and final quarter dividend was 1.28p per unit, bringing the total full-year dividend to 3.89p per unit.

The fund’s 12 month historic dividend yield stands at 7.4 per cent, based on the ex-dividend unit price of 30 June 2010.

Tineke Frikkee, manager of the fund, continues to be bullish on the prospects of the fund maintaining its income distribution record and expects the fund’s dividend to grow by three per cent during the 12 months to the end of June 2011.

“Our investment discipline in the Newton Higher Income Fund remains unchanged,” says Frikkee. “We continue to make an assessment of our view on the dividend stream payable by individual companies on a prospective 12 month basis. This is certainly pertinent in the case of BP, which has dominated market news over the past couple of months. Although BP announced it would cancel its first quarter dividend and that there would not be any in the second or third quarters, the board stated that it was committed to future payments. We believe that a combination of dividend cuts, along with future cuts in capex should enable the company to outline a path towards recovery.”

Frikkee currently favours the telecom sector, which offered a 5.8 per cent dividend yield at the end of May this year, with Vodafone alone yielding around six per cent. She believes the sector will be a major beneficiary of the rapid changes in communication technology which continue to transform social and business structures.

The fund also remains positive on the pharmaceutical sector. Concerns over future growth prospects, owing to the acceleration of generic medicine and pricing pressures, have caused a significant de-rating of stocks such as GlaxoSmithKline and AstraZenica. However, they were yielding 5.4 per cent and 4.9 per cent respectively at the end of May, while the broader sector was yielding 4.9 per cent.

“We expect demand for healthcare to rise as Western ‘baby boomers’ reach retirement age, while rapid scientific progress offers ample scope for innovation and a dramatic increase in novel plausible biological targets,” Frikkee says.

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