Bargains lurk as reality hits share prices

Derek Pain - No Pain No Gain

Although so-called old economy shares have staged a modest rally most are still well below the giddy heights touched a few years ago.

Although so-called old economy shares have staged a modest rally most are still well below the giddy heights touched a few years ago.

On traditional investment measurements, inviting bargains lurk - not confined to the myriad small-cap shares, which rarely enjoy much attention. Even relatively powerful players are offering dividend yields which in days gone by would have indicated their future was behind them.

I alighted on Scottish & Newcastle, the nation's biggest brewer, in March when the investment tide was about to turn away from the new economy and give a little lift to some of the oldtimers.

Then Scottish offered a 7.7 per cent dividend yield, an incredible return for a company with a progressive dividend record and a solid trading base. Now, with the shares up from 394p when I tipped them to 547p, the yield is more realistic but still attractive at 5 per cent. Big yielders are around, mainly in unfashionable industries.

Take Express Dairies, tucked away in the neglected food producers section. The group does not offer an exciting future, and profits for the year ended March may even be down a little. Still, a dividend yield of more than 9 per cent seems to be well over the top. A payment cut would be a surprise; indeed the group could be tempted to pour a little more for shareholders. The shares, at 91p, have been as high as 188.5p since the company was demerged from Northern Foods two years ago.

Dividends have been forced into the investment background since the rush into technology, media and telecom shares transformed stock market attitudes.Although it is possibly old-fashioned, I believe they remain an essential consideration in any portfolio.

There are many examples of companies which have progressively increased their dividends over the years. And they are not necessarilyhigh-flyers. Jennings Brothers, a little Cumbria brewer with a dull investment image, offers a splendid example of a progressive dividend policy. I have held the shares since 1979 when they were one of the more active shares on the old matched bargains market. Then the company paid a yearly dividend total of 3p a share. Last year the payment was almost 9p. Over those 21 years, each Jennings share has produced almost 105p in dividends.

Unfortunately the shares are just below 200p, a long way from their 415p peak a few years ago. Although the merits of my investment in the brewer would have been enhanced if I had sold at the top I am still satisfied with my gain. I paid the equivalent of 37.5p a share in 1979.

I should stress that I do not regard Jennings as an outstanding example of investment judgement. Many would say I adopted a much too passive role. But, over the years, my little Lakeland splash hasbeen worthwhile.

Profits and dividends are few and far between in the over-hyped technology world. Even hi-tech Footsie constituents are still a long way from doing anything so crude as making payments to shareholders. The dizzy attitude that capital growth would more than compensate for the lack of dividend cheques has evaporated. Colt Telecom, one of the first of the new telecom breed to achieve Footsie status, is an example of the more cautious approach. Its shares hit 4,075p in March; they are now 1,845p.

Stockbroker Durlacher, with a deep hi-tech involvement, is a more extreme example of lost riches. Earlier this year the shares were 441.5p; they are now 75.5p. For years the shares bumped along at the equivalent of less than 1p. So early backers are still sitting on handsome profits. But as the price relapses the temptation to snatch what profit is left while they can must be strong. The more selling; the lower go the shares.

And of course Colt and Durlacher, a mid-cap constituent, are not taking any of the pain out of their shareholders' discomfort by paying even token dividends.

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