Standard Life Investments European equity manager Will James picks his five favourite income stocks in the market.
James, who runs the £1bn Standard Life Investments European Equity Income fund, has picked the stocks that he has most conviction in to pay good dividends.
Coloplast – This company makes incontinence products and it did well last year. It has a very strong global position and most of its competition is privately owned. They have done some very effective cost restructuring and they now are in the position where they can grow market share in the US. It is growing its top line at 6 per cent per annum, which equates to 15 per cent bottom line EPS growth. Coloplast says its business model is so cash generative, that it has set a debt target and everything above the gearing target, it will be paying back to shareholders. It could be paying special dividends over the next couple of years.
Wärtsilä- This Finnish engineering company makes engines for both power plants and ships. It has a very strong position from a technology perspective. It is one of the few players in the market that is going to benefit from a regulatory drive to reduce emissions from ships. It has this technology in place, which are “scrubbers”, which scrub emissions to keep them clean. Wärtsilä has a strong position in that area and we have not yet seen that come through in the order book. That technology could add 10 per cent to the top line prospects for this company in each of the next four years.
Bic- This company make pens, shavers, lighters. It is a company with a strong history of shareholder return and is top or second in all their market segments. Bic is a low-cost manufacturer of a low-cost product, which I think on a global scale is a nice way to address the consumer, because the consumer is pretty price conscious. Bic is under-represented in Asia and that is about to change, as it has got an opportunity to buy out India’s leading stationary manufacturer, Cello. Bic has 8 per cent of its market capitalisation in cash and over the last four years, it has returned 30 per cent of its market capitalisation to shareholders through dividends or share buybacks.
SCA- It is a Swedish paper company, but it thinks of itself as a consumer paper company. It makes tissue, incontinence products. It got rid of its cyclical business at the beginning of last year to DS Smith and it acquired the European consumer paper operations of another company, Georgia-Pacific. It has repositioned itself over the last 12 months. The market used to value it as a paper company at sub 10 times earnings and at the moment, we are looking at the potential for the company to re-rate as more of a consumer staple company, as consumer paper is more of a stable business.
Austria Post- This is the Austrian equivalent of the Royal Mail. They have a quasi- monopoly in this market. Post the liberalisation of postal services in Europe, there have been more businesses exit the market, as getting a branch network in the mountains is quite expensive. It has a good management team and has been taking cost out. It pays a dividend yield of 6 per cent and is committed to growing it by 5 per cent per annum.