BlackRock: 3 Sectors for Dividends

Adam Avigdori, Manager of the BlackRock U.K. Income Fund gave his inside on the 3 best sectors for dividends. Here is what he had to say:

The first sector is the "staples". By that he meant the Personal care, tobacco, food. Ultimately companies that are selling millions, billions of everyday items and just doing that consistently.
"Staples, I think there's been a huge amount of debate over the last 12 months or 18 months about bond proxy type sectors and I think in staples they have been caught up in that broader concern. And we think in staples what the market is really under-appreciating is a long-term pricing power of so many of these businesses. And what the market is really not very good at, thankfully, for stock pickers like ourselves. It's not good at appreciating the long-term duration of both the growth and the ability of that company to grow its dividends and we see all those types of characteristics in the staple companies. Typically, multi-nationals. So, they typically operate in a large number of countries, selling a large number of brands and typically have been around for a long period of time."

The second sector is in the other end of the spectrum - food retail. "So, probably from one highly rated sector perhaps to a lowly rated sector. And what we're trying to do in the BlackRock U.K. Income Fund is identify, not just high free cash flow companies like staples. But we're trying to find turnarounds, companies that have suffered temporarily, returns are low, they're at low multiples of book and food retail really does fit that bill. And this is a sector as well all know has gone through some difficult times, let's just leave it at that.But what we actually see in the food retail sector is some inherent cash generative ability that's starting to come back. It's not quite getting back to where it used to be, but we are starting to see signs of stabilisation. And as we go through the next three years to five years with new management teams and some new refocused discipline on both costs and ultimately pricing, we think some of that cash generation is going to start coming back to you as shareholders and be reflected in the share prices."

And the third and final sector is the media sector. And what we are trying to do here is identify those businesses that have been able to move from the print world – the old world to the new world, which is digital. And to do that successfully. Now that has been an incredibly tough journey for the vast majority. But what we are trying to do is identify those sort of franchises that have been able to do that successfully and we're really trying to identify international businesses that we think would be attractive to international buyers as well.

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