This week I am going to take a bit of a risk and look forward and try to recommend a stock that I think will do well on results day. I will use the DividendMax calendar product (still in beta so for internal use only) to highlight forthcoming results and then use the other tools to help us select a stock for a trade. Could be risky, but let’s have a go.
The companies that are about to report that Dividend Max cover are Alent, Vesuvius, Wolseley, Greggs, Rentokil, Cairn energy, Kazakhymys, Kingfisher, Synthomer, Smiths Group, Bellway and Chesnara. Morrisons has already been a dividend of the week so we will not look at them.
So here we go. Lets eliminate anything paying under 2%. Cairn energy has never paid a dividend so we cannot consider that.
Synthomer, formally Yule Catto, is forecast by analysts to produce some pretty good numbers later this month, but the yield is pretty low at 2.9% and that assumes that the dividend almost doubles. Not for me.
Alent and Vesuvius are very interesting having both de-listed from Cookson Group which no longer exists. Alent is on a P/E of almost 14 and a yield of just over 2. Pricey! Vesuvius look better value, but eps is forecast to fall slightly and the yield is not spectacular. You cannot help feeling with these de-listings that there is some financial engineering going on and that the two de-listed companies are probably worth less than the whole, although the investment bankers that made the money out of the de-listing will tell you that they are lean mean fighting machines…mmm! Now they need a head office each, two payroll systems, etc,etc….oh! and an investment banker each.
Kingfisher has been in the DividendMax trading portfolio for some time and has been a bit of a dog, so I certainly want to have a good look at that. I still think Kingfisher is a good buy. It is to some extent an emerging markets play with businesses in China, Russia and Turkey. B&Q never makes me feel good when I go there, but it is a decent business. It just takes ages to find what you are looking for.
They are expected to make about £720 million pre-tax this year and around £790 million the following year. The prospective P/E for year-end Jan 2014 is just over 12. With an annualised yield of 5.53% on the 3 dividend optimizer, a CADI of 4, a forecast dividend increase of around 15% with cover of 2.7, it still looks ok to me.
Smiths Group just look overvalued to me having risen 30% in the past 12 months and not growing very quickly. The dividend yield is not spectacular.
Bellway is probably the best housebuilder in the U.K, but you really have to pay for it and the yield is not great, which compared to dividend of the week Persimmon, back in January looks difficult to recommend. A reminder is here and look how well it has fared since then. http://www.investorsintelligence.co.uk/2013/01/23/dividend-of-the-week-persimmon
Greggs is a dividend paying giant having increased for more than 25 years on the trot, but profits are expected to fall to the level of two years ago and they are still on a P/E approaching 13. They will increase the dividend though!
Chesnara is another insurance company that has been paying very big dividends, but unlike RSA and Aviva, I see little prospect of a dividend cut. In common with most of the insurers they have risen nearly 50% over the past 12 months and I reckon this is justified in this case, but it has probably done too much to be dividend of the week.
I will cover mining stocks next week and Kazakhymys reports on the 26th March so it will be separately considered in time for that.
Wolseley’s numbers are a bit of a lottery as far as I can see. I just have no idea what they are going to produce. Rentokil is a sleeping giant that has fallen from grace and has had years of poor results. It could quite easily surprise to the upside, but I would want to see more evidence of a firm recovery.
Dividend of the week is Kingfisher. It boosted the dividend 25% at the half yearly stage, but I think it is a bit optimistic to expect that to happen at the final stage. That said, its dividends have increased by over 20% in the past two years, so we may be pleasantly surprised.
