Henderson Far East Income (LSE: HFEL) is an investment trust offering a mouth-watering dividend yield of 9.6%. Normally I’d be suspicious of any stock with a yield nearing double digits. But I think this FTSE All-Share company looks very attractive for a number of reasons.
Portfolio
The stock is down 32.5% over the last five years. However, that doesn’t include dividends, which is obviously the main attraction here.
The £401m trust invests across the Asia Pacific region, with significant exposure to China, Australia, South Korea and Singapore. The investing style is value-focused, honing in on companies that produce strong cash flows to support sustainable and growing dividends.
Here are the five largest portfolio holdings, as of 31 March.
| Stock | % of portfolio |
| Samsung Electronics | 3.8% |
| Macquarie Group | 3.5% |
| Taiwan Semiconductor Manufacturing (TSMC) | 3.5% |
| Bank Mandiri Persero | 3.4% |
| Rio Tinto | 3.3% |
Samsung Electronics is regularly voted the most valued brand by Asian consumers. Bank Mandiri Persero is the largest bank in Indonesia in terms of assets, loans and deposits. Meanwhile, TSMC is the world’s largest semiconductor foundry.
So those companies appear very solid to me.
Attractive region
As an investor, I find the growing economies of Asia Pacific very appealing. After all, this region is home to 55% of the world’s population. China and India, as well as emerging economies such as Vietnam and Indonesia, are all projected to grow rapidly in the coming decades.
According to Airbus Global Market Forecast, Asia Pacific’s gross domestic product (GDP) will grow at 3.6% per year up to 2040 compared to a world average of 2.5%. That would mean a near doubling in regional GDP. So there should be an abundance of income growth opportunities.
However, I need to keep in mind that while emerging markets offer above-average growth prospects, they can also be less stable than more established markets. This is likely to produce volatility in the share price at times.
But that eye-popping 9.6% dividend yield is essentially my reward for taking on this risk.
A fine track record
The trust has increased payouts for 15 consecutive years now. And it has so far paid two quarterly dividends of 6p per share in 2023, compared to 5.9p at the same time last year. That suggests it’s on course to maintain its excellent record, which included continuing shareholder payouts during the pandemic.
It was able to do this because, like many investments trusts, it holds a moderate amount of income back. This cash is essentially kept in reserve for a rainy day. It can then be drawn upon to top up payouts if key portfolio holdings cut their dividends, which is always a risk.
I should note that the trust’s dividend increases have been quite modest over the last few years, however.
| Year | 2023 (forecast) | 2022 | 2021 | 2020 | 2019 | 2018 |
| Total dividend per share | 24.0p | 23.8p | 23.4p | 23.0p | 22.4p | 21.6p |
Yet as a long-term investor, I’m more interested in consistency than anything else. And the stock’s impressive record probably explains why the shares trade at a 3% premium to the net asset value (NAV) of the trust.
Overall, there’s enough evidence here for me to think this could be a terrific addition to my income portfolio. As such, I’ve put the stock on my buy list.
