The £3.3 billion Troy Income fund has a current yield of 3.6 per cent, and has returned 35 per cent over the past three years, compared to 24 per cent for the average fund in the IA UK Equity Income sector in the same time period. That’s enough to rank the fund top from 77 funds in the sector.
The shares in the high-street and online business have dropped from £5.37 to £4.30 over the past year, amidst a flurry of profit warnings.
Brooke commented that, ‘we have been steadily adding to our holding in this company as the valuation becomes more attractive, most recently buying shares at the beginning of March. We continue to see the franchise as robust and to admire the management team for its disciplined approach to capital allocation. The business faces considerable challenges but remains highly cash generative.’
Brooke continued, ‘this rigour has manifested itself not only in the management’s reinvestment decisions but also in their readiness to return excess cash to shareholders, whether by share buybacks or more latterly via quarterly 45p special dividends.’
He commented that special, or one-off, dividends have become an increasingly prevalent in the UK market, and that his tendency to invest in businesses that generate a lot of cash means his fund often benefits from special dividends.
Brooke added that, in addition to ability to pay increased dividends, he tries to focus on companies with a ‘propensity’, or willingness, to pay the dividend, and cited the recent example of Unilever announcing a double-digit increase in its payout as an example of this.
The largest investments in the Troy Income fund are Unilever, Royal Dutch Shell, and Glaxosmithkline.
The fund has returned 75 per cent over the past five years, and 10 per cent over the past year.