This is the Final Part in a long and involving Blog Series - both for the Reader and the Writer !! If you have missed the earlier Parts then you can find them at the Links below:
This Blog follows on from Part 6 and looks at the second half of the FTSE350 Sectors:
16. General Industrials - There aren’t many Stocks in this Sector in the FTSE350 - and they are quite a mix really. On the whole I would see this as a Cyclical Sector so care needs to be taken. DS Smith SMDS is a Packaging Company and seems to be pretty well managed and in a sweet spot at the moment as more and more stuff gets sent around the Globe as a result of Online Ordering. On a Forward Dividend Yield of 3.3% it is not a huge compensation for the Cyclical Risk that a Buyer is probably taking on but it is a reasonable Yield and could be expected to grow - but just bear in mind that Cyclical Risk because it could well get spanked hard in a Downturn. RPC Group RPC has similarities to SMDS and with a Forward Dividend Yield of 3.1% it is a bit behind SMDS on that particular metric - but of course the Businesses need to be considered on all their own Merits/Detractions. Smiths Group SMIN is a kind of Conglomerate Business with a variety of offerings including Airport Scanning Machines - on a Forward Dividend Yield of 3.2% it is worth looking at but I see this as quite a Cyclical Business. SMIN went through a rough patch a few years ago but seems to have been much improved in recent times. Smurfit Kappa SKG is another Packaging Business and with a Forward Dividend Yield of 3.3% is worth a look.
17. General Retailers - obviously this is a highly Cyclical Sector so care must be taken. However, there are some chunky Yields on offer here so there might be a place in a Diversified Income Portfolio. Card Factory CARD is one that stands out as it has a good history since Listing of paying out Special Dividends on top of the Normal Dividend they pay out. This means that in the Current Year they are paying out a Dividend Yield of 6% and for next year the expected Dividend Yield is 5.4% (I am pretty sure these include any Special Dividend but it is worth digging into this because the Dividend might turn out a bit higher even !!). Dunelm Group DNLM has a good record over many years and with a Forward Divvy Yield of 4.3% it is worth thinking about - they recently acquired the Kiddicare business and that seems to be integrating quite well. Next PLC NXT is due to pay a Dividend Yield of 3.5% next Year but they have an excellent record of paying out Special Dividends on top - so this is worth looking into and considering. They had some trading hiccups recently but it looks like they are working their way through these. I hold Pets at Home PETS in my normal Trading ISA but I think it could make a nice Income Portfolio Stock - I see PETS as quite a defensive thing because Owners are still going to pamper their Animals and shove expensive food into them and buy Pooper Scoopers for what comes out of the other end !! They had a Trading Update a few days ago which was rather lacklustre but for an Income Stock this should still deliver even if Capital Growth is some way off once the Vets4Pets bits start maturing. On a Forward Dividend Yield of 4.6% I think this could be appealing (there is a Blog in the Blog Archive on PETS which I wrote a while back - look under ‘Stock Buy Rationale‘). SAGA Plc SAGA sits in this Sector which is a bit weird cos it is an amalgam of stuff from Cruises (Travel?) to Insurance (Finance?) but anyway it seems a pretty solid Business and on a Forward Divvy Yield of 5.6% it could be worth a look. Moving down the Market Cap size, I hold Moss Bros MOSB in my Trading ISA but it might be worth consideration because it has a huge Cash Pile which provides backing for a Forward Dividend Yield of 7.7%.
18. Health Care Equipment & Services - This should be quite a Defensive Sector and if a suitable Stock can be found then it would make sense to have exposure here - of course the challenge will be finding such a Stock and many are on quite high Valuations with consequent Low Dividend Yields. The standout Business for me here is Smith & Nephew SN. but the catch is that it is on a measly Forward Dividend Yield of 1.8% - it might be best to look elsewhere and perhaps for Health exposure you are forced more towards the Pharmaceuticals stuff like AZN, GSK, SHP, etc., which I come onto further down this blog.
19. Household Goods & Home Construction - This is a strange Sector Classification because within the FTSE350 it seems to contain Reckitt Benckiser RB. (Forward Divvy Yield 2.5% which is pretty low although it should be a fairly solid Business) and then a pile of HouseBuilder Stocks. These are largely much of a muchness I think - I hold Galliford Try GFRD which has a Construction Arm as well and a Forward Dividend Yield of 8.5% which is very high and perhaps compensates for the Cyclical Risk that Stocks like this have. I also hold McCarthy & Stone MCS in my Trading ISA which is a bit different because it specialises in Retirement Homes which might be a bit less Cyclical (but only a slight bit) - it has a Forward Dividend Yield of 4.3% which might not really compensate for the Risks involved here. According to ShareScope, Bovis BVS is expected to pay out a Dividend Yield of 9% next year - this is huge and I think it comes from some Special Dividends as well - it is worth looking at as I remember reading something about similar Special Dividends for several years. The Shirley Crabtree (Big Daddy) of HouseBuilders is Persimmon PSN which comes with a Forward Divvy Yield of 5.2%.
20. Industrial Engineering - This looks like another Cyclical Bunch so care probably needs to be taken. Within the choices in the FTSE350 I can’t see anything that stands out and the Yields on offer are pretty low for the Risk involved.
21. Industrial Metals & Mining - In the FTSE350 this only has 2 Stocks Evraz EVR and Ferrexpo FXPO - both are former Soviet Block located and as such the Risk is nuts for an Income Portfolio - steer clear I would say (to be honest I wouldn’t touch these even with the WheelieBin Hazmat Gloves on).
22. Industrial Transportation - This seems quite a Cyclical Sector and would most likely suffer in a Downturn. BBA Aviation BBA sits here and might be worth taking on but the Forward Dividend Yield at 3.2% is not all that generous. Royal Mail Group RMG is in this Sector and it is one I hold in my Income Portfolio - at the moment it comes with a Forward Dividend Yield of 5.9% and the recent Results were really very good. The CEO here Moya Greene seems very switched on and the attraction for me apart from the Big Dividend is the scope for Cost Cutting and the Value of Property they have in London etc. The catch at the moment is that they are going through Mediation with the Union with regards to the Final Salary Pension Plan and future Pay Rises - once this is resolved, there is a good chance the Shares can rise up again. The Chart on RMG is doing interesting things and looks a lot more positive since that Update. According to ShareScope, Stobart Group Ltd STOB is due to pay a Forward Dividend Yield of 6.4% which sounds pretty generous. A few months back the Lorry bit, Eddie Stobart Logistics ESL was spun out and STOB is quite a strange Conglomerate mix of Aviation (Southend Airport I think), Energy, Rail Engineering, an Investment Arm etc., but with such a large potential Divvy it is worth digging into.
23. Life Insurance - I largely see this Sector as a Proxy for the wider Markets although this is not entirely true. However, if Markets in general drop, then you can expect Life Insurance to go with it. This means that a decent Yield is required to compensate for the Risk and I like Aviva AV. a lot (I hold it in my Trading ISA but not in my Income Portfolio) which has a Forward Dividend Yield of 5% which looks pretty nice and just this week they upgraded their Cashflow, Share Buybacks and Dividend targets. Legal & General LGEN is due to pay 6.1% Dividend Next Year so it is worth thinking about also. Phoenix PHNX is due to pay 6.6% Dividend and this is an interesting business because it is very similar to Chesnara CSN which buys ‘old’ Life Insurance Books which are in ‘Run-off’ (in other words they are closed to new Customers). CSN is much smaller but is due to pay around 5.5% Dividend Yield so it is also worth a look.
24. Media - This is another Cyclical Sector so care is needed. ITV Plc ITV looks quite tempting with a Forward Dividend Yield of 5.2% and I like its Strategic Shift towards the ITV Studios Arm - it also could be a Takeover Target. However, the Risk is around the future of Advertising Revenues as Marketing Spends migrate to the Internet and Mobile platforms. MoneySupermarket MONY is due to pay a 3.5% Forward Dividend Yield and has a nice Cash Pile which gives some confidence that the Dividend can be maintained. MONY is clearly a strong Brand among Internet Comparison sites and I am a huge fan of anything that has exposure to the Internet. I hold GoCompare GOCO in my Trading ISA but the Divvy is too low really for an Income Portfolio at around 1.8% but it did receive a Takeover Offer from ZPG for 110p the other day and looks hugely undervalued.
25. Mining - This could be arguably the ultimate Cyclical Sector and I am not sure if this really is suitable for an Income Portfolio - unless you are prepared for some pretty wild swings over time. If you are tempted then the obvious culprits are BHP Billiton BLT which is due to pay a Forward Dividend Yield of 4.6%, Glencore GLEN which is due to pay 6.1% Dividend Yield next year (I hold these in my Trading ISA), and Rio Tinto RIO which is due to pay a Forward Dividend Yield of 5.1%.
26. Mobile Telecommunications - I like Vodafone VOD in this Sector and it has a very impressive record of raising its Dividend Payment every year since it listed a long time ago (ok, not all that long ago - I don‘t think they found a Mobile Fone in Tutankhamen’s Tomb). With a Forward Dividend Yield expected of 5.5% that looks pretty decent. Inmarsat ISAT also sits in this space and is quite interesting because there are very few Satellite Companies around and they have a big opportunity ahead from providing Wifi on Airplanes using their ‘Global Xpress’ offering - on a Forward Dividend Yield of 8.7% it looks very appealing but when you get a Dividend this high it does raise the question, Why is it so cheap? It is worth noting that Mr BearBull in the Investors Chronicle has ISAT in his Income Portfolio so the mystery deepens !! ISAT has high Capital Spending requirements and maybe that is the problem.
27. Nonlife Insurance - This Sector has some Defensive Qualities and a few of the Stocks look good ‘possibles’ for an Income Portfolio. I hold Esure Group ESUR in my Trading ISA and on a Forward Dividend Yield of 4.7% it looks decent enough. They have a lot of exposure to Motor Insurance which could be a risk but it is very well managed. Admiral Group ADM is on a Forward Dividend Yield of 5.8% and must be worth a look. Direct Line Insurance Group DLG is forecast to pay a Dividend Yield of 6.1% which again looks appealing. Hastings Group HSTG is also due to pay a meaty Dividend Yield up around 4.8% and is very similar to ESUR.
28. Oil & Gas Producers - this is again quite Cyclical but the sheer Quality of Royal Dutch Shell RDSB with an unbroken Record of not cutting its Dividend Payout since WW2 makes it a very strong candidate for an Income Portfolio - in fact, I hold it in mine. RDSB is due to pay a Forward Dividend Yield of 5.9% and the Cost-Cutting forced upon them by the Oil Price slump of recent Years has meant that their Lower Cost Base has resulted in Bumper Profits now that the Oil Price is rising again - this bodes well for Capital Gains in addition to the Dividend. Just the other day RDSB put out a very positive Strategy Update which pointed out that their Cashflows are expected to increase. BP Plc BP. Is also appealing with a Forward Dividend Yield of over 6.1%.
29. Oil Equipment, Services & Distribution - as with the Oil & Gas Producers this can be very Cyclical and of course driven by the swings in the Oil Price. I guess I would pretty much lump these 2 Sectors together and choose a Stock from across them - too much exposure here would probably not be wise unless of course the Dividends are very high and therefore to some extent they compensate for the likely Volatility. I would steer clear of Petrofac PFC - I have done well on it myself in the past but the CEO has been tied up in a Fraud Scandal etc. and it looks a bit troubled. Wood Group (John) PLC WG. seems to be recovering nicely after suffering from the Oil Price drop and is forecast to pay a Dividend Yield of 3.6% - not huge but it could rise nicely if Oil keeps going up. Not long ago they bought Amec which probably adds to the strength of the Business. Note the Chart just done a 50/200 Day Moving Average ‘Golden Cross’ which tends to mean Gains in coming Weeks/Months.
30. Personal Goods - bit of a strange Sector with Luxury Clothes Retailers like Burberry BRBY, Supergroup SGP and Ted Baker TED along with Soap stuff like PZ Cussons PZC and Unilever ULVR. The Soapy stuff could be defensive although I am no fan of PZC because it operates largely in Nigeria and this brings a lot of Currency Risk. Unilever ULVR is without doubt a High Quality Stock and could be a good one for an Income Portfolio although the Dividend Yield is not particularly high at 3.4% due next year but it should grow over time and the Quality of ULVR Earnings could be useful in a Diverse Portfolio. I am a huge Fan of SGP but I hold it in my Trading ISA and the Dividend at 1.9% for next year is perhaps on the low side for an Income Portfolio (although with their Cash Pile there is a chance of the odd Special Dividend). TED is a similar story - a very high quality business but with a Divvy due next year of 2.6% it is perhaps a little low for an Income Portfolio.
31. Pharmaceuticals & Biotechnology - this is clearly a pretty Defensive Sector and the right Stocks could be perfect for an Income Portfolio - in fact, I hold both GlaxoSmithKline GSK and AstraZeneca AZN in my own Income Portfolio. AZN is due to pay 4.5% Dividend next year and I think it has some good Capital Upside potential with its huge Oncology Pipeline of new potential drugs. GSK is forecast to pay 6.2% Dividend next year but there is a lot of talk that the Dividend might get cut - my hunch is that if there is a cut (which would be bad for the Share Price in the Short Term), it won’t be all that much because the New CEO knows that her job would be in serious trouble if she manages this important issue messily.
32. Real Estate Investment & Services - this is a funny Sector because a bit like the Oil linked ones, there is another Sector (which follows) that is quite similar. Both of these are likely to be very Cyclical - you only need to look at what happened to their Share Prices back in the 2008 Credit Crunch to see how they get hammered when times are tough. So, as with all Cyclical stuff, care needs to be taken and it is not a good idea to have loads of Cyclicals within an Income Portfolio - and if you do select 1 or 2, then you need to be getting Big Dividends in the Good Times to compensate for the Bad Times. Savills SVS always strikes me as a Quality business but being linked to Estate Agencies along with other Property Services, it is clearly very Cyclical. It is forecast to pay a Dividend of 3.6% next year which is not particularly high. Looking at the Stocks in the Sector, I would probably be more inclined to go for a REIT which is the next Sector.
33. Real Estate Investment Trusts - I hold Empiric Student Property ESP in this Sector (it is not in the FTSE350 though) and up until now it has been disappointing as it is fairly new and the Management have focused on building the Portfolio of Student Accommodation but were perhaps a bit slack on the basic Management disciplines which are now being addressed with the appointment of a new CFO (Chief Financial Officer) who is clearly getting stuck in. ESP has revised down its Dividend (which was sensible and necessary for the Company’s future) and is now expected to pay a Dividend of 5.7% which is quite attractive (assuming the Company gets a grip). Assura AGR could be worth considering with a Forward Divvy of 4.4% and it buys up Health Centres which should have a stable Return and an Inflation Link. British Land BLND has a Forward Divvy of 4.9% and is worth looking at - it invests in a wide spread of Commercial Property. Hammerson HMSO is a widely spread REIT but I think it has quite a bit of Retail Property which might not be ideal - it is expected to pay a Dividend Yield of 5.2% next year. Hansteen HSTN could be worth a look with a Forward Dividend of 4.9% - I think this one is quite a good spread of Properties in a similar way to BLND and the Management here have a very good history of success. Land Securities LAND is similar to BLND and has a Dividend due of 4.7% next year. NewRiver REIT NRR comes with a Forward Dividend of 6.9% but it is Retail focused and perhaps not ideal. Something that hit me today was that a lot of London-focused Property plays are getting hit because of fears around Brexit with regards to Banks moving to Europe and all that. I think this is hugely exaggerated and today on The Daily Politics on BBC2 Stephanie Flanders (who voted ‘Remain’) admitted that Economists had got it wrong and that in reality there has been very little impact and she felt if there was it would occur many years in the future (I think she is probably wrong on this as well). As such, the idea of London Commercial Property lying empty is pretty silly and I expect the Discounts to Net Asset Value that we are seeing will close in due course (note several of the Companies I have already mentioned are saying that they are still able to increase Rents in London). Tritax Big Box REIT BBOX has not been listed all that long but has so far not put a foot wrong and been very impressive. It invests in ‘Big Boxes’ (does what it says on the Tin !!) which are those Huge Warehouses next to Motorways which are in mucho demand due to the growth of Home Shopping via the Web - with a Forward Dividend Yield of 4.6% it is worth a look. One possible thing to be wary of is that they just announced a Refinancing of their Debt and they are taking on more Debt to give Firepower for more Acquisitions. This is all well and good but I wonder if they are getting a bit over-leveraged and if the Economy does hit a Slowdown, then maybe BBOX would suffer a lot. Unite Group UTG is a Student Housing play and I was hoping that ESP could emulate its success over many years - with a Forward Divvy of 3.7% it is not particularly generous but it has a good record and I expect Student Property is more resilient to tough times than the usual run of the mill Commercial Property stuff like Offices and Shops etc.
34. Software & Computer Services - There are a lot of classy High Growth Stocks in this Sector but they might not really be ideal for an Income Portfolio expect perhaps as a Holding amongst other Stocks with higher Yields so that the ‘Blended Yield’ across the Portfolio is good. I don’t see this as a Defensive Sector but equally it is not one that will be utterly murdered in a Slowdown - so it sort of falls ‘in the Middle’ in terms of Risk. Fidessa FDSA looks very interesting with a lovely Chart and a Forward Dividend Yield of 4.1% which is very good for a Quality Business (these chaps used to be Royal Blue). Micro Focus International PLC MCRO has a very good long term record of achievement and with a Forward Dividend of 3.1% it is worth looking at and it has a history of paying out extra Special Dividends on top. Softcat PLC SCT might be worth considering - it is due to pay a Dividend next year of 4.6% despite an impressive run up in the Share Price. SCT is quite a recent Listing on the Stockmarket but is has a good history of achievement before going Public and there is a lot to like.
35. Support Services - this is a huge Sector in the FTSE350 with a wide range of Businesses which are really in their own Sub-Sectors and may prove more or less Defensive due to those niches. Stocks that stand out to me for an Income Portfolio are things like Babcock BAB which comes with a Forward Divvy of 4.3% and has been on the slide for some time so it would become a Strong Buy once the Downtrend Line is broken-out of. BAB should be reasonably Defensive because it sits in the Defence Sector as an Outsourcer and has a big Order Book and certain aspects like the need for Staff to have high levels of Security Clearance make it quite ‘moaty’ and in a strong Competitive Position for new Contracts and extensions. Capita CPI has been quite troubled of late but I suspect it will be able to thrive in the Longer Term once its problems are sorted out - with a Forward Dividend expected of 6.9% it could be good but clearly buying Troubled Businesses comes with a lot of Risk. G4S GFS the former Securicor has had its own series of troubles but could be good once it sorts itself out - on a Forward Yield expected of 4.2% it is not too steep. Page Group PAGE comes with a Forward Divvy of 4.7% but this sits in the Recruitment Sector (it used to be Michael Page) and as such is highly cyclical so perhaps too risky for an Income Portfolio. Paypoint PAY has a Forward Divvy of 6.8% which looks really generous - however, the catch is that it is unclear what the future holds for PAY as more and more stuff gets done by ePayments on Mobile Phones etc., but it might be worth a look.
36. Technology Hardware & Equipment - Strange Sector this - in theory I would think it could be worth considering but when I dig into it there are no Stocks from this Sector in the FTSE350 and when I go to the FTSE All-Share it comes up with just three - Laird PLC LRD, Nanoco Group NANO and Spirent Communications SPT. Note if I look at the List for Shares in the US and Europe, then loads come up. LRD has had problems so I wouldn’t consider that one for long; NANO is a tiddler and loss-making so I wouldn’t expect much Dividend there !! And SPT has a Forecast Dividend Yield of 3% so it might be worth a look but it is a relatively small company.
37. Tobacco - this is perhaps the most Defensive Sector there is and I think it even managed to rise during the Credit Crunch collapse. Of course many people wouldn’t touch this for ethical reasons (hey, someone has to pay the Tax to keep the NHS running) but if you don’t have such constraints then British American Tobacco BATS with a Forward Divvy of 4.2% has to be attractive and Imperial Brands IMB with a Forward Dividend of 6.7% is really appealing - and it could be taken-over as well because it is the smallest player left.
38. Travel & Leisure - This is clearly an extremely Cyclical Sector and perhaps not ideal for an Income Portfolio. Having said that, for some surreal reason the Online Gamblers etc. sit here and they could be good for an Income Portfolio (the ‘Vice’ Stocks like Gambling and Tobacco tend to have very addicted Customers and the usual misguided attempts by various Governments to regulate tend to just entrench the existing Businesses and keep out competitors). 888 Holdings PLC 888 is an Online Gambler and is due to pay a Divvy of 5.1% next year and has a Cash Pile to back that up (these Online Gamblers tend to be highly Cash Generative). Cineworld CINE has been a really impressive performer and even did well in the Credit Crunch as people seemed to ‘trade-down’ to a night out at the Cinema as a form of ‘cheap’ entertainment. At the moment they are undertaking an attempt to buy the Second largest Cinema Chain in the US and this introduces a lot of Acquisition Risk - but CINE have a very good record of doing such Buys very well. With a Forward Dividend of 4% it is worth a look. EasyJet EZJ is another Cyclical and will be very volatile but it comes with a Forward Divvy of 3.8% and it has a very good record of growth over many years now and of course a very Strong Brand. Marstons PLC MARS runs Pubs which is a Sector facing lots of Cost Pressures and over-regulation - it is worth thinking about perhaps as the latest Results were surprisingly good and maybe with so many Pubs closing around the Country, some of the Big Chains will be able to take advantage (yet again useless Government Policy has forced out Smaller Businesses and Big Business has taken over). With a Forward Divvy of 7.1% it could be worth taking on some Risk. Playtech PTEC is another Online Gambling play and comes with a Forward Divvy of 4.2% - could be one to include in an Income Portfolio. The Restaurant Group RTN is due to pay 6.0% Divvy next Year and this obviously has appeal - they have had a lot of problems recently but the Management do seem to be working hard on turning it around - if you are prepared to take on some Risk, then it could be good. There are groups such as the Rail and Bus Operators in this Sector but I am not too keen on these - they are always a Political football.
OK, that’s all the Sectors covered and the end of the Blog Series (at long last I hear you cry !!) - I hope you found it useful and remember it will always be sitting in the Blog Archives so you can go back and visit them when you like (yeah, like you would be mad enough to do such a masochistic activity).
I have quite enjoyed writing these Blogs but like all things there comes a point where I have actually got bored with it now and I have so many ideas for other Blogs which I want to get on with writing - so hopefully you should find some intriguing missives appearing in coming Weeks.
Related Blog Links:
I have lost track with regard to which Blogs I have already included links to within the Series, but anyway the following ones might be worth reading:
Rules Parameters Template Blog:
Valuation Blogs (if you scroll to the bottom of this one there are links to the earlier bits):
Averaging Down blog:
The ADVFN App blog:
The Power of Compounding (this is defo one of my most favouritest WheelieBlogs - it is just such an important concept):
Ways I find Potential Stocks to invest in:
Here’s the Blog on PETS:
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