23rd April 2015
As Britain celebrates St. George’s Day, Mark Wharrier, co-manager of the BlackRock UK Income Fund looks comments on the investment opportunities in the UK equity income sector…
The outlook for the UK economy continues to be strong given the combination of low inflation, falling unemployment and continued low interest rates. However a vibrant economy does not necessarily translate into strong equity performance, and as such, we continue to focus on companies with attractive cash generation prospects and the ability to drive profit growth from self-help initiatives.
The forthcoming UK election is also clearly the greatest near-term uncertainty which is likely to create volatility as the outcome is unlikely to be decisive. Whilst this volatility is uncomfortable, we are focused on the share price opportunities it is likely to present for the medium-term investor. This is particularly the case given the rich diversity of industries and geographies you can access in the UK equity market.
Take a firm like Domino Printing. It has a strong long-term record of manufacturing printing equipment’s and consumables, such as ink, which are used by companies to print product labels, identification numbers and bar code. The long-term record of organic growth is strong and the dividend has been increased every year since floatation on the stock market in 1985. During the first quarter of 2015 Domino agreed a takeover from Japan’s Brother Industries at a price 70% higher than last summer’s stock market value. Given the low cost of corporate debt, this takeover trend could continue and investors need to be alert to the opportunities that stock market volatility continues to present.
Other companies to look out for are Lloyds Bank, which is now a relatively low risk UK retail bank generating significant capital. The company has returned to the dividend list, and with the potential to pay a 4-5p dividend with the next couple of years, it’s not one to be missed. Stagecoach, a well-managed portfolio of rail, bus and coach businesses with long term potential, is also set to do well and the current political uncertainty is creating a buying opportunity. The company has a history of special dividends and potential for enhanced cash return this year.