Dividends Matter
Individuals are spending less as they seek to reduce household debt, (household de-gearing) Government is certainly planning to reduce the rate of increase in public expenditure (some want a cut), net mortgage lending is thin, banks are slow to lend and yet industry has surplus capacity and wants to sell more to improve profitability. The two do not match argued James Hutson, of stockbrokers Rowan Dartington, at UKSA South West seminar, unless there is an export led upsurge in demand. For that to happen traditionally it means sterling must weaken which in turn may fuel higher import prices and inflation, which no political party seeks. On the other hand basic capacity for extractive products was increasing so commodity prices could be restrained. As in Japan over the last two decades, and the US more recently, we may be in for a period of static pay and even declining real wages. The view based on this scenario is that there is unlikely to be any significant overall market improvement. Yet the recession has allowed firms to cut costs, and with surplus capacity any sales increase should reflect in better profits. Witness to-day’s report by BA of an operating profit. The FTSE dividend yield gap is above average indicating a potential for an upward movement.
A Time For Stockpicking
However in the last month James pointed to significant swings in sector performance. This together with less optimistic view of the Global economy suggested buying:
- sustained dividend performance firms who supply what people must have are more likely to retain share value and may rise with improving dividends
- FTSE 100 companies with substantial overseas earnings chance to benefit from Sterling weakness and/or the global economy doing well
Current Portfolio Additions
ROWAN is favouring KIER, ENRC, VODAFONE, PACE as current additions to their portfolio, which is kept to around 25-40 plcs.
Lively Discussion
UKSA members present generally agreed with the economic assessment but there was lively discussion as to how to interpret that in choosing winners. However there was general agreement this was the year for the stock picker and not the tracker minded.
Peter T Wilson © 5.2.2010
This report is based on a presentation given by James Hutson, Chief Investment Officer, Rowan Dartington, Stockbrokers, supported by Charlie Long and Gary Hinde at Didmarton on Feb. 4th 2010. The presentation was based upon their quality Investment Strategy, Q1 2010.
To receive this quartlery review email: G.Hinde@rowan-dartington.co.uk
UKSA, its members and contributors of articles are not IFAs and do not give financial advice. This article is a factual report of a meeting.
