6th September 2013
Vodafone and its upcoming bumper dividend pay-out have dominated the headlines in the past week, as billions of pounds are set to be doled out to its shareholders writes Philip Scott.
Following much media speculation, the FTSE 100 listed telecommunications giant finally reached an agreement to sell its 45 per cent holding in US mobile firm Verizon Wireless, in deal worth a massive £84bn. As a result, Vodafone investors are in line for a bumper pay-out which could see more than £54bn set to be shared out.
Dividends – the profits paid out by companies to investors – are big business. The amount of cash paid out in dividends by UK plc soared to £25.3bn in the three months to the end of June, representing the largest ever quarterly total and £11.2bn more than the previous three months according to Capita Registrars.
With UK inflation running at 2.8 per cent according to official figures, UK savers are struggling to find a single savings account which can keep up with, let alone beat that rate. As a result more and more consumers are heading for the stock market in a bid to boost their income from the likes of dividend paying funds and shares.
Notably the amount of cash invested now in funds has hit a record level of £744bn according to trade body, the Investment Management Association.
Richard Marwood, manager of the £930m Axa Distribution fund, who aims to achieve a growing income, with some prospects for capital growth, over the medium to long term to his investors, specialises in investing in quality, stable dividend paying shares. The fund has historic income yield of 3.21 per cent and over the past five years has has comfortably outperformed its peer group average, achieving a return of 35 per cent, against 26 per cent.
He says: “I look to invest in companies with robust, proven business models, favouring those with strong competitive positions, good cash generation, healthy balance sheets and capable, committed management. Buying quality companies when they are out of favour or those which are trading at a discount to their intrinsic value, is a key aim.”
Below we highlight Marwood’s top income yielding stocks and what they are yielding.
Vodafone (4.9% yield)
In the past year, the blue-chip telecoms firm has enjoyed a share price rise of some 20 per cent but the Verizon deal and the surrounding conjecture has seen its stock leap by more than 6 per cent in just the past month. Marwood says: “The proposed deal with Verizon Wireless should crystallise the value of their US business and result in a hefty return of capital to shareholders in early 2014. The remaining business appears to be attractively valued and be capable of producing an attractive dividend stream.”
Imperial Tobacco (5.1% yield)
Europe’s second-biggest tobacco company has seen its shares fall by 4 per cent in the past 12 months, but with a yield of 5.1 per cent, it is certain to hold the attention of investors. Recently it sealed a deal to purchase electronic cigarette manufacturer Dragonite International, for a reported $75m. “Although Imperial are experiencing quite weak trading in their European markets and sales growth is modest, cost control means that their earnings are still growing and the company is targeting 10% p.a. dividend growth,” adds Marwod.
Severn Trent (4.5% yield)
In June the utilities firm threw out a takeover approach from a consortium of investors which comprised of, among others, the Kuwait Investment Office, on the grounds that it did not believe the offer was god enough. Having fended off the bid at £22 earlier in the year the shares are currently trading down near £17.”But ultimately Marwood believes in the steady nature of the corporation, he says: “Water companies are very strong reliable businesses, with their only major risk being from their regulator, OFWAT.
GlaxoSmithKline (4.6% yield)
GSK, created out of the merger between GlaxoWellcome and SmithKline Beecham in 2000, is one of the world’s leading pharmaceutical research companies. The company has a diverse product range of pharmaceuticals, vaccines and, at a more day to day level, consumer brands such as Ribena, Lucozade, Horlicks and Sensodyne toothpaste. A firm dividend stock, the firm is currently battling against bribery allegation in China. Over the past 12 months its shares are up some 14 per cent. Marwood says: “Further growth is, in part, dependent on getting new drugs to market but there is also the potential for the company to sell some of its consumer brands, potentially freeing up more cash to be returned to shareholders.”
Inmarsat (4.2% yield)
The FTSE 250 listed group provides global mobile satellite communications services to the likes of the maritime, land and aeronautical industries. The past 12 months have been kind to the business, with its shares up a strong 27 per cent. “Building and launching a satellite is a complex and costly activity, but that does mean that Inmarsat’s business has huge barriers to entry,” says Marwood.