As my colleague Roland Head noted a few weeks ago, shares in City of London Investment Group (LSE: CLIG) have produced an outstanding total return for investors of 377% since the company’s flotation in 2006.
While the growth in the share price has been an impressive 123% over this period, generous dividends have made up the bulk of the return.
And I expect this trend to continue as the asset manager goes from strength to strength.
Building a reputation
Over the past decade, City of London has been making a reputation for itself as an emerging markets (EM) asset manager. The business is relatively small in comparison to some of its larger peers with just £5bn in funds under management (FUM) at the end of September, but the firm’s performance since its IPO shows that size is not holding it back.
Unfortunately, the one downside of specialising in EMs is that capital tends to be flighty. When the going gets tough, EMs are usually the first markets sold by investors and this has been precisely what has happened over the past few months.
Outflows from EM funds all over the world have jumped, and City of London has not been able to buck the trend. According to figures out from the company today, FUM in the firm’s EM funds declined 5% between June and September. On the other hand, City of London’s developed market equity funds saw an increase in FUM of 20%. Overall, net inflows were positive at £8m although market movements caused the overall balance to decline by 2%.
In my opinion, this small change isn’t enough to upset the group’s potential for the full year. For fiscal 2019, analysts are expecting the company to earn 38.6p, which puts the stock on a forward P/E of 10.3, hardly a demanding valuation. In addition, the stock supports a dividend yield of all of 7.2%. These attractive valuation metrics are why I believe this is one of the best income stocks on the market today.
Development income
Another income play that has recently grabbed my attention is U and I Group (LSE: UAI). This property business is focused on buying and developing undervalued real estate assets, unlocking value from unloved and misused property. It currently has a pipeline of existing projects with a gross development value of more than £7bn.
Management believes that the company can produce development and trading gains of £50m per annum based on the current pipeline of projects, and the majority of this income will be returned to investors if history is anything to go by. U and I usually distributes any excess income to investors, which meant that last year investors received 20.7p per share, giving a dividend yield of 8.9%.
For 2018, analysts have pencilled in a yield of 5.7%, but I believe this could be a conservative estimate. If the firm can hit its projected development profits target, the return could be closer to 7% according to my calculations. With this being the case, I believe it is indeed worth keeping an eye on what U and I has to offer to investors.
