Wealth Manager - the site for professional investment managers

Register to get unlimited access to all of Citywire’s Fund Manager database. Registration is free and only takes a minute.

JPM's yield stocks to beat a dividend drought

JPM's yield stocks to beat a dividend drought

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%.

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


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.


It’s the poster-child for share buybacks – it has spent something like £500 million on buying its own shares in recent years and over that period has offered something like a 500% total return. [It’s not cheap at £54] but Next still has a lot of valuation potential.

BHP Billiton

It is focusing on lower cost, higher-grade metals rather than investing a lot of capital in exploration and development, which is generally a big drain [on capital] in the mining sector. That means the dividend cover is increasing and the company is not so dependent on the market price of any specific metal. It currently yields around 4%. 

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.

Related Fund Managers

Ben Stapley
Ben Stapley
83/96 in Equity - UK Equity Income (Performance over 1 year) Average Total Return: 5.47%
Citywire TV
Citywire TV
Citywire TV
Play Where A-rated Pattullo is finding the best bond opportunities

Where A-rated Pattullo is finding the best bond opportunities

Henderson Global Investors head of retail fixed income explains how he is managing his fund against the surprise current monetary policy divergence.

1 Comment Play Taxicab Tenner: Allianz Global Investors' AA-rated Simon Gergel

Taxicab Tenner: Allianz Global Investors' AA-rated Simon Gergel

Our much anticpated new series is here! We hand a black cab driver a tenner and grill the manager of the 125-year Merchants trust until the meter runs out.    

Play Europe bulls, a retail boost and why a little inequality can be a good thing

Europe bulls, a retail boost and why a little inequality can be a good thing

This week’s Investment Pulse looks at whether investors should be bullish on Europe, the surprise rise in UK retail sales and if a little inequality is a good thing.

Your Business: Cover Star Club

Profile: meet the duo at the heart of Hargreave Hale's succession plan

Profile: meet the duo at the heart of Hargreave Hale's succession plan

For the first time in the company's history a non-Hargreave is now at the head of the north west broker and asset manager

Wealth Manager on Twitter