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Cautiously counting on earnings and dividend growth

Our Garp screen signals opportunities but short-term setbacks can't be ruled out.
Cautiously counting on earnings and dividend growth

Our growth at a reasonable price (Garp) screen splices dividend yield, five-year earnings growth rate and forecast two-year earnings growth rate. The trailing price-to-earnings ratio of a share is divided by this figure to give our version of a Neff PEG ratio. It’s worth recounting these inputs as there is reason to question the efficacy of the methodology given how the response to Covid-19 is hurting the economy.

  • Very few companies score well on this screen but among those that do, specialist real estate investment trusts (Reits) are prominent. Questions to be asked include whether some of the stresses affecting tenants such as those of healthcare and social housing focussed trusts could have an impact on rents, which would feed through to earnings and dividends. In the short term, this is a risk, even though some of these Reits may offer good value income growth over a longer horizon.
  • Our small cap rules are seeing Aim companies score better than their main market counterparts. A couple of companies previously covered by Simon Thompson, The Mission Group (TMG) and Duke Royalty (DUKE) have interestingly made an appearance in the screen results.
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