Henderson Far East Income Limited reported a 15% total revenue increase for the half year ended 28 February 2013, with income from dividends increasing 29.5% as the underlying distribution from the portfolio improved.  We continue to remain optimistic on the outlook for dividend growth in Asia as valuations remain attractive and cash generation strong.

With the majority of the Company’s revenue being generated in the second half of the financial year, it is encouraging to observe this trend continuing. The Asian universe of income stocks is witnessing a wave of positive dividend surprises in 2013. The market has generally reacted favourably to this theme and we expect the trend to continue as dividend per share growth has lagged earnings per share revisions since 2011. With capital expenditure intensity falling for the Asian universe and corporate balance sheets in the region remaining strong, we believe the environment is ripe for further positive dividend surprises.

The portfolio continues to benefit from positive share price reactions, driven by rising dividend payout ratios and continuing strong operational trends. We also believe that valuations for dividend growth companies remain at appealing levels. Two examples of stocks held within the portfolio that have provided dividend surprises are property developer Wharf Holdings and technology firm Asustek Computer.

Wharf Holdings focuses on property and infrastructure development and investment in Hong Kong and mainland China. The company’s 2012 fiscal year (FY) results revealed a 55.7% dividend per share increase, year-on-year, which was significantly above consensus estimates. At an operational level, strong retail sales are continuing to drive the Hong Kong business and in China contract sales are expected to increase by up to 33% in 2013. Despite a rise of 85% in the price of the stock over the last 12 months, we believe the valuation is still attractive as it trades at a significant discount to its net asset value and on a price to book ratio below one.

Asustek is a leading technology company in Taiwan that designs and develops electronic-based products including PC components, such as motherboards, notebook computers and smartphones. FY 2012 dividends per share increased by an impressive 31% to 19 New Taiwan (NT) dollars, when many of its technology sector peers do not pay a dividend. Meanwhile, the company recently raised NT$4.66bn (US$158m) from the part sale of its shareholding in Pegatron, its former motherboard and graphics card subsidiary. The firm was spun-off in 2010 to increase Asustek’s competition with the likes of Dell, Hewlett Packard and Intel. The proceeds from the disposal, which takes Asustek’s stake in Pegatron to below 20%, could be returned to shareholders in the form of dividends.

Mike Kerley, manager of Henderson Far East Income Limited

The City of London Investment Trust plc
The UK equity market produced a positive total return of 0.6% as measured by the FTSE All-Share Index. This was the eleventh month in a row that the market has produced a positive return. UK gross domestic product (GDP) growth for the first quarter of 2013 was reported to be 0.3%, which was slightly better than expectations. Continuing investor concerns about slowing Chinese economic growth led to marked underperformance of the mining sector where City of London is underweight. In contrast, the Real Estate Investment Trust sector, where City of London is overweight, outperformed as investors favoured companies offering visible and sustainable income.  The holding in RSA was sold after disappointing results and a dividend cut. The Trust maintains significant exposure to the non-life insurance sector through Amlin, Hiscox, Munich Re and Direct Line which have performed well. Additions were made to the holding in BP which is benefiting from growing production from some new higher margin oil fields and was bought on a dividend yield of 5%.

The Bankers Investment Trust PLC
Performance from equities was slightly weaker in April than previous months, as economic news remained mixed with uncertainty in both Europe and China. The stand out region was Japan following the Bank of Japan’s announcement of the doubling of the monetary base to purchase long-term bonds, in order to inflate the economy. The yen weakened markedly during the month, but the stock market rose in value, more than making up for the currency loss in sterling terms. Bankers Trust has approximately 10% of its assets invested in Japan and it predominantly holds financials and domestic companies, which are expected to be the biggest beneficiaries of rising inflation and a weaker currency.

Defensive companies remain in favour with investors, with utilities, pharmaceuticals, and telecoms performing well, while mining and resource-led companies have underperformed. The weaker trends in growth from China have affected demand for raw materials and meals, which is leading to price falls.

While economic activity remains subdued, corporate earnings have been mixed, which has resulted in increased volatility in both sector and stock selection. Bankers remains focused on seeking investment in companies with the potential to increase dividends. This focus appears to be delivering more consistent performance in these markets. It remains our view that the second half of 2013 should see better trends in global economic growth, which should give support to equity markets.