Recent market weakness means that a number of high-yielding shares have just got cheaper.
In this article, I’ll ask whether now is the time to buy Ashmore Group (LSE: ASHM), Berkeley Group Holdings (LSE: BKG) and Laura Ashley Holdings (LSE: ALY)
Ashmore Group
Emerging markets asset manager Ashmore Group has suffered from poor sentiment towards emerging markets over the last year, but do the fundamentals justify this decline?
Ashmore shares are 23% lower than 12 months ago, meaning they now offer a prospective yield of 6%, which is expected to rise to 6.25% in 2015/16.
Although dividend cover of 1.2 times is a bit tight, in my view, the firm’s strong cash generation suggests to me that a cut is unlikely unless trading gets much worse.
Ashmore is expected to report a 15% rise in earnings per share for the year just ended, placing its shares on a P/E of 13.3. Earnings are expected to fall by around 5% this year, giving a forecast P/E of 14.0.
This valuation looks about right, in my view. I reckon Ashmore could prove to be a strong long-term income buy, for investors who are able to ignore any short-term weakness.
Laura Ashley
Lifestyle retailer Laura Ashley has paid a dividend of 2p per share, unchanged, since 2012. That gives a cracking 6.8% yield.
I’d normally be suspicious of such a high yield, but this payout is covered by earnings so there’s no obvious reason to expect a cut. However, the firm’s decision to spend £31.1m on a buying an office building in Singapore to use as its Asian headquarters did surprise me.
Although international sales are increasingly important at the firm, international revenues only account for 10% of sales at the moment. Significant expansion will be required to justify this purchase, which will use up most of the firm’s cash and require it to move from net cash to net debt.
This could weaken support for the dividend if trading slows in the future. However, on a forecast P/E of 11.8 and with a covered 6.8% yield, I still rate Laura Ashely as a buy at 30p.
Berkeley Group
Berkeley recently completed a 434p per share capital return to shareholders. The firm plans to return a further 433p by September 2018 and another 433p by September 2021.
Analysts’ forecasts suggest that this year’s portion of this payout will be 150p per share, giving a prospective yield of 4.4%. That’s attractive, and for existing shareholders probably represents a good reason to hold.
However, I think a closer look at Berkeley’s valuation is needed for potential new investors.
Berkeley’s shares have risen by 36% so far this year. This has left the firm’s shares trading on 2.8 times their book value.
I think this is quite a demanding valuation, especially as profits are expected to be broadly flat this year, putting the shares on a forecast P/E of 14.
Although a 48% rise in earnings per share is expected in 2016/17, there’s no guarantee that market conditions won’t change before then. Land, labour and material costs may rise, or house prices may weaken.
In my view, Berkeley is a high-quality company, but is already fully valued. I’d hold.
