Three global income stocks to buy now
Professional stock picker Jacob de Tusch-Lec reveals his three top share tips to add income to your portfolio.
Each week, a professional investor tells MoneyWeek where he'd put his money now. This week: Jacob de Tusch-Lec, manager, Artemis Global Income Fund.
My first stock pick is New Zealand-based Sky Network Television (NZ: SKT). It is the dominant player in pay-TV, essentially covering the whole market. As such, it's like Sky in Britain, but without the competition from Virgin and without a feisty BT buying sports rights and launching its own rival products. So it operates in a rather benign market.
It also operates in a country with a passion for sport with a focus on netball, cricket and, of course, rugby. Indeed, Sky TV has the rights to every domestic sports event you can imagine.
However, the real opportunity here comes from the fact that the technology penetration level in New Zealand is well behind that seen in Britain. The household take up of TiVo' or Sky' boxes, in particular, isn't high.
As customers upgrade to better boxes the subscription price will increase and larger revenues should lead to earnings upgrades, all at a minor incremental cost to the business. The company has scope to borrow and can increase its dividend it already offers a 6% yield in a solid currency.
My next tip is Ryder System Inc (NYSE: R), an American truck rental and leasing firm. About two-thirds of its revenues come from its fleet-management services and one-third from its supply chain and logistics division. The company has benefited from strong, secular demand as outsourcing becomes the norm companies increasingly don't want to deal with logistics or own and maintain their own trucks. As an expert in its field, Ryder is often asked to help huge companies review and improve their distribution networks.
Ryder is seeing rising margins as the average age of its fleet of leased vehicles is getting younger. These early-stage leases, backed by warranties, generate high maintenance margins and returns because, when something goes wrong, the truck manufacturer deals with it. A continuing US recovery will also help.
Recently, I met the chief financial officer of Borregaard (Oslo: BRG), a newly floated bio-refinery business spun out of Orkla, a Norwegian food conglomerate. This is a complex business that processes wood into diverse cellulose and lignin speciality chemicals used in almost every product you can imagine, from cement to cigarette filters, to the vanilla in ice cream. This makes its business more resilient than a typical chemicals player's.
In addition, the company's 40% share of the global lignin market means it should have some decent pricing power and stability in this particular niche. One problem is that it also produces a lot of lower-quality cellulose materials. Although prices for these had been stellar before the company floated, they are expected to drop.
Nonetheless, even assuming zero profits for that part of the business, the rest trades on only six times EV/Ebitda. That is still cheaper than other lower-value pulp players. Currently, Borregaard spins off a huge amount of cash with a double-digit free cash-flow margin and a new, but progressive, dividend policy (potentially yielding 5%).
For all these reasons we are happy to have bought in now. We will sit back and wait for the shares to tick up as other domestic investors come out of hibernation and start reading the company's dull, but profitable, annual accounts.