The Analyst: Retail and natural gas stocks set to soar
Saturday 16 October 2010
With so much doom and gloom around, I thoroughly enjoyed my recent meeting with Clive Beagles, the fund manager of J O Hambro Equity Income fund. He is far more upbeat than most and has been for quite some time. And I have to say he has generally been right too.
What Clive Beagles is witnessing is a strong pick-up in dividend growth in 2010, and he points out that many companies' shares are yielding as much as, or more than, their corporate bonds. For example, Vodafone yields 5.1 per cent, similar to its corporate bond yield; and GlaxoSmithKline has a dividend yield of 5.2 per cent, (which is expected to grow by 10 per cent, during 2010) but a corporate bond yield of only 4.75 per cent. While I am not yet bearish on corporate bonds, Mr Beagles notes that equity dividends are growing whereas bond coupons cannot. So the argument for high-yielding shares is compelling if you are looking at generating superior total returns over the longer-term.
Mr Beagles expects much of his portfolio to see strong dividend growth this year and for some companies to pay a maiden dividend, or to reinstate one previously cancelled. An example is Cape, a company that provides services to the energy industry. It has a 58 per cent market share of the UK power generation maintenance market and has made important expansions into liquefied natural gas facilities in Australia and Qatar. The company is about to pay its first dividend for 10 years. He believes the shares are undervalued, and that there is a good chance of the share price doubling from the present level.
Clive Beagles is real contrarian. At present many people wouldn't even be looking at consumer related stocks such as cruise operator, Carnival. Yet it has seen a strong increase in bookings recently and he believes the outlook for consumer spending isn't as bad as many fear. However, fear in the market brings opportunity and he believes the current valuations of certain retailers, such as Debenhams, is simply wrong. He accepts there may be a decline in sales, but not to the extent implied by the current market valuation. He also favours Marks & Spencer, where he anticipates a change in management will bring a greater focus on food halls, which could feed through to the bottom line.
Unusually for an income orientated fund, there is a healthy weighting of smaller companies. This is usually beyond the scope of the larger funds in the sector because they can't buy enough stock to provide meaningful exposure for investors. However, there are plenty of small cap names paying good dividends, and they often have superior potential for capital growth compared to larger firms. Presently included in Clive Beagle's portfolio are Morgan Sindall, Kcom and Severfield-Rowen, all of which are on single-digit PEs and he believes have plenty of upside.
Interestingly, unlike many income fund managers, he remains quite cautious on many defensive areas such as utilities. He believes the sector is far too indebted and carries the dangers of windfall taxes. Similarly in tobacco, another popular area for funds in this sector, he sees large increases in excise duty causing pressure on sales. Mr Beagles believes this area is a soft target for governments wishing to raise revenue, illustrated by Japan's recent 40 per cent cigarette tax increase, and he is avoiding the area altogether.
So here is an income fund manager with a more contrarian flavour than many in the sector. It will therefore dovetail well with Neil Woodford's income funds, which have a completely different leaning. Mr Beagles is far more upbeat than Mr Woodford on the subjects of unemployment and household disposable income, so if the economic outlook improves his fund will benefit. I'm not sure who is right in their prognosis, but with a yield of 4.6 per cent and performance in the top decile since launch, this is not a fund you should ignore.
Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about funds in this column, click here
Buyers beware of new-build home headaches
Are you ready for pensions reforms?
Dirty tricks in a divorce can cause some nasty surprises
Simon Read: Frozen in time - the expat British pensioners who deserve a better deal
Number of serially under-performing investment funds has increased by a fifth, survey reveals
- 1 Benedict Cumberbatch says Hollywood is better for black British actors: 'I think as far as coloured actors go it gets really difficult in the UK'
- 2 Man who held up 'hire me' sign at Waterloo station returns a year later with 'I'm hiring' sign
Nigel Farage: NHS might have to be replaced by private health insurance
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
French court convicts three over homophobic tweets, in case hailed as a 'significant victory' by LGBT rights campaigners
British Muslim school children suffering a backlash of abuse following Paris attacks
George Galloway condemns 'racist, Islamophobic, hypocritical rag' Charlie Hebdo at freedom of speech rally
Islamic history is full of free thinkers - but recent attempts to suppress critical thought are verging on the absurd
iJobs Money & Business
£18000 - £20000 per annum: Recruitment Genius: This rapidly expanding business...
Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...
£16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...
£45000 - £47000 per annum + bonus + benefits: Ashdown Group: Java Developer / ...
Day In a Page
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village