The essence of the “Dividends don't lie” stock-picking philosophy is to pick reliable dividend payers that are currently undervalued by the market.
Currently, five stocks meet the criteria outlined by investment guru, Geraldine Weiss: Galliford Try, IDOX, Northern Investors, Schroder UK Mid & Small Cap Fund and UNITE Group.
UNITE Group PLC (LON:UTG) is already in the “Dividends don't lie”and the fact it turns up on the latest stock filter confirms we do not need to sell it, so let us have a closer look at the other stocks.
Galliford Try is sweating out the Carillion virus
We probably don't need to spend a lot of time on housebuilding, regeneration and construction group Galliford Try plc.
In January, in the wake of Carrilion’s compulsory liquidation, the company revealed that it expected to take an additional £30-40mln hit in relation to the joint venture it had with the failed engineering contractor and it also announced a £25mln exceptional cost in its half-year results.
Late last month it announced plans to raise £157.6mln via a rights issue that’s intended to plug a funding gap in its "Strategy to 2021".
Based on broker forecasts of what this fiscal year's dividend will be – 76.05p, down from 86.37p last year – the stock is offering a dividend yield of 8.6%.
Any yield over 8% is considered to be in “red flag” territory, so notwithstanding the firm's proud tradition of eight consecutive years of dividend growth, it is probably a good time to sit on the sidelines and see how things all shake-out.
Yoda from Star Wars might very well say, “there is no Galliford Try; there is only Galliford do” but I say “there is only Galliford do not”.
Idox looking to bounce back after a disappointing 2017
The information management solutions provider admitted that the year to 31 October 2017 was a duff one but it still bumped up the full-year dividend to 1.04p from 1.00p the year before, despite adjusted profit before tax sliding to £12.1mln from £16.7mln.
“The failure to achieve the year-end numbers has been disappointing and is the result of a perfect storm of issues including a recent complex acquisition,” explained Richard Kellett-Clarke, who has been acting as the chief executive officer (CEO) after Andrew Riley stepped down owing to ill health.
“However, in the early months of the new financial year the business has had an encouraging start with new contracts signed on the Bristol transport solution, the e-Count solution for the Government of Malta, and new solutions for the Isle of Man, Western Isles, Croydon and the South Downs National Park and Dorset Councils partnership," the interim CEO said.
iFIT has delivered significant benefits to @BHR_hospitals, its staff and its patients since 2015 - a 700% productivity increase in record filing, improved patient safety, and a strong return on investment. The case study is available here: https://t.co/LSbUQOdXd8 pic.twitter.com/ousnXw1WxB— Idox Health (@IdoxHealth) March 1, 2018
Idox has increased the dividend 11 years n a row and is currently yielding around 3.4% versus a 10-year average of 2.2%.
The stock is valued at 1.4 times net asset value and has a price/earnings ratio of 19, but with the current year's earnings per share predicted to rise to 2.91p the projected earnings multiple based on the current share price of 30.1p is a cheap-looking 10.34.
The stock was knocked by a trading update in December that revealed it had uncovered a small number of revenue items that should not be recognised in the results for the year to October 31, 2017 and by the news, revealed at the same time, of the then-CEO's ill-health.
That sort of thing is a bit worrying but is probably what has sunk the shares to a level where the dividend yield is about 50% higher than the 10-year average, which makes it worth a closer look.
Northern Investors winding down in an orderly fashion
I am not sure what Geraldine Weiss's views were on investment trusts; I don't think they have them in the US.
The UK may not be having this one for much longer as the trust decided in 2011 to liquidate its investments and return the dosh to shareholders.
Cash distributions since 2011 have exceeded 150% of the company's 2011 net asset value and the company now only has five investments left to flog so we've somewhat missed the boat on this one.
Schroder UK Mid & Small Cap is dodging bullets
Northern Investors may be slowly riding off into the sunset but Schroder UK Mid & Small Cap Fund PLC (LON:SCP) is trucking on nicely.
In the year to the end of September 2017, the chairman noted the net asset value (NAV) per share total return of 21.0% outperformed the fund's benchmark by 6.8%.
“Although it is very pleasing to see such strong performance, it is long-term performance that truly evidences the company's delivery of its strategy,” said Eric Sanderson, the company's chairman.
“The company has delivered strong capital returns over three, five and 10 years and both the company's share price and NAV per share have nearly tripled since 2007 (including re-invested dividends),” he added.
All of which is all very satisfying to read as was the chairman's views on stocks not held: “the fund benefitted from avoiding Dixons Carphone and Carillion”.
Is this sort of commentary normal in the company statements of fund managers?
If so, I might take to adding similar caveats to my Stockpot columns; I, too, managed to steer clear of Carillion and, come to think of it, Conviviality as well.
Joking aside, you can have a butcher's at the company's portfolio on the Schroders web site.
The portfolio's net asset value year-to-date is down 5.54%, but it has still marginally outperformed its benchmark.
It trades at a 15.9% discount to its NAV.
The dividend yield of 2.5% is not sensational but it is about 90% above its 10-year average, which puts it on a par with “Dividends don't lie” stalwart, UNITE Group.
Unless you have misgivings about investment trusts, this is another that looks like it is worth keeping an eye on.