The Murray Income Trust was incorporated over 100 years ago and has a record of 51 consecutive years of dividend growth. The portfolio is broadly diversified across sectors, but has a focus on higher-quality companies. The benefit of this tilt towards quality is demonstrated by a portfolio that can grow its earnings and hence its dividends in a variety of market conditions.
The fund invests principally in the UK market, which now increasingly represents a relatively safe haven in a world turned upside down by president Donald Trump’s tariffs. Fortunately, UK exporters are benefiting from a lower tariff level than many of their international competitors. The tariff shock comes at a time when the outlook for UK-listed firms is improving.
With lower energy and food prices, pressure on consumers is easing, while the labour market remains healthy and savings elevated; the Bank of England has significant scope to reduce interest rates; UK equities are valued attractively relative to US equities, in particular; and British stocks have consistently been overlooked by international investors. It may be that, having monopolised investment returns for years, the appeal of the US equity market is starting to wane. Given this backdrop, I believe that the three UK-listed mid-cap companies below make attractive investments.
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Dunelm (LSE: DNLM) is the market leader in the British home-furnishings sector. We believe the company can continue to take share in a fragmented sector and reach its goal of gaining a 10% market share. The firm has a multi-channel offering, with 40% of sales now coming through the website. Dunelm has a strong selection of own-label products across different price ranges and works closely with its suppliers under long-term partnerships.
The company recently expanded into Ireland and has the scope for further geographic expansion over the long term. The shares trade on a low-teens price/ earnings (p/e) ratio with a dividend yield of 4%. The payout has typically been supplemented by an additional annual special dividend thanks to the strength of the balance sheet.
Gamma Communications (Aim: GAMA) is moving from Aim to the main market in May. Funds that owned the shares to reduce investors’ exposure to inheritance tax have been forced sellers, providing an interesting opportunity. Gamma is a telecoms group providing a range of mostly cloud-based communications solutions that serves predominantly small and medium-sized companies in the UK, and also in Germany following a series of acquisitions.
The increasing complexity of communications is a growth driver for the company, which benefits from recurring revenues, strong margins, high cash conversion and a product that is critical to the businesses that use its services. We think a p/e ratio in the low teens belies the company’s growth potential.
Profitable presents with this UK mid-cap
Moonpig (LSE: MOON), the online greeting cards and gifts platform, offers attractive structural growth as cards and gifts increasingly move online. The company boasts attractive operating margins, limited working capital requirements, low capital intensity and virtually no inventory risk. A market share of 70% is three or four times larger than its nearest peer’s, and corresponds to 12 million active customers who are tracking around 100 million date reminders (the app nudges users when important occasions are approaching). The mid-teens p/e ratio looks attractive relative to the company’s mid-teens growth aspirations.
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