Although big banking company HSBC Holdings has a prospective dividend yield in excess of 6%, the share price has made zero upwards progress this century. I once believed the share could be a decent vehicle to capture growth in emerging markets but I was wrong.
So, I’ve given up on HSBC and would rather invest in institutional asset manager City of London Investment (LSE: CLIG), which has a large proportion of operations focused on emerging markets. Like HSBC, the company also has an anticipated dividend yield above 6%.
Product diversification
Today’s full-year report reveals to us that Funds under Management (FuM) rose almost 6% compared to the equivalent period last year, to $45.4bn. Meanwhile, revenue from the management charges for running those funds slipped back nearly 6% and earnings per share fell by almost 12%.
CLIG has been working on diversifying its product offering for a few years by opening funds in developed markets and real estate. The directors put the erosion in profits down to a combination of volatility in the markets and changes in the “blended margin” due to the diversification process. Some 22% of FuM came from diversified products in the period, making the category a significant contributor to the overall financial results.
The directors declared a final dividend of 18p making the total dividend for the year 40.5p. However, that figure includes a special dividend of 13.5p paid in March. The ordinary dividend was, therefore, 27p, which is at the same level as the year before. Looking forward, City analysts following the firm expect the dividend for the current trading year to June 2020 to also be 27p.
Indeed, the ordinary dividend is flat, representing some tough trading conditions in the company’s markets, but I’m encouraged by CLIG’s willingness to return funds to shareholders with special dividends when it can afford them. There’s no indication of a special dividend in the current year, however.
Yet today’s share price close to 407p put the ordinary dividend yield at a little over 6.6%, which I see as attractive as long as CLIG can maintain the level of its dividend in the years ahead.
A steady outlook
In today’s report, Chairman Barry Aling described the year just ended as a “game of two halves.” He said that in the fourth quarter of 2018, trade frictions between the US and China affected equity markets with the S&P 500 “plummeting” by 20% and the MSCI Emerging Market Index (MXEF) falling 10%. But the markets recovered in the first months of 2019.
The directors expect more volatility in the years ahead, but they believe that CLIG will navigate through that because of its “prudent and long-term approach.” There appears to be a strong commitment to ongoing dividend payments, which is backed up, in my opinion, by the firm’s debt-free status. I like the look of CLIG and see the dividend yield as attractive.
