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Dan Roberts: my top 5 bulletproof divi stocks

Fidelity Global Dividend fund manager Dan Roberts highlights five stocks he is backing to prosper in a volatile market.

Around the world: Dan Robert’s five divi stocks to watch

Yield-hungry investors concerned about equity valuations can take some comfort from the fact global dividend stocks are likely to retain strong support, even in a downturn, says Fidelity Global Dividend manager Dan Roberts.

‘A focus on reasonably valued companies with resilient franchises and strong balance sheets has historically rewarded investors,’ Roberts said. ‘It’s these types of companies that provide the potential to deliver a healthy level of income, real capital growth with lower levels of volatility and drawdown than the broader market.

‘Since the end of the eurozone crisis in 2011, we have seen an astonishing run of positive returns from global developed markets, with the MSCI World Index gaining around 60% on a total return basis. The question now is whether we will see the earnings growth that is necessary for markets to continue their upward trajectory,’ Roberts added. ‘While earnings have seen a recovery over the past two years, I believe they are now looking stretched and this may well lead to a more challenging environment.

‘Companies with a track record of paying dividends are often more predictable and resilient businesses. This type of company tends to provide good long term returns with less volatility than the wider equity market.’

Here, Roberts highlights five resilient income stocks he is backing.

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GAS NATURAL FENOSA: yield: 4.3%

‘I bought a new position in Gas Natural in November 2013. It is a well-diversified Spanish utility with high free cashflow yield (more than 10% at purchase), which is emerging from a period of regulatory uncertainty.

‘It has locked in liquefied natural gas (LNG) profits until 2015, is attractively valued and pays a solid dividend of 4.3%.’

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WOLTERS KLUWER: yield: 3.2%

‘Wolters Kluwer is a Netherlands-based media group engaged in creating content solutions. Cashflow generation is very robust and has grown broadly in line with their dividend-per-share over the last 10 years, meaning that the dividend cover remains extremely healthy.

‘In fact the dividend on offer, 3.2%, is approximately twice covered by free cash generation. Growth prospects are likely to improve due to the ongoing shift towards electronic products and services, and should also benefit from a cyclical upswing.’

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KIMBERLY-CLARK: yield: 3%

‘Kimberly-Clark, a top 10 holding, is a personal care corporation that holds a significant market share in paper hygiene products in the US. This is a company which understands the importance of good capital allocation.

‘Over the past 10 years, the company has had a very consistent cashflow return on investment; it has raised only a little bit of debt and has managed to grow the dividend per share at high single digits.

‘At the same time, the annualised total return is 10% so although on the face of it, it may seem a very boring company, the risk-adjusted returns on offer over the last decade have proved otherwise.

‘We would expect that to be the case from here.’

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MEDTRONIC: yield: 1.8%

‘Medtronic is a US-based provider of healthcare equipment and services. It is exposed to difficult industry trends in cardiac rhythm management, but its remaining divisions have delivered consistent growth of circa 10% for the last five years, and we expect this growth to be sustained.

‘It has demonstrated under a variety of economic scenarios and company-specific scenarios to have very resilient earnings. It has recently confirmed the purchase of Covidian, which overall should prove positive and makes a stronger, more profitable profile for Medtronic, despite stretching the valuation.’

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VINCI CONSTRUCTION: yield: 3.2%

‘I initiated a holding in the French construction company, Vinci, in October 2013. It was added to the portfolio as a “utility-like” business but with a better return profile, less reliance on leverage and was available on good free cashflow yields.

‘Vinci has been a strong contributor to performance this year after reporting 2013 profits that beat analysts’ estimates. Its strong order backlog gives good visibility on 2014 earnings and it should provide a good dividend.’

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