In an environment of lower returns both on the fixed- income and equity sides, dividends offer hope and opportunity, according to Ed Perks, manager of the $55 billion Franklin Income Fund Ticker:(FKINX).
While the balanced strategy is currently 54% weighted in bonds and 46% in stocks, Mr. Perks said he is “trying to look at all the different opportunities for yield in the marketplace.”
One area that has stood out lately is
dividend yields.
“Corporate America has focused on profitability, trimming costs and increasing productivity,” he said. Those leaner balance sheets have produced a “broader group” of
dividend-paying companies, he said.
Chevron Corp. Ticker:(CVX), Intel Corp. Ticker:(INTC) , and PepsiCo Inc. Ticker:(PEP) are examples of solid companies with
dividend yields of more 3% — about 30% higher than the yield on the 10-year Treasury.
“We're not just finding yields over the 10-year Treasury, but we expect those corporate dividends to grow,” he said.
One the fixed-income side, where the portfolio holds bonds from more than 100 unique issuers, Mr. Perks is investing mostly in corporate bonds and corporate term loans.
The fund, which launched in 1948 and has been managed by Mr. Perks since 2002, rarely lets the stock and bond weightings drift outside the 40%-to-60% range.
After the financial crisis hit in 2008, however, the deep discounts in corporate bonds led Mr. Perks to build up a 70% weighting on the fixed-income side.
“That's as tilted an asset allocation that this fund has ever seen,” he said.
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Part of the fundamental equity and credit research involves combining multiple securities from the same company, which means some of the more than 50 stocks in the fund might also be represented on the fixed-income side of the portfolio.
So far this year, the fund is up 2.5%, which compares to a 1.9% average gain for the conservative-allocation category as tracked by Morningstar Inc.
The S&P 500 Index has declined by 3% from the start of the year.
Portfolio Manager Perspectives are regular interviews with some of the most respected and influential fund managers in the investment industry. For more information, please visit InvestmentNews.com/pmperspectives.
