Next month is often regarded as the beginning of a subdued six months for the stock market relative to the period between October and April. It’s called the ‘Sell in May’ effect.
To assume that little will happen in May, however, would be a big mistake. Indeed, many big companies will be releasing news and numbers over the next few weeks.
Communications behemoth BT (LSE: BT-A) is just one example.
New strategy?
Full-year figures will be released to the market on 9 May. And what a year it’s been.
Concerns over a lack of growth and not-unsubstantial debt continued to weigh heavily on the FTSE 100 constituent’s share price in the first few months before the (celebrated) departure of former CEO Gavin Patterson saw a resurgence in positive sentiment towards the company.
That momentum, however, has now fizzled out, perhaps on doubts as to what new boss Philip Jansen decides to do about BT’s chunky dividend if/when a new strategy for the £23bn cap is unveiled.
Analysts had forecasted a total cash return of 15.4p per share for 2018/19. That gives a yield of 6.7%, covered 1.7 times by expected profits. That’s high but not as dangerously high as some other companies.
Assuming Mr Jansen doesn’t cut the dividend (or doesn’t cut it by too much), that’s a great return and far more than you’ll get from the pitiful rates offered by even the best Cash ISA.
At 9 times forecast earnings for the new financial year, BT’s stock still looks like a cautious buy to me and far better value relative to other stocks in the market’s top tier.
Also in the diary…
Another company due to report next month is power provider and income investor favourite National Grid (LSE: NG). Full-year results for 2018/19 are out on 16 May.
Despite often regarded as bond proxies, I’m steering well clear of most utilities at the current time. In addition to feeling the effects of competition from smaller, more nimble peers, the possibility of a Jeremy Corbyn-led government shouldn’t be dismissed.
That said, National Grid is surely the best of a bad bunch given that it doesn’t face quite the same pressures experienced by Centrica and co and a healthy dollop of its profits are still generated in the US. The 5.7% dividend yield is also attractive, albeit barely growing.
For those interested, the ex-dividend date for the final payout is 30 May.
A final large-cap stock due to issue results to the market in May is Royal Mail (LSE: RMG).
Heavily sold off over the last year thanks to dwindling letter volumes in the UK, cost pressures in Europe and the US and growing debt, Royal Mail’s share price now languishes 55% lower than where it was at the end of April 2018.
With the company reporting full-year numbers on 22 May, I’m not optimistic on a sustained recovery for the foreseeable future. Indeed, analysts are expecting earnings per share to decline by another 7% in 2019/20.
This year’s predicted 23p per share cash payout, barely covered by profits, will equate to a massive (and surely unsustainable) dividend yield of 9%.
Possessing a contrarian streak can be very beneficial for making money on the markets. However, I still think Royal Mail represents a value trap and have zero interest in owning the shares now trading on 10 times FY2020 earnings.
