Three Quality Dividend Stocks For Income Seekers

15th Jun '20 by Jack Brumby

15 comments 8220 reads

At March lows, there was value on display in the stock market. Since then though we’ve had quite an astonishing rally. There has been more share price appreciation in the past two months than you might expect over a five year period.

Yet rarely has global financial health been more fragile. Rarely has uncertainty been greater. Even if societies rapidly return to normality all around the world and COVID-19 is forever consigned to the history books, a huge amount of debt has been added to an already creaking financial system. This makes me wonder if the recent rally is pricing in the best case scenario.

The obvious answer is nobody knows, but the above is telling me to tread carefully and be more discerning than ever when it comes to stock selection.

Is the summer sun lulling us into a false sense of complacency? A poll in the papers over the weekend suggests that two out of three workers think the economic impact of this lengthy lockdown will not affect them. And yet official figures revealed the economy shrank by more than a fifth during the first full month of lockdown. That’s the biggest fall on record - surely it won’t be without cost?

GMO’s latest quarterly notes that “the current P/E on the U.S. market is in the top 10% of its history”. That is a striking contrast to the economic and social backdrop. But then again, there is that well worn phrase: markets can stay irrational longer than you can stay solvent… Add to the mix that monetary policy wildcard - a truly staggering amount of money being printed and spent by governments and central banks around the world in a bid to stem the pain of this pandemic - and who knows how this all shakes out...

Either way, there are always canny investments to be made. Not everything has recovered at the same rate. There are still pockets of value out there. Indeed, some high quality value stocks appear to be anomalously cheap...

City of London Investment Group (LON:CLIG)

Share price: 348p
Market cap: £94.02m
Quality Rank: 77
Forecast yield: 8%

Given the above uncertainty perhaps now is not the best time to be considering an emerging markets closed-end funds specialist. There is a case to be made purely on valuation grounds though.

These cheap valuations afford a margin of safety in…

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jonkingston

16th Jun '20

I currently hold CLIG, it does come across as a well run operation. Thanks for the analysis.

jim knight

Thanks Jack, interesting analysis and focus on QV metrics....could develop increasing Momentum in these turbulent times! Potential capital growth + income to tuck away in a shares ISA, instead of chasing volatility....and coming last in the race!
jim.

Simon Rowan

Great insight thanks Jack. I bought back WYN yesterday having sold out when they got well over £3.00 and I can't see whats changed that massively since then. As you say there are concerns, but possibly not as many as other stocks at far higher valuations. It beat NWF on the comparison tool and many others. I was surprised I had to type that in as it seems one of the more obvious comparisons. Value is very much key to me in coming months and maybe that will steer back some momentum that built up in Feb/March.

D J W Taylor

On HICL, it might be appropriate to consider the historic dilutive effect of their previous capital raising exercises on smaller shareholders, who had no opportunity to participate.

Momoko Miyamoto

The thin operating margin at Wynnstay (LON:WYN) puts me off (1.97% average over last 5 yrs and 1.5% last year) any hiccups could easily turn it loss making and the SP would dive. A major unknown is the state of the UK agricultural industry post Brexit, most of it is unviable without subsidy. UK govt might sacrifice farmers to save money and lift/reduce tariffs on food imports to help keep inflation low.

Berksbee

Very useful - thanks.

I'm a recent recruit to Stockopedia and decided to create a "Blame it on Stockopedia/I'm a genius" portfolio, or Blastig for short, to test the theory. Wynnstay (LON:WYN) is part of this portfolio which I bought back in Feb for 288p. Performance of the portfolio to date is ~12% ahead of the market so, so far so good.

I really like WYN and as you surmise - it deserves its score. The one critique I hear is low margins but I am prepared to overlook this as it is a steady ship and a feature of the industry. I am also relaxed about the industry post Brexit, the current government are unlikely to let farming slip-up, especially given the reminder about the fragility of the food supply chain that Covid provided. I was thinking of adding to my position anyway and your thoughts have helped me make up my mind.

One frustration I have with Stockopedia is I don't seem to be able to get an alert when a stock I am particularly interested in has a comment posted - just stumbled upon your post. Am I missing a trick?

Jack Brumby

17th Jun '20

Hi Berksbee,

As an avid writer and reader, I want your last point re. comment notifications too - it could be huge for increasing community engagement.

The Product team is constantly weighing up and scoping out numerous different feature requests. The more people that request things like comment notifications though, the more heavily they will be weighted in product discussions - so anyone else that wants this type of thing do say, and I can strengthen my case...

Re. WYN - clearly, there are risks. The question in my eyes is whether the current valuation offers an adequate margin of safety for assuming that risk. I think there's a good case there, particularly given the group's impressive dividend track record, long operating history, and strong, asset-backed balance sheet.

The low margin will always turn others off though, which is understandable.

abtan

Hi Jack/ Berksbee

Regarding the "comments alert" feature you are discussing I have actually just put in a request to save comments for a particular stock for future reference.

There is so much valuable content created every day on this platform and sadly much of it is probably lost over time.

If I saw a comment on Wynnstay (LON:WYN) for example that I thought was insightful it would certainly be useful to save it for when I look at the company in the future.

Fingers crossed and thanks again for the report Jack.

Cheers

andrea34

I am unlikely to get involved (again) in Wynnstay (LON:WYN) having been a victim of the profit warning in March 2019 - at that time they warned due to warmer weather (etc) and so to get another, annual weather-affected (plus Brexit) trading statement is hardly reassuring:

As expected, trading in the first four months of the new financial year was subdued, but has been broadly in line with management expectations. This market softness reflected generally lower farmgate prices, severe wet weather that limited sowing activities, and continued farmer cautiousness.

I realise that, overall, investing in high-ranking stocks will produce superior returns to the contrary, but there are certainly exceptions. I bought Wynnstay (LON:WYN) late-2018 when the Stocko rating was 92 and sold at 326p for a 30% loss when I got stopped out on the profit warning at that time. I can only guess that the high momentum score is due to the huge re-rating (due to presumably being an essential business remaining open) following the savage price-attack in mid-March, because the RSI ratings are comparatively very subdued: 1-month is -11%, and 3-month only +2.6%. The chart to me (and I'm no expect) doesn't look great at the moment either, being in a recent descending channel with a negative MACD setup that has gone below 0; it is looking oversold, but this in itself is not a good reason to buy. A reassuring trading update is needed...

I doubt WYN will be a disaster from this price, and there will remain a reasonable dividend... but I don't think this is ever going to set the world on fire, unless it gets taken over, for example perhaps by NWF (LON:NWF) where there is some overlap in the Feeds business.

HICL Infrastructure (LON:HICL) looks interesting, thanks, I'll take a look into them... and the large director purchases in the CV-19 selloff gives some confidence. As already pointed out, though, the two equity placings (in a short space of time, November 19 and January 20) both excluding the small investor are a bit grating.

Monty9

I have held CLIG for some years now and have never been disappointed except to feel that it is undervalued. The corollary is that dividends have been fine of course. I originally bought because I felt like the upside potential vs risk was excellent, so the recent takeover is a slight disappointment for me. My view is the proposition is now more income and perhaps less volatility. However, given the excellent track record in emerging markets I am not sure if a significant diversification into the US actually reduces risk and probably reduces growth potential, in terms of portfolio performance at least. The market may of course finally re-rate it now, at which point I may take my money and run.

Will Marsh

What about Globaltrans (GLTR) at this price?

Melvyngd

19th Jun '20

HICL
How do you account for the difference in the data shown in your commentary, the data shown today is Q65 V26 M75 SR57 F4 Z 5416.18

Regards

Munday

Good company, it will romp away when things settle down.

judywil

I also thought this was very weird. Data looked completely different in Stockopedia to that shown in this article

caponeob

3rd Aug '20

Trading at a premium over 6%

Three quality dividend stocks for income seekers

City of London Investment Group (LON:CLIG)

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Jack Brumby

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