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How AA-rated Henderson is positioned for a special dividend bonanza
by Danielle Levy on Sep 19, 2013 at 09:08
Citywire AA-rated income manager James Henderson is holding steady with his significant overweight in industrials, arguing that despite the sector’s recent strong performance, underlying dividend growth can continue to power these stocks.
The Henderson UK Equity Income manager is allocating around 39% of the portfolio to industrial names.
Although the allocation has helped drive performance, and a sector re-rating after a strong run could suggest it is time to lock in profits, he says underlying cash generation and increased issuance of special dividends paint a different story.
‘We like industrials and it is easy to say, “When should we take profits?”. You just need to look at cash and how far debt has fallen. Now these companies have surplus cash and are returning cash in special dividends or they are making earnings-enhancing acquisitions. Some of these acquisitions are definitely adding value,’ he said.
He cites DS Smith’s acquisition of SCA Packaging as an example of this as it enabled the company to expand its geographic presence.
Increase in special dividends
Driven by corporate debt levels falling and improved cash generation, Henderson expects to see more companies paying out special dividends looking ahead.
He is also keen to remind investors ‘don’t worry about headline yield, it is about dividend growth’, adding that higher yields are by no means an indicator of value.
Speaking ahead of the oil price rise that followed discussions of an air strike on Syria, Henderson highlighted resources stocks, particularly oil exploration companies, albeit low yielding, as an area on the radar.
‘Some of the resource stocks, particularly oil exploration companies, have fallen to low valuations. Valuations are getting really compelling in places at the moment and you can buy at discounts to most forecasts of book value. I think that is intriguing me,’ he said.
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