Opportunities in Global Dividend Stocks

When we think about the global landscape, you don't own a global dividend fund because you want a splash of Japan and a little spice from India. What you want is you want the best companies around the world with the most innovative and the most defensible cash flows.

What’s your view on artificial intelligence (AI) as an investment theme?

I think when we talk about something that's more speculative and more unknown in the case that is AI, I would say it's important not to go to the end of the bullwhip. And what I mean by that is you take the nuclear power companies, which are historically not great businesses. There's a reason why for years and years nuclear power companies, despite being clean energy-dense fuel, were struggling to get the government to cross-subsidize them. So we don't like businesses that are on the end of the bullwhip where they feel the full butterfly effect of what goes on. We want to stay closer to the actual leading edge of innovation in this specific case, because if you own the companies that make the custom chips that solve the solutions, that build the scaling laws for the big cloud providers, I think that's a far closer place to be. And we don't think those have the competitive risks that general power production can do. So don't forget that voltage and electrical components have dozens and dozens of suppliers around the world. These were historically commoditized businesses. When there's a demand surge, you forget all that and the market forgets all that. But we don't forget those details.

How do you cut through the AI hype?

At the end of the day, what we're talking about here is how can modest changes in the targeting and the efficiency of data sets be optimized through tools and analytics that AI can provide. And I think there's a few examples of that that we've been layering onto the portfolio. So take a company that we bought that's one of our top 10 holdings called RELX. It's the company that owns The Lancet, Gray's Anatomy and all the other academic and publishing and legal journals with 200 years of data with them. And what small language and large language models can do for them is to make it easier for a lawyer to access modules than before. That's got value, that's got price, and that's got returns per share for shareholders like us. So that's how we participate because we don't want to bet on the extremes, we want to bet on today and tomorrow's reality.

What is your investment philosophy around global diversification?

When we think about the global landscape, you don't own a global dividend fund because you want a splash of Japan and a little spice from India. What you want is you want the best companies around the world with the most innovative and the most defensible cash flows that we can find wherever. The U.S. market is a staple for every portfolio for that reason because there's so much depth to the U.S. market. But what's interesting about international and what we do in the international landscape is we're not betting on the mean reversion of Germany, we're not betting on the mean reversion of the U.K., we're finding the companies that are interfacing with their U.S. customers.

As an example, CRH Corp. It's a U.K.-based company with the majority of its business in the United States that's participating in the re-industrialization of the U.S. We all know how old the roads are in the U.S. This is the company that sells specialized aggregates into the U.S. market. It just happens to be listed in the U.K. So when we think about international, it's not about the geographic exposure, it's about finding the right handful of stocks around the world that makes sense in a diversified portfolio.

Recorded on December 5, 2024. For definitions of technical terms, please visit iaclarington.com/glossary and speak with your investment advisor.

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