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JPM's yield stocks to beat a dividend drought
by David Campbell on Dec 03, 2013 at 07:40
Citywire AA-rated JP Morgan Higher Income manager Ben Stapley believes there are reasons to be cautious about equity valuations but that select cash-rich corporates will keep aggregate dividends high.
In particular, he is mining opportunities in high street retail that are either winning or succeeding against the flow of punters to online, and he believes some resource stocks have been derated too far.
‘The question is how much fuel there is left in the tank – whether the FTSE can keep on going through 2014 or whether we are now running on fumes,’ said Stapley.
‘The third quarter earnings season was, on balance, disappointing. Earning were broadly in line but expectations had been so downgraded over the period that we can call that a disappointment.
‘[Earnings] numbers are down something like 9.7% over the last six months while markets have gone sideways, so UK equity is now looking a fair bit more expensive.’
Sense of caution
This more general sense of cautiousness did not obscure the strength of selected cash-rich businesses however, in particular those targeting shareholder returns rather than capital spending.
Stapley said even in buoyant markets he was still identifying material misvaluations and turnaround stories.
Possibly the standout example of this theme is Halfords. ‘Halfords is really interesting – it’s a great turnaround stock. It has been increasing its servicing revenue and announced a 7% sales rise surprise in the third quarter, it has benefited from the tail-wind of interest in cycling following the Olympics.’
The company’s revenue from bike sales rose 14.2% over the first half, compensating for a 2.1% slide in sales at its autocentres, while profits at the company rose 5.2%.
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Ian McVeigh and Steve Davies, managers of Jupiter's UK Growth fund, talk about their predictions for the UK equity space. Click here to watch a series of sponsored interviews with Jupiter's fund managers on the UK equity market.