Investors who were bold enough to shop on the blue-chip sale rail last week have been richly rewarded for their decision to cut through the noise and follow their conviction.
Some of the best performers have left the surging FTSE 100 for dust; indeed, one of the Stockopedia screens that I follow, Dividend Dogs of the FTSE, is a high-yield income strategy based on an approach devised by US investor Michael O’Higgins in his book, Beating the Dow.
The screen, which is based on just 10 stocks from the FTSE 100, has gained almost 20% in the last week as investors sought out the high yield of some mega-caps that have seen their share prices collapse through the recent volatility, not to mention continued weakness in the price of oil and other natural resources.
As we can see from the chart below, the four stocks under review have made some investors very happy over the last few days, but can the trend continue?
Back to Black?
Times have been tough for Royal Dutch Shell (LSE: RDSB) and BP (LSE: BP), the 4th and 14th largest companies in the main index.
Both management teams have had their work cut out in the face of falling oil prices and the subsequent earnings downgrades from City analysts; both have had to look carefully at current upstream projects, most notably Royal Dutch Shell, as it pulled out of its controversial Arctic drilling programme after failing to find enough oil and gas at a key well in the Chukchi Sea, off the coast of Alaska. Management said it would cease exploration activity in the region ‘for the foreseeable future’, blaming high costs associated with the project and a ‘challenging and unpredictable regulatory environment’.
Despite worries over the exploration side of the business, here we have two vertically integrated operators, both of whom have the ability to find savings from well to pump, and both seem to have found efficiencies and savings in the downstream side of the business, with both highlighting increased profitability at the interim stage of 2015.
So far, at least, the dividend looks safe, and at current prices, both provide a yield of almost 7% — for income seekers, that’s not to be sniffed at!
Digging Deep
Also in the headlines for all of the wrong reasons were mining giants Anglo American (LSE: AAL) and BHP Billiton (LSE: BLT). Even the most patient investors will have been tested to the limit with share prices crumbling in line with weak commodity prices and fears over a slowing Chinese economy.
As with other operators in the sector, management were faced with a weakness in price that they couldn’t do anything about. Accordingly, and quite rightly, they have set about the business cutting costs and improving efficiencies in global operations.
Whilst these efforts have stemmed the flow, both businesses have seen revenues, profits and dividend cover fall.
On the dividend prospects, both of these miners are expected to yield almost 7% — however, if we continue to see commodity prices weaken, I would expect to see the dividend come under pressure.
What a Difference a Chart Makes
As we can see from the below chart, big oil and mining giants have not been the best place for your hard earned cash, and while some traders may have traded their way to big returns, in my view, income-focused investors should ensure that they are properly diversified across the market, should sentiment wane…
