Page 28 - DIY Investor Magazine | Issue 30
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 We still see value in the whole housing area in terms of both house builders but also companies selling products into the housing market and to people moving home, because a bit like the stock market, actually, there was uncertainty for four or five years; many people didn’t move home and didn’t spend much money on their house. Now a wave of money is being unlocked and spent on the home environment.
People spending more time at home want to sit on more comfortable furniture and so on; that whole area is still quite interesting. Valuations are still quite reasonable, even for very good companies and market leaders, so that’s an interesting area. We’re also finding companies that are helping the energy transition are quite interesting in the utility area.
There are companies that are transitioning their business,
so historically part of the business was maybe seen as low- growth or unexciting, but they’re gradually transitioning to more exciting, high-growth areas, and that can often be a great place to be as a value investor, because you can get in at low valuation and then potentially sell out a few years down the road at a high valuation because the business’ quality improved.
We haven’t run out of opportunities yet. We do have a small amount of the portfolio in continental European shares, largely in the reinsurance industry, which is an industry that’s quite hard to get exposure to in the UK. But there are still plenty of opportunities in the UK.
Keeping the eye on the horizon again, the outlook is good. Dividends were cut last year by pretty much a record amount. In fact, I think last year was the first time dividends had fallen as much as earnings in a recession, although it was clearly an extraordinary period. But we’re now seeing record revisions to dividend expectations across Europe, i.e. people expecting dividends to pick up quicker than they thought.
And dividends are coming from a low base, so there’s plenty of scope for company dividends to recover and to grow from here, and many of the companies where the dividend levels might have looked unsustainable before, have taken the opportunity to rebased to a lower level.
So from here, albeit we’ve had a big cut in the income level coming into the portfolio, I think we do see scope for quite decent dividend growth, potentially for quite a long time into the future.
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In this 2-minute update, Simon Gergel discusses rising inflation and the implication both for individual companies and for markets and investing more generally as a result of interest rate policy.
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