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Rathbones’ Stick backs Barclays for 'dividend bonanza'
by Danielle Levy on Aug 27, 2013 at 13:22
The fund manager was tempted into the stock after the bank announced plans for a £5.8 billion rights issue, sparking a sell-off in its share price – which he viewed as an attractive entry point.
‘You can definitely see a change in narrative coming out of the business, which got us thinking we should not throw banks out and maybe we should start thinking about Barclays as a potential investment,’ Stick explained.
As it had been flagged for some time that Barclays would need to raise extra capital, he describes the 7%-8% fall in its share price that followed the rights issue announcement as ‘an unusual reaction from the market’.
Income manager Stick (pictured) also highlights chief executive Antony Jenkins’ plans to increase Barclays’ payout ratio as much as 50% by 2015.
‘This indicates the dividend yield could be as high as between 4.5% and 6%. From my point of view, [by] buying a depressed share, I think we are tapping into a good dividend yield later down the line,’ he said.
Return to Rio
The move follows Stick’s purchase of miner Rio Tinto earlier in the year, highlighting another area the fund manager has avoided in recent years. He was once again motivated by Rio’s attractive share price and management changes. He is keen, though, to stress that neither should be taken as a signal of a shift away from the portfolio’s focus on high-quality stocks with defensive earnings.
‘This is not about liking the banking sector. From a portfolio management point of view, we feel it is sensible to allocate to areas where we see better value. It is the same argument for Rio Tinto and Barclays. People should not expect us to make large scale shifts into these areas. They are still risky areas,’ he said.
Nonetheless, the attractive valuations on offer contrast with a number of the holdings in his Rathbone Income portfolio. This performed strongly in 2012 and so far in 2013, leading him to take profits.
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