A stock market crash will always create bargains for investors brave enough to buy when the news is bad. Today, I’m looking at two UK shares which have impressive track records, but are looking unloved at the moment.
This dividend hasn’t been cut for 32 years In a year filled with brutal dividend cuts, FTSE 100 investment manager Schroders (LSE: LON:SDR) stands out as a reliable payer. This family-controlled firm hasn’t cut its dividend since at least 1988 — the earliest I could find records.
As an asset manager, Schroders profits this year have been hit by the stock market crash. But the impact so far has been fairly modest. Pre-tax profits for the first half of the year fell 12% to £280.1m. Earnings for the period were 15% lower, at 78.7p per share.
In a six-month period when we’ve seen a major stock market crash and the real economy struggle, I don’t think this is a bad result. Indeed, it suggests to me Schroders’ fund managers take a long-term focus and enjoy a high level of client support during difficult times.
A stock market crash buy This long-term, conservative approach is reflected in Schroders dividend. Analysts expect the firm’s annual payout of 114p per share to remain unchanged this year. Based on the latest earnings forecasts, this payout should be covered around 1.5 times by earnings. Cover is normally higher than this but, in a difficult year, I think this gives a comfortable margin of safety.
Schroders stock doesn’t look expensive to me either. Buyers of the non-voting Schroders (LSE: SDRC) shares can collect a 5.5% dividend yield at current levels. In my view this is one of the safest payouts in the FTSE 100. This is one UK share I’d be happy to buy today and hold forever.
Buy when everyone is selling? The automotive sector has been hit hard by lockdowns and factory closures this year. But early indications are that car sales are bouncing back quite well, helped by reluctance to use public transport and necessary social distancing measures.
One company I think could be a genuine stock market crash bargain today is Inchcape (LSE: INCH). Although this group operates some UK dealerships, its main business is as a global automotive distributor. This means Inchcape partners with car manufacturers in a given market to take responsibility for local marketing, distribution, dealer management, and aftersales support. All the manufacturer does is supply the cars.
Inchcape’s share price has crashed this year, falling 35% to around 460p. Broker forecasts suggest revenue will drop by around 25% in 2020, while profits will fall by around 60%. However, Inchcape is expected to remain profitable and a solid recovery is pencilled in for 2021.
This business has a long track record of reliable performance. Historically, it’s generated a return on capital employed of about 15% per year — a respectable figure. The group’s global footprint means it should be able to benefit from regional recoveries, rather than being dependent on just the UK market.
Broker forecasts put the stock on a 2021 forecast price/earnings ratio of just 9.5, with an expected dividend yield for next year of almost 5%. I see Inchcape as a good UK share to buy today for a long-term portfolio.
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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Schroders (Non-Voting). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020