Many of my screens over the past year have missed out on the recovery in the resources sector due to their focus on earnings and earnings progression. This has caused them to shun the sector due to plummeting profits on the back of falling commodity prices. However, while reported and forecast profits were definitely reflecting the pain of resources companies this time last year, historic dividends - the key valuation metric used by the O'Shaughnessy Cornerstone Value screen - still looked fine. Indeed, many resources companies this time last year were only just accepting that dividends could not remain at historic levels, which seemed staggeringly late in the day. While that did mean historic dividend yields served as a bum steer for income hunters, the fact that companies were so resistant to tarnishing their dividend record meant high yields ended up proving a strong contrarian guide to value, as dividend capitulation coincided with the market's trough.
This meant last year's selection of 25 O'Shaughnessy Value shares contained a number of resources companies including the likes of BHP Billiton (BLT) and Rio Tinto (RIO), along with companies serving the sector such as Weir. When writing up the screen results last year I felt it necessary to point out that these payouts were unlikely to prove genuine, but that they could prove a contrarian indicator, which turned out to be the case. Indeed, these stocks contributed significantly to the screen delivering a knockout 37.3 per cent total return over the past 12 months, compared with the index's 25.4 per cent - a return which itself was turbocharged by the resources recovery and a long way above the median return from index constituents during the period.
| Name | TIDM | Total return (23 Feb 2016 - 21 Feb 2017) |
|---|---|---|
| Weir | WEIR | 132% |
| Rio Tinto | RIO | 94% |
| BHP Billiton | BLT | 93% |
| BBA Aviation | BBA | 84% |
| 3i | III | 75% |
| Vesuvius | VSVS | 58% |
| TP ICAP | TCAP | 57% |
| Elan* | DRX | 46% |
| Nex Group | NXG | 41% |
| Elementis | ELM | 40% |
| Wm Morrison | MORW | 38% |
| Tate & Lyle | TATE | 34% |
| Old Mutual | OML | 32% |
| Amec Foster Wheeler | AMFW | 32% |
| Beazley | BEZ | 25% |
| Petrofac | PFC | 24% |
| GlaxoSmithKline | GSK | 24% |
| Aberdeen Asset Management | ADN | 22% |
| SSE | SSE | 18% |
| Hiscox | HSX | 9% |
| Persimmon | PSN | 5% |
| Imperial Brands | IMB | 5% |
| Carillion | CLLN | -13% |
| Pearson | PSON | -14% |
| Dunelm | DNLM | -32% |
| FTSE 350 | - | 25% |
| O'Shaughnessy Value | - | 37% |