At Janus Henderson’s North American Income Trust (NAIT) we focus on US income stocks – quality franchises that consistently generate cash and have disciplined capital-allocation policies focused on investment in the business to sustain competitive advantage while paying a progressive, covered dividend. Surplus cash beyond this may be used for bolt-on mergers and acquisitions, or to repurchase shares when the stock is dislocated from long-term assessments of fair value. The NAIT has a strong record of paying a progressive dividend and growing revenue reserves since the fund’s inception in 2012 (it was converted from the Edinburgh Tracker Trust). The average dividend in the portfolio is 3% and dividend growth averages an attractive 6%-7%.
Our revenue reserves can comfortably cover one year of payouts and may be used if needed. However, there was only one small dividend cut during the 2020 pandemic period and none since then. Many UK investors may not automatically think of US income stocks, but there are several that offer attractive and growing dividends. The US has a history of superior earnings growth, which can often translate into higher dividend growth, too.
How to gain exposure to US income stocks
Dell (NYSE: DELL) is a technology infrastructure company uniquely positioned to grab a slice of the next wave of corporate spending on AI applications. Its scale, global supply chain and deep relationships with customers from the private and public sectors make it a preferred supplier of AI servers and data-storage technology. As enterprises move from experimentation to deployment, Dell will benefit from recurring technology update cycles. Growing profitability is supported by the company’s shift toward higher-value technology infrastructure and its disciplined cost management. Debt has been cut and capital returns support the yield. We believe Dell’s valuation fails fully to reflect the durability of demand and the firm’s exposure to capital expenditure on AI.
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Johnson & Johnson (NYSE: JNJ) is another US income stock that offers a rare combination of earnings quality and durable growth. Following the spin-off of its consumer-health division in 2023, it is a focused, innovation-driven pharmaceutical company and a leader in medical technology that should comfortably deliver mid-single-digit revenue growth. It has a diversified drug pipeline, which reduces risk, and its franchises in oncology, immunology and cardiovascular treatments are best-in-class, which will support cash flows in the long term. The medical-technology sector is growing strongly and the worst seems to be behind the company when it comes to legal issues. This is restoring investors’ confidence and valuations. With a strong balance sheet, consistent free cash flow and a long record of dividend growth, Johnson & Johnson remains a core holding in volatile markets.
Morgan Stanley (NYSE: MS) is a global leader in the capital markets. Its earnings have become more resilient following a strategic pivot toward wealth and investment management, which generates stable, fee-based revenues. These annuity-like income streams provide downside protection while preserving upside exposure to appreciation in the markets and net asset inflows. The firm’s strong capital position is enabling it to buy back shares and grow dividends. We believe Morgan Stanley’s improved position will deliver impressive gains tied to long-term growth in the financial markets.
This article was first published in MoneyWeek’s magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
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