Advertisement

British stock valuations look “unequivocally appealing”

Those with a long-time horizon – and the stomach for a bumpy ride – will find much to interest them in British stocks.

Stagecoach is among several firms to have slashed their dividends this week © Alamy

Get ready for dividend cuts, says Daniel Thomas in the Financial Times. British companies are usually a happy hunting ground for income-seekers, but with the Covid-19 pandemic decimating earnings and cash hoarding rife, investors are braced for “savage” cuts to payouts. 

This week saw ITV, Stagecoach and Kingfisher scrap dividends. FTSE 100 dividend payments have almost doubled to £90bn over the last decade. Yet even before the virus earnings cover for many FTSE 100 businesses looked stretched. 

Advertisement - Article continues below

A rallying dollar saw sterling slump to its lowest level since 1985 early this week before rallying. A weak currency is good news for the multinational giants of the FTSE 100, which make roughly 70% of their sales overseas. But the same cannot be said for the more domestically-focused FTSE 250, which has turned in a “stunningly bad” performance, notes John Authers on Bloomberg. It is down more than 35% for the year-to-date, underperforming even the Italian market. 

Markets are turbulent and risks abound, but valuations are “unequivocally more appealing than at any point in recent years”, says Duncan Lamont of Schroders. Those with a long-time horizon – and the stomach for a bumpy ride – will find much to interest them in British stocks. On a range of valuation metrics UK equities look more than 20% cheaper than their historical average.

The market plunge has opened up opportunities, agrees Tom Stevenson of Fidelity International for The Daily Telegraph. Even if more dividends are ultimately cut, 14 FTSE 100 companies were trading on double-digit dividend yields last week, which is remarkable. And 27 others were yielding more than 7%. “The best time to invest is not when you see light at the end of the tunnel but when the darkness is a shade less black.” This may be a great buying opportunity. 

Advertisement
Advertisement

Recommended

Visit/investments/stockmarkets/601450/global-stockmarket-bulls-start-to-stampede
Stockmarkets

Global stockmarket bulls start to stampede

Global stockmarkets' rise suggest investors are optimistic that the economy is heading for better days. But bad earnings data could put their faith to…
5 Jun 2020
Visit/investments/stockmarkets/uk-stockmarkets/601455/is-this-the-end-for-ted-baker
UK stockmarkets

Is this the end for Ted Baker?

Ted Baker is sinking deeper and deeper into the mire.
4 Jun 2020
Visit/investments/investment-strategy/601447/look-beyond-profits-to-find-firms-that-will-go-the-distance
Investment strategy

Look beyond profits to find firms that will go the distance

When times are tough, a strong balance sheet is crucial if companies are to keep ticking over and bounce back. Richard Beddard explains the basics and…
4 Jun 2020
Visit/investments/stockmarkets/uk-stockmarkets/601406/uk-banks-and-negative-interest-money-for-less-than
UK stockmarkets

UK banks and negative interest: money for less than nothing

The upheaval at HSBC has underscored banks’ poor prospects. Negative interest rates won’t make things any easier. Matthew Partridge reports
28 May 2020

Most Popular

Visit/investments/commodities/gold/601444/these-seven-charts-show-exactly-why-you-must-own-gold-today
Gold

These seven charts show exactly why you must own gold today

Covid-19 is accelerating many trends that were already in existence. The rising gold price is one such trend. These seven charts, says Dominic Frisby,…
3 Jun 2020
Visit/economy/eu-economy/601463/why-a-stronger-euro-is-good-news-for-investors
EU Economy

Why a stronger euro is good news for investors

The fragile state of the eurozone has for a long time brought the threat of deflation. But the ECB’s latest moves have dampened those fears. John Step…
5 Jun 2020
Visit/investments/stockmarkets/601460/disease-rioting-and-mass-unemployment-so-why-are-markets-soaring
Stockmarkets

Disease, rioting and mass unemployment – so why are markets soaring?

Despite some pretty strong headwinds in the last year, America’s S&P 500 stock index is close to all-time highs. John Stepek explains why markets seem…
4 Jun 2020