Looking for income?
As government bond yields around the world continue to tumble, with many even falling into unprecedented negative territory, it is worth reminding investors that the UK stock market provides an ideal hunting ground for those looking for a source of income.
As government bond yields around the world continue to tumble, with many even falling into unprecedented negative territory, it is worth reminding investors that the UK stock market provides an ideal hunting ground for those looking for a source of income. The UK stock market is currently one of the highest yielding stock markets globally, with a current dividend yield approaching 5%1. The yield gap of the stock market compared to 10 year UK gilts has not been wider than it currently is for nearly 100 years! In addition, according to Liberum data (as at 09/08/19), the FTSE All Share is trading on a 2020e price/earnings ratio of 12x with almost 8% earnings growth forecast.
The UK stock market is considered to be a relatively defensive and high quality index, with many globally renowned companies choosing the UK stock market as their home; companies such as Unilever, a household product manufacturer whose brands include Knorr, Lipton, Axe and Dove, or Diageo, a global beverage manufacturer whose brands include Smirnoff, Guinness, and Tanqueray. Given the heightened volatility globally caused by trade wars, slowing economic growth and political tensions, the diverse, defensive nature of the UK stock market with the majority of earnings coming from overseas markets, should be an attraction to investors.
The JPM UK Equity Income fund is an unconstrained vehicle, which aims to provide capital growth along-side a dividend yield in excess of the FTSE All Share. The fund is actively managed and seeks out companies that have strong balance sheets and high free cash flow yields, amongst other things. The portfolio offers exposure to the attractive attributes of the index highlighted above, yet trades on a lower price/earnings ratio, a higher free-cash-flow yield and offers a forecast dividend yield of almost 5.5%2
Katen Patel is portfolio manager for the JPM UK Equity Income fund
1Source: Bloomberg as at 16/08/19
2Source: JPM as at 16/08/19 Dividend declaration and payment is not guaranteed and subject to the dividend policy in the prospectus. Forecasts are not a reliable indicator of future performance.
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