The Telegraph thinks Merchants is well placed to capitalise over the long term, while The Mail on Sunday’s Midas believes Custodian Property Income has shown that it can deliver through thick and thin.

ByFrank Buhagiar•12 Aug, 2024•

Questor: Now is the time to add this long time favourite to your portfolio

The Telegraph’s Questor is upbeat about the FTSE 100’s future prospects. Bargain-basement valuations; globally focused companies (over 80% of sales made by FTSE100 constituents are generated outside the UK); and an improving outlook for the world economy – just three reasons cited for the tipster’s positivity. And Questor is putting its money where its mouth is by increasing its wealth preserver portfolio’s exposure to UK large-cap stocks. It’s doing this by adding a holding in long time favourite Merchants (MRCH). Easy to see why – the UK equity income fund was originally tipped by Questor back in February 2020 and has since generated an 18% capital return. The five-year record is even more impressive – up +50% compared to the FTSE All-Share’s +31%.

MRCH isn’t just a play on the world economy though, but the UK too. In addition to having 54% of its funds invested in FTSE 100 stocks, a further 39% of its holdings herald from the more domestically oriented FTSE 250. A more stable political outlook and the prospect of further interest rate cuts all bode well for UK mid-caps then. A positive global and domestic outlook allows Questor to be comfortable with MRCH’s11% gearing which could prove to be a useful ally in a rising stock market. And then there’s the income side of the equation. For as well as targeting long-term capital returns, the c. £900m fund looks to deliver above-average dividend growth, a neat fit with the wealth preserver portfolio’s aim to generate above-inflation total returns.

So too is MRCH’s strategy which is to buy stocks with sound fundamentals when they trade at attractive valuations. As Questor concludes “With Merchants having an excellent track record of outperformance, a sound strategy and generous gearing, it is well placed to capitalise over the long term.”

Midas: The property investment trust going cheap and packing a 7.5% dividend

The above-titled article opens with an interesting fact: the UK produces over 25 billion pints of milk a year. What that has to do with Custodian Property Income (CREI), the property investment trust that has caught the attention of The Mail on Sunday’s tipster, to be revealed later. But first, Midas highlights how CREI came to market in 2014 with £100 million worth of property and a £1 share price. Fast forward to today and the property fund’s assets are valued at £590 million. The share price has moved in the opposite direction however – the shares trade below the 80p level. Midas believes “The decline seems overdone and should reverse, as sentiment towards the property industry improves and interest rates continue to fall.”

In the meantime, shareholders are being paid to wait. Last year, CREI paid out 5.8p per share in dividends. This year, 6p per share is being targeted. At the current share price that equates to a 7.5%+ yield. Those high payouts are no one-offs. That’s because management “firmly believes that the main purpose of property firms is to generate reliable income for investors.” And because of those high dividend payments, investors who bought shares at the time of the 2014 listing would have made a 36p return on every 100p invested. That easily beats the 20% return generated by other listed property stocks over the same period.

What’s more CREI has achieved this sector-beating return without taking on excessive risk. At the heart of this is the portfolio’s diversification: properties – at the last count there were 155 spread across the country; tenants – the properties are let to more than 300 tenants, meaning no single tenant accounts for more than 1.5% of the rent roll; and sectors – the portfolio is exposed to a wide range of sectors including out-of-town retail parks and small industrial sites. Because of that diversification, “Custodian has shown that it can deliver through thick and thin, dividends are a big draw. At 79p, the stock is a buy.” As for what connects CREIto the 25 billion pints of milk the UK produces each year – Silgan Closures is a leading producer of lids for plastic milk bottles and produces these at an industrial unit owned by CREI.

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MRCH currently yields just under 5%, so if u wanted to buy and maintain a portfolio yield of 7%, u would need to pair trade it with another yielder.