UK domestics for income? Kames names two stocks shrugging off home-grown headwinds to deliver dividends
The UK’s embattled retail and leisure sectors are home to a number of attractive stocks for income-seekers, despite discretionary consumer spending coming under pressure, Kames Capital says.
While both areas may not be the most obvious port of call for investors seeking income, Kames’ Iain Wells, manager of the top-performing1 Kames UK Equity Income fund, says there are some outstanding income producers which, while reliant on UK consumer spending, have nonetheless been overlooked by the market.
“Like the wider market we have been wary on domestics because of challenges facing discretionary spend,” he says. “But there are a number of exceptions.”
Two such stocks the fund is invested in are specialist retailer Card Factory and Greene King, the pub retailer and brewer.
Card Factory, which has some 800 stores around the UK, continues to see sales growth while its store roll-out programme will see it add a further 50 sites in the current financial year.
Wells says the company is particularly attractive to income investors because of its approach to dividends.
“Card Factory is quite happy being a cash cow, and it pays back most of the cash it generates to shareholders,” he says. “It is not operating in a growth market, but its competitors have their own challenges, and it also offers a secure and high dividend which is attractive.”
Meanwhile Greene King has a track record for delivering dividend growth, and while it faces headwinds from weaker consumer spending and the cost increases caused by weaker sterling, the group recently reported record revenues and has a prospective yield of 4.9%.2
“With Greene King, the yield is compensation for the headwinds facing the sector,” Wells adds.
Kames’ fund focuses on delivering income and capital growth via an investment style which is low on turnover and high on conviction, using a bottom-up approach to find attractively-priced companies with strong fundamentals.
The fund has delivered a 32.97% return over the last three years versus the IA UK Equity Income sector average return of 23.5%.