Which, whilst it’s always a good time to be a dividend hunter, some times are better than other times.

The ‘unpleasant conclusion’ given by five key indicators

27 March 2025

AJ Bell’s Russ Mould explains what the outlook for the global economy is, after reviewing several important measures.

By Gary Jackson,

Head of editorial, FE fundinfo

 

Investors should keep a close eye on indicators such as transport stocks, small-caps and copper in order to gauge the possible direction of the economy and financial markets, according to AJ Bell.

The second presidency of Donald Trump in the US, coming after more than a decade of unorthodox monetary policy, failed attempts at austerity, ballooned government debt and the fallout of the Covid pandemic, means investors are split on whether the globe is headed into inflation, deflation or stagflation.

Russ Mould, investment director at AJ Bell, said: “All three of those potential endgames would require a different portfolio allocation, at least if history is any guide, with inflation perhaps leaning toward select equities and ‘real’ assets such as commodities, deflation favouring cash and bonds and stagflation, the worst of all worlds, putting gold and commodities (again) in the driving seat.”

To help investors guess what might be coming, AJ Bell offers up five indicators that can give a steer on what is happening in the global economy.

Transport stocks

Proponents of Dow Theory – which is a form of technical analysis derived from Wall Street Journal editorials of Charles H. Dow – watch transportation stocks as a bellwether of the wider economy.

Because a strong economy means there’s strong demand for goods, products need to be shipped from manufacturers to retailers and wholesalers to replenish shelves. Therefore, strong performance from freight, truck, airline and shipping companies suggests the economy is doing well.

Of course, the opposite also stands. If transportation companies are struggling, then it suggests diminishing economic activity.

Performance of Dow Jones Industrials and Dow Jones Transportation indices over 1yr

Source: FE Analytics

“It will therefore be of some concern to bulls of US stocks to see the Dow Jones Transport index slide by 18% from last November’s high, to leave it on the fringes of bear market territory,” Mould said.

This could indicate that the US is moving towards slowdown or recession.

Small-caps

The small-cap Russell 2000 index initially rallied after Trump won the 2024 election but, like the transportation index, is currently pointing to a slowdown or recession.

UK small-caps paint a similar picture.

Performance of US and UK small-caps over 1yr

Source: FE Analytics

“Small-cap companies tend to be less well-resourced than their multi-national, mega-cap peers, and are often more dependent upon their domestic economy as a result,” Mould said.

“As such, they can be seen as a guide to trends in local output, so the slide in market minnows on both sides of the Atlantic could be seen as a harbinger of an economic slowdown.”

Semiconductor stocks

The AJ Bell investment director also argued that silicon chip and semiconductor production equipment (SPE) manufacturers can also be a useful economic indicator. Silicon chips are widely used in electronic devices ranging from smartphones to cars to servers, meaning they are in demand from every part of the economy.

Although the industry’s annual sales are expected to reach a new all-time high of almost $700bn this year, it’s worth remembering that it is cyclical. Semiconductor stocks often experience booms driven by spikes in demand from new applications followed by busts, as output slows because of a wider economic slowdown.

Performance of Philadelphia Semiconductor index over 1yr

Source: FE Analytics

“The Philadelphia Semiconductor index, known as the SOX, consists of 30 major silicon chip and SPE specialists,” Mould said.

“It may be a source of discomfort to bulls to see the benchmark sit below where it lay a year ago, for all of the hoopla surrounding AI and the SOX has dropped to more than a fifth below last summer’s peak – bear market territory.”

Copper

Copper is used in many parts of the economy, from white goods to cars to construction. Because of this, it is often seen as a good guide to global economic health – so much so that its nickname is ‘Doctor Copper’.

Copper prices fell in 2024 on the back of China’s real estate bust but have bounced back this year. AJ Bell said the rally could be bolstered by more monetary and fiscal stimulus from Beijing as well as Germany’s proposals for debt-funded growth.

Copper over 1yr

Source: FE Analytics

However, part of the rise in demand could be copper traders buying up supplies in case the metal is subject to US tariffs. It could also be investors buying up real assets to protect against inflation or stagflation.

As such, Mould thinks the copper price could be indicating growth or higher inflation from here.

Government bonds

Interest rates have been trending downwards across the globe, with 193 rate cuts from central banks in 2024 and another 31 so far this year. However, 10-year government bond yields have not moved lower in anticipation of more to come, as might be expected.

This dynamic could be explained by worries over increased supply of government debt and concerns over the potentially inflationary impact of the US’s tariffs, according to Mould.

AJ Bell said bond yields seem to be pointing to inflation or stagflation.

10yr government bond yields

Source: LSEG Refinitiv data

Mould finished: “The unpleasant conclusion from these five trends is that the global outlook is deviating from the one which markets priced in so enthusiastically in 2024, namely a return to the low growth, low inflation, low interest rate world that had worked so well for bonds and long-duration assets such as technology stocks during the 2010s and early 2020s.”

He offered one final indicator that investors might want to keep an eye on: “If the environment really has changed – and we are now in an era of inflation or stagflation and not the low-growth, low-rate, low-inflation murk that dominated in the wake of the financial crisis – then it could just show up in how the CRB Commodities benchmark does relative to the S&P 500. Such a dramatic change may just favour commodities, at least if the experiences of the 1970s are any guide.”

A case study of Trusts added to the Watch List, starting with Property shares as that is where the market’s interest is at the moment. Not a recommendation to buy just posted in alphabetical order for you to DYOR.

As always timing and then time in if you want to GRS.

AEW UK REIT plc

NAV Update and Dividend Declaration

AEW UK REIT plc (LSE: AEWU) (“AEWU” or the “Company”), which directly owns a value-focused, diversified portfolio of 32 UK commercial property assets, announces its unaudited Net Asset Value (“NAV”) at 31 December 2024 and interim dividend for the three-month period ending 31 December 2024.

Highlights

·      NAV of £174.30 million or 110.02 pence per share at 31 December 2024 (30 September 2024: £172.76 million or 109.05 pence per share).

·      NAV total return of 2.73% for the quarter (30 September 2024 quarter: 4.85%).

·      1.22% like-for-like valuation increase for the quarter (30 September 2024 quarter: 2.94% increase).

·      EPRA earnings per share (“EPRA EPS”) for the quarter of 2.35 pence (30 September 2024 quarter: 2.68 pence).

·      Interim dividend of 2.00 pence per share for the three months ended 31 December 2024, paid for 37 consecutive quarters and in line with the targeted annual dividend of 8.00 pence per share, representing a dividend yield of 7.9%.

·      Loan to GAV ratio at the quarter end was 25.03% (30 September 2024: 25.04%). Significant headroom on all loan covenants.

·      Company continues to benefit from a low fixed cost of debt of 2.959% until May 2027.

·    Disposal of Units 1-11 of Central Six Retail Park, Coventry, for £26,250,000, reflecting a net initial yield of 7.49% and a capital value of £213 per sq. ft, representing a 60% premium to the purchase price.

Henry Butt, Assistant Portfolio Manager, AEW UK REIT, commented:

“We are pleased with the growth in NAV per share and the dividend being covered by EPRA earnings for a third consecutive quarter, which continues to evidence the earnings accretion produced by the Company’s programme of ongoing asset management initiatives through income generation and void cost mitigation. Rental income has been buoyed by the billing of annual turnover rent for Next in Bromley, and Poundland in Coventry, while the Company’s ‘bottom line’ continues to benefit from a stabilised portfolio and tenant base.

The part sale of Central Six Retail Park, Coventry, at a very healthy premium of 60% to the purchase price, means the Company has capital to deploy on a pipeline of attractive investment opportunities, a significant amount of which is already under offer.

The Company has committed to pay its quarterly dividend of 2.00 pence per share, which has now been paid for 37 consecutive quarters.”

20/01/25

AEW UK REIT plc

Acquisition of high-yielding asset in affluent town

AEW UK REIT plc (LSE: AEWU) (“AEWU” or the “Company”) is pleased to announce that it has completed the purchase of a freehold, high-street retail asset at 13/13A, 114-119, 121-123 Bancroft and 3-4 Portmill Lane (the “Property”) in the affluent commuter town of Hitchin for £10,000,000. The purchase price reflects an attractive net initial yield of 8.31% and a capital value of £213 per sq. ft.

The Property, located in the centre of Hitchin’s high-street retail pitch, provides 46,905 sq. ft. of space across 12 retail units and a standalone office building, as well as car parking and service yards.  The retail elements of the Property are fully let to a strong line up of 12 tenants, with recent leasing activity evidencing the strength of the location. Major tenants include Marks & Spencer plc, Next Holdings Ltd, Vodafone Ltd, The White Company and Holland & Barrett. The vacant office element to the rear provides various asset management options in the short-to-medium term, including new lettings or residential conversion.

Hitchin is a busy market town located in Hertfordshire with an affluent catchment. The town is served by rail connections to both London and Cambridge, underpinning its attractiveness as a commuter location.

The acquisition demonstrates the Company’s swift and ongoing redeployment of sale proceeds from the recent disposal of Central Six Retail Park in Coventry, with a significant amount of the remaining proceeds also under exclusive negotiation. In considering the re-deployment of the proceeds from Central Six, the Company has identified an attractive pipeline of investments available for purchase in the current market and is considering available growth opportunities for further earnings accretive acquisitions.”

Commenting on the purchase, Laura Elkin, Portfolio Manager of AEW UK REIT said: “We are delighted to have purchased this well-located asset at a day one yield that will enhance the Company’s earnings. Completing this acquisition marks a significant milestone in our strategy to reinvest capital generated from the recent successful sale of our retail park in Coventry into higher-yielding and value-add assets. We continue to actively monitor a pipeline of attractive potential investments, and believe the Company is well positioned to focus on the growth of the portfolio should the right earnings accretive opportunities arise.”

14/03/25

Current yield 8%

Trades around its NAV

The following shares will be added to the Watch List.

AEWU

BAF,BPCP

CREI

GWI,GRP

HICL

INPP

LAND

MGCI

NCYF,NRR

PMGR

RMII

SHIP,SOHO

UIL

I will provide some information next week on selected shares from the above but it will not be a recommendation to buy as always it’s best to DYOR. GL

I’ve bought for the Snowball 1445 shares in NESF for 1k, this should add to the Snowball another £110.00 p.a.

All baby steps.

2 fantastic US growth stocks to consider for a fresh ISA this April

Thinking of opening or rebalancing a Stocks and Shares ISA this April? Consider diversifying into these two promising US growth stocks.

Posted by Mark Hartley

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. .

The past two months haven’t been kind to US growth stocks, as trade tariff turmoil sent many into freefall. Automakers and banks were among the worst hit, with Chrysler owner Stellantis losing 10% in a single day in March.

Now analysts are eyeing a recovery following news that the Trump administration may ease tariffs this week. The result could be great news for stocks that had a tough start to the year and are now trading at a discount.

For UK investors looking to add some diversity to their ISA this April, here are two promising US growth stocks to consider.

Uber Technologies

The ride-hailing and food delivery platform Uber (NYSE: UBER) is more often in the news for controversy than its stock performance. Yet despite several security issues — including data breaches and safety concerns — it remains the most popular ride-hailing app in the world.

Founded in 2009 and headquartered in San Francisco, its operations span across the Americas, Europe, the Middle East, Africa and the Asia Pacific.

The stock’s currently trading around $76, up 180% after five years of volatile price action. Investors who caught the $20 low in mid-2022 would have almost quadrupled their investment by now.

But several ongoing risks threaten continued volatility. Regulatory challenges are a key issue, with some regions attempting to ban the app on grounds of unfair competition. It also faces stiff competition from a plethora of lower-priced rivals like Bolt.

By adding additional revenue streams like food and freight delivery, Uber has successfully expanded its business. Adding to this is its recent partnerships with autonomous vehicle companies like Waymo, positioning it to benefit from the robo-taxi market.

Analysts expect revenue to reach $50bn by the end of 2025, with an average 12-month price target of $90.

Dell Technologies

Dell‘s (NYSE: DELL) a well-recognised name in the tech world, providing a broad range of IT products and services. The multinational tech giant sells everything from personal computers and servers to storage systems and networking products. Its varied customer base includes individual consumers, small businesses and large enterprises.

The stock currently trades at around $100 a share, up 410% in the past five years. Lately, performance has been underwhelming, with the stock down 44% from its May 2024 all-time high of $180.

Despite moderate revenue growth, it has struggled recently with declining profit margins. This has been attributed to the high costs associated with artificial intelligence (AI) server components like Nvidia GPUs. Competition from other major players in the AI-server market is also threatening its market share and profitability.

In its fiscal fourth quarter ended January, Dell reported an 18% increase in adjusted earnings of $2.68 per share and a 7% revenue increase to $23.93bn. This surpassed earnings expectations but fell short of sales projections.

Demand for AI infrastructure has been a key driver of growth recently, with Dell enjoying significant interest in its servers and networking segment. Reports indicate the company’s AI server backlog is around $9bn.

The growth’s reflected in its annual cash dividend, which climbed 18% this year, supported by a $10bn share buyback programme. These developments reinforce the company’s commitment to returning value to shareholders.

Analysts are overwhelmingly optimistic about the stock, expecting an average 36.5% increase in the coming 12 months.

Of course, there are plenty of other passive income opportunities to explore. And these may be even more lucrative:

How to generate income with fixed-interest investments
Story by Max King

How to generate income with fixed-interest investments
© Getty Images

With UK interest rates down to 4.5% and likely to fall further, it is becoming increasingly difficult to earn more than 4% from a deposit account. Inside a cash ISA, there is no tax to pay on interest income, but the chancellor is reported to be keen to chip away at the £50 billion locked up in them, ostensibly to encourage investors to shift into risk-taking assets, but more probably to generate extra tax revenue. What are the alternatives?

There are plenty of conventional investment trusts, especially those investing in UK shares, yielding over 4%, but many investors will not want the stock market risk. For them, Stifel, an investment bank and brokerage, has compiled a list of 33 relatively liquid “alternative funds” yielding between 4% and 15%, generated from what should be more predictable streams of income.

“A cynic would argue that these yields indicate the market is expecting many dividends to be cut,” it points out, “but many of these high yields have arisen due to sharp falls in share prices over the past year”, which is not exactly reassuring for those wanting to avoid risk to their capital.

“However, those now trading on wide discounts to net asset value [NAV] should have more upside than downside,” especially as “many of the funds have set modestly increased dividend targets for 2025 and projected dividend covers, based on revenues after deducting expenses, typically ranging from 1.1 times to 1.3 times.”

The leading investment trusts.

These include a number of funds investing in fixed interest, including the £300 million CQS New City High Yield Fund (LSE: NCYF), trading on a 6% premium to NAV and yielding 8.7%. It invests in high-yielding corporate bonds, which implies high risk, but the manager, Ian Francis, has delivered strong returns for 17 years by focusing on capital preservation, helped by an experienced team of analysts at Manulife CQS, the management company.

Strong performance (11% over one year, 25% over three and 42% over five), and the consequent premium to NAV, has enabled the fund to grow through share issuance (£13.3 million in the last year), although this has always been conservative to prevent the size of the fund swamping the opportunities.

Dividends have risen every year for 16 years, although the rate of increase has slowed to a snail’s pace in the last five years. Most importantly, the fund succeeded in generating positive returns in the last half of 2024, a difficult time for bonds generally, suggesting that it will continue to do so even if ten-year gilt yields head up to 5%.

TwentyFour Income Fund (LSE: TFIF) and TwentyFour Select Monthly Income (LSE: SMIF) have also performed well. TFIF, with £845 million of assets, has returned 15% over one year, 32% over three and 49% over five, while SMIF (£240 million of assets) has returned 17%, 28% and 40%. Their shares trade on a small discount and small premium to NAV respectively and yield 9.1% and 8.5%.

The key to TwentyFour’s success, says manager George Curtis, is “avoiding the accidents”. The investment-trust structure means that “managers are not forced to sell at times of crisis” and “enables us to take advantage of the premium return from illiquidity by investing in less liquid securities”. But the golden rule is “getting your money back by minimising defaults”.

TFIF doesn’t invest in bonds, but in “a diversified portfolio of predominantly UK and European asset backed securities”. Nearly half of the portfolio is in “mortgage backed securities”, mostly residential. Banks package together a large number of mortgages and then turn the package into tradable securities, injecting bank debt to raise returns. The top tier is prioritised in a return of capital while lower tiers are progressively riskier, but have higher coupons.

TFIF also invests in securities based on car loans, consumer loans and “collaterised loan obligations” (nearly 40% of the portfolio), which uses the same process to turn bank loans to companies into tradable securities. About 20% of the portfolio is “investment grade” (lower risk), 46% sub-investment grade (higher-risk, but above junk) and 33% is not rated, which means there is no independent review of the riskiness of the securities.

Around 36% of SMIF’s portfolio is invested in asset-backed securities, but most of it is in “subordinated” bank and insurance-company debt, meaning that it is a lower priority for repayment than other types of debt, thereby providing banks and insurance companies with an additional buffer to share capital in the event of a crisis. Slightly more of its portfolio (30%) is made up of investment-grade debt; 60% consists of sub-investment grade (but above junk) paper and 10% is “not rated”.

While TFIF invests in floating-rate debt and so has no exposure to changes in interest rates, SMIF invests in fixed-rate securities, but with short lives – nearly 90% repay within five years. This all sounds risky, but Curtis points out that the balance sheets of banks and insurance companies are “very strong”, while yields have tightened, “but are still well above those in 2021”. In the personal sector, “unemployment and divorce are the key factors behind defaults”. He notes that “economies have been resilient to higher rates and defaults have remained low. Interest rates in the UK are expected to flatten out at 4%, so it should be pretty easy to maintain 8% returns”.

Less risk, lower returns
Those who are more risk-averse can still earn 8.9% from the £140 million M&G Credit Income Investment Trust (LSE: MGCI), although a portfolio yield to maturity of 7.8% means that it dips into capital to pay the dividend. Like TwentyFour, it invests in “private, semi-liquid assets, mostly held until maturity”, but at least 70% of its portfolio has to be investment grade (the current proportion is 77%). The trust is seeking to raise another £30 million.

MGCI’s lower risk means that its returns have also been lower; 8% over one year, 20% over three and 28% over five. The returns from the Invesco Bond Income Plus Trust (£350 million of net assets) at 9%, 14% and 24% are lower still, as is the yield of 6.8%, but it invests in a “very liquid” portfolio of listed bonds, which reduces the complexity of the portfolio, if not the risk: 70% of the portfolio comprises sub-investment grade paper.

As with the other funds, investing in a portfolio of seemingly low-quality bonds and credit has turned out not to have been nearly as risky as might have been expected. The global financial crisis of 2008-2009 was a shock to the credit-rating agencies who have learned to be a lot more cautious in their assessment of risk – just as the issuers of bonds and loan securities (and, behind them, people and businesses) have learned to be far more prudent.

The result has been that just as government bonds came to be, and probably still are, systematically overvalued, nominally higher-risk fixed-interest investments have been, and remain, undervalued.

M&G Credit Income

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by M&G Credit Income. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

MGCI’s high yield and strong returns have led to a premium rating…

Overview

M&G Credit Income (MGCI) is a highly flexible fixed-income fund which delivers a very high yield without taking the credit risk, duration risk, or gearing that is usually used to achieve this. The historic yield is 8.2% at the time of writing, achieved from a portfolio of investment-grade quality on average, a duration below one, and no Gearing.

Manager Adam English invests across public and private debt markets, aiming to deliver an attractive yield with low NAV volatility. In recent months he has been reducing credit risk in the portfolio, taking the view that it is not being fairly compensated. He is parking funds in liquid ABS funds of high credit quality and looking for opportunities to reinvest in attractively priced assets.

Currently, the private assets pipeline looks particularly promising, and it may be that is where Adam looks to boost the yield and take on more risk as the year progresses . Private assets are usually only accessible to institutional investors and offer high yields for those able to do the research required to invest. MGCI brings these opportunities to the retail market, facilitated by the expansive credit teams at M&G.

MGCI has delivered strong returns in the last two years and met its  Dividend target of SONIA plus 400bps. This has contributed to a premium rating and the board has struggled to issue enough shares to keep a lid on it. A recently completed placing and retail offer saw demand for an additional 6.5m shares which listed this week, or around 4% of the share capital before the raise.

Analyst’s View

We think MGCI is an attractive long-term holding for an income-seeking investor. A yield around full four percentage points higher than the base rate and therefore the typical cash rate is likely to be very good whatever that base rate is. Whilst spreads can vary over time, this is on average likely to be the sort of yield available from high yield, whilst it is achieved with a portfolio of much higher credit quality which should keep losses to default and credit events to a minimum. Meanwhile, the volatility of the NAV should be lower thanks to the low credit risk and very low duration. Investors do forego the potential for sharp capital returns in higher-yielding bonds or those with higher duration when the relevant conditions apply, but we think this is an easy sacrifice for the income investor who will most likely be more worried about limiting the potential for capital losses.

Currently, the picture for fixed income is mixed. We are expecting modest rate cuts in the UK and EU over the year which should boost prices and be good for the affordability of corporates with debt. However, these cuts are expected due to a weakening of the economy which means inflation is slowly falling and rate cuts may be needed to stimulate activity. These factors are all bad for credit. Adam’s relatively cautious stance makes sense in this environment, in our view, and it is notable that he can go defensive whilst still yielding just under 8% on his portfolio.

Bull

• High yield linked to interest rates, with average investment-grade quality credit
• Offers access to private debt markets, providing attractive risk/return characteristics and diversification
• NAV should prove resilient due to many defensive characteristics

Bear

• Complexity makes it harder for investors to understand exposures
• Limited capital gain potential, including from duration
• Rate cuts will reduce portfolio income, absent offsetting investment decisions

Cash for re-investment tomorrow, most probably into NESF.

Current yield 12.3%.

Note: the yield you receive will be the blended yield of your buying price, so with NESF the current yield for the Snowball is 10%, which will gently increase when/if the new shares are purchased.