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> alankeys

Joined: 05 Aug 2006
Posts: 176

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Post Tue Jun 01, 2010 10:52 am   Reply with quote      

AstraZeneca PLC
Atkins (W S) PLC
British American Tobacco PLC
Britvic PLC
Brown (N) Group PLC
Carnival PLC
Diageo PLC
GlaxoSmithKline PLC
Halma PLC
Melrose PLC
Pearson PLC
Playtech Ltd
Reed Elsevier PLC
William Hill PLC

Collins Stewart Wealth Management (CSWM) has identified 15 stocks which it believes will allow investors with explicit income needs sleep easy at night.

CSWM global strategist Robert Jukes has screened the FTSE 350, analysing financial statements to produce a well-diversified list of stocks which offer both market beating income yield and greater financial security.

Now that the early 'hope driven' stage of the market recovery is over and growth is evident in both financial and national accounts, CSWM has founded more opportunities.

The screen has identified the following 10 stocks with the capacity to provide a steady income stream without causing investors too much worry: BP, British American Tobacco, Atkins, Britvic, Playtech, Reed Elsevier, Pearson, William Hill, Melrose and IMI.

These have been added to the existing five stocks - AstraZeneca, GlaxoSmithKline, N Brown, Diageo and Halma.

Jukes analyses the leading reporting period using the P&L approach to determine a firm's financial strength with cash flow given secondary importance.

‘Cash flow forecasts can be notoriously lumpy, as sectors and companies may have to deal with idiosyncratic one-off costs (pension deficits, regulatory changes, etc...), Jukes explains.

‘Employing a cash flow approach as a ‘second opinion’ is also useful: non-cash charges score against the P&L and penalise sectors with intensive fixed asset requirements.’

Jukes has also looked at the dividend cover and considered other fixed charges such as interest payments and leases for his preferred stock list. He has also placed emphasis on liquidity – a business’ ability to meet its short term liabilities with its liquid assets.

Other areas which he has conducted due diligence on include the effectiveness of a firm is in converting its asset base into earnings and the stability of these returns.

Jukes also gives capital requirement special attention. ‘In 2008, Carnival caught many investors completely off guard when they suspended their dividend, he explains. ‘With strong coverage ratios and low gearing, this was not a problem with covenants.

‘Put simply Carnival could not fund its capital expenditure, working capital requirements and the dividend with gross cash flow. Although debt market conditions are now less prohibitive, management teams still face the same dilemma.’

Jukes uses consensus forecast estimates of the forward year’s cash flows to filter out dividend paying companies whose capital expenditure and changes in working capital are greater than 80% of gross cash flow by themselves.

‘A qualitative overlay helps us determine the discretionary extent of this capital expenditure – does the dividend just have to go?’, he explains.

> alankeys

Joined: 05 Aug 2006
Posts: 176

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Post Tue Jul 20, 2010 1:55 pm   Reply with quote      

For Barratt to go from 25p to 100p is one thing, but you can't realistically expect to see its shares at 400p+ anytime soon. The easy money has been made, and so those who expect to duplicate those returns year in and year out are deluding themselves.

5 shares that are just right
That's why more conservative shares might be the right play right now. Blue-chip companies like Diageo (LSE: DGE) and Sainsbury (LSE: SBRY) have both held up reasonably well during the worst of the financial meltdown, yet still offer decent value.

Similarly, many steady dividend paying shares like Centrica (LSE: CNA), Vodafone (LSE: VOD), and Royal Dutch Shell (LSE: RDSB) offer very attractive yields to investors.

Sure, a conservative approach may not seem exciting right now. It's very, very unlikely that these shares will double or triple in the next year, as many investors saw with riskier shares last year. But conversely, you also probably won't lose your shirt if the market starts to fall again.

As tough as things are, though, make sure you take a measured approach to investing. Don't let uncertainty scare you out of the market, but don't let a false sense of security persuade you to take big risks that you can't really afford. Forum Index - Share Club -Postings for UK investment related issues - uk stock market income stock recommendations - Reply to topic


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