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Phil Oakley: Tesco offers defensive income

Tesco shares look to offer one of the more solid dividends on the UK stock market.
April 9, 2020

I’ve liked Tesco as a defensive income share for some time and I still like it on this basis. At the time of writing, the dividend yield of 4.3 per cent looks attractive, with the likely bonus of a chunky special dividend to come. Don’t expect to get rich owning Tesco shares but the company looks to be one of the best sources of decent income on the UK stock market at the moment.

Also, in this week's round-up, I look at why US tech stocks have outperformed the rest of the S&P 500 in the sell-off despite their expensiveness before the coronavirus crisis started to rattle investors.

One of the clear takeaways from the recent stock market rout is that cheap shares don’t protect you. What always matters above all else, is the quality of a company’s profits and in particular, the stability of them. Companies that have been chased for their earnings predictability were not only main beneficiaries of the long bull market but many of them gave the best protection in the recent market fall.

These shares make the best long-term investments in my opinion. However, I have long held the view that the price for such quality and relative safety is very high indeed. Probably, the best example of this is in US technology stocks which have driven the S&P 500 and Nasdaq in recent years.

Investors who have held tech shares have done well in recent years and that outperformance has continued in the downturn and subsequent rally. How sustainable this rally will be remains to be seen.

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