Interactive Investor

Dividends are back again at these superstar mid-cap stocks

10th November 2020 15:12

Graeme Evans from interactive investor


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Investors have liked these companies for a long while, and their faith was repaid again today.

Two stocks on a high even before Monday's vaccine news were soaring again in the FTSE 250 index today after reinstating dividend payments alongside better-than-expected results.

Shares in Oxford Instruments (LSE:OXIG), which provides tech solutions to industrial companies and scientific research communities, jumped 11% to a new record of 1,960p, while Electrocomponents (LSE:ECM) was at a new multi-year high of 792p after rising 3%.

The pair were not alone in boosting the spirits of income investors after property firm Land Securities Group (LSE:LAND) restored payments and Irish conglomerate DCC (LSE:DCC) protected its remarkable 26-year run of dividend growth by increasing its interim award by 5% to 51.95p.

FTSE 100-listed DCC rose 1% to 5,654p and Land Securities improved 4% to its best level since June at 668.2p after an improvement in rent collection and in its trading outlook enabled the company to resume dividends with a 12p a share award on 4 January.

At Oxford Instruments, a robust trading performance and strong order book worth more than £200 million led to a dividend of 4.1p a share - the same level as the 2020 interim payment, which the board decided not to pay during the early stages of the pandemic in April.

The company continues to see buoyant demand in semiconductor & communications, quantum technology and advanced materials, while it has also been boosted by further grants for its work on sensitive cameras for the tracking of space debris.

The SOFIA space observatory, which NASA used to recently discover water on the moon, uses one of the company's cameras to guide the telescope and optically track the objects of interest. 

Numis Securities believes the company is well placed to benefit from US president-elect Joe Biden's plans to increase science and R&D spending and from continued investment in China.

The broker noted that shares were trading on a 2021 price/earnings multiple of 29 times prior to today's results, which compares with international peers on 28x.

A pioneering company

Investec Securities called Oxford a “pioneering company” and said it saw scope for further improvement through portfolio and operational adjustments. Management expects the full-year performance to be a little behind last year's due to the external and internal effects of the pandemic but still ahead of current analyst forecasts.

The resumption of dividends at Electrocomponents meant an unchanged 6.1p a share for half-year trading as well as the payment of the previously deferred 2020 final dividend of 9.5p a share. The move follows robust trading in the half-year to 30 September, with adjusted free cash flow increasing to £85 million from £13.9 million a year earlier.

CEO Lindsley Ruth remains cautious about the economic outlook due to further lockdown restrictions in key markets, but said the company continued to benefit from its repositioning over the past five years as a services-led solutions provider.

He added: “Electrocomponents has delivered a resilient performance with significant market share gains and robust cash generation despite the challenges our suppliers, customers and teams have faced whilst keeping safe.”

Shares in the company, which stocks more than 500,000 products from 2,500 supplier brands, are now close to the high of 810p seen in the dotcom boom in 2000.

Numis increased its target price from 875p to 920p after lifting its 2021 and 2022 full-year forecasts by 3% and 5% in the wake of today's interim results, adding that the company looked “extremely well positioned” to drive substantial long-term shareholder value.

The broker added: “While the first five weeks of the second half have seen further momentum across all regions, the return of Covid-19 lockdowns may continue to weigh on margins. Despite this headwind, plans to accelerate efficiency gains should drive substantial savings and position the business for faster growth.”

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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