Why more vigorous 'stress-testing' of assumptions is vital for income investors

In these testing times for the global economy, investors are looking for reassurance their dividends can, at the very least, be maintained, writes portfolio manager Mark Whitehead of the Securities Trust of Scotland (STS).

For many businesses this poses a challenge. Their attempts to grow revenues have been pegged back by anaemic global growth and persistently low inflation. Meanwhile, cost-cutting following the financial crisis has now run its course, and companies which lack pricing power are struggling to improve profit margins. In this kind of uncertain environment it is particularly important to challenge rosy financial forecasts. Indeed, more vigorous stress-testing of assumptions is vital to identifying firms with strong enough fundamentals (and growth prospects) to withstand further turbulence. ...