- Large cap high yielders have red flags
- Mid cap screen shows up some interesting ideas
Our large-cap dividend screen is not easy to navigate for income investors right now. The top two companies are, same as last month, Royal Mail Group (RMG) and 3i Group (III). The first is a business that’s going from a period of tailwinds to headwinds, when it comes to consumer disposable income and industrial relations. The second is an investment company looking ahead to far less benign macroeconomic circumstances that could affect the private companies it owns and an end to the goldilocks period of cheap money which was a boon to private equity investment firms in general.
For longer-term investors, there are some big dividend payers scoring well. In the case of mining stocks Anglo American (AAL) and Rio Tinto (RIO), however, these are cyclical businesses that can still sell off on recession fears, albeit the supercycle arguments won’t go away. Both have significant negative three-month share price momentum, so look cheap if next year’s dividend forecasts don’t come down. That remains the question for investors, however, and there may be better opportunities to buy in again in the months ahead.
The caveats from last month remain: Avoid Russian-linked metals miner Polymetal (POLY) on our large-cap screen and in our mid-cap screen, for iron ore pellet business Ferrexpo (FXPO), which has considerable assets and operations in Ukraine.
In our mid cap screen there are some interesting ideas. Specialist materials manufacturer Morgan Advanced Materials (MGAM), which supplies the health, energy and transport industries is still considered well placed to offer a decent forward dividend according to our data, and it passes all our tests. The same is true of petcare business Pets at Home (PETS), which is currently growing long-term value for existing shareholders via a programme of share buybacks.Download PDF