The FTSE 100 recently reached its highest level in 12 years and equity markets globally are booming.
Contrarian investors view this rally with a degree of caution and rather than chase individual shares higher, want to find companies which have not benefited from the rise in markets, trade at 12-month lows, but still offer compelling value.
A broker was telling me the other day that broking Royal Dutch Shell was thankless and tended to be greeted by comments such as ‘Life’s too short’, ‘I know it’s cheap but…’ or ‘Too dull’. I think this is a good starting point for more investigation.
The statistic that resonates loudly with me is that Royal Dutch Shell has not cut its dividend in dollars since World War II. This is a remarkable record given regular recessions and the volatility of the oil price. Of course, past performance is no guide to the future, but I think that after a period of heavy investment, Royal Dutch Shell is a better company than it was five years ago.
It offers a 5 per cent yield which is growing at 5 per cent and has a strong balance sheet with limited debt levels, which means dividends can be paid from debt if absolutely necessary.
We have been adding to our holding for the Premier Income funds and it now represents a 6 per cent holding.
I would regard this as a ‘proper investment’ which is suitable for widows, orphans and equity income funds.
Chris White is senior investment manager at Premier Asset Management
