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View the article online at http://citywire.co.uk/wealth-manager/article/a721036

JPM's yield stocks to beat a dividend drought

by David Campbell on Dec 03, 2013 at 07:40

Halfords shares have already appreciated rapidly however, rising 38.95% over 12 months versus 16.14% on the FTSE All Share.

‘In the shift to online, 90% of their online sales are collected in-store so they are not hollowing out their shop sales, like some businesses. Having rerated it now only yields 3%, so it is almost getting a bit too expensive.’

Value challenge

While that might illustrate the challenges of investing in value in 2013, capital return opportunities were more broadly spread and more diverse.

‘We have found opportunities in services, in media, in energy. It’s interesting because companies like to pay progressive dividends, and they hate to cut dividends. So what we have seen is a lot of one-off and special payments, as well as share buybacks.   

ITV has recently paid a big [one-off] dividend and more generally holds lots of cash, as well as growing its non-TV revenues.

‘We have seen a similar phenomenon at BP, where everyone has been focused for several years on the liabilities of the Macondo disaster. But that is growing less important. Third quarter [profits] were well ahead of expectations and guided very clearly that it will return around $10 billion (£8.33 billion) to shareholders over the next two years.’

JPM’s income picks

Lloyds

Even though it does not pay a dividend, by 2015 consensus is expecting a 5% yield so as income investors we want to own it. We like high quality and proven quality, and it is rapidly improving both its capital and its loan losses. It is also the most exposed to the UK [of the big four banks], which we like.

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