North American Income delivers once more

North American Income delivers once more – North American Income (NAIT) had another good year (to January 31, 2019), outperforming its benchmark and delivering income growth, on the back of solid stock selection by its managers.

Financial highlights

  • Total return NAV per share rose by 4.8% on a total return basis in sterling terms. This outperformed the 2.9% return from the Russell 1000 Value Index (Russell 1000), NAIT’s main benchmark, but underperformed the 5.6% S&P 500 Index return.
  • Revenue return per ordinary share rose by 19.2% from 42.1p to 50.2p. The board expects a final dividend for the year of 42.5p, an increase of 9.0%. This would represent a yield of 3.2%, using the share price of £13.40 at the year end, compared to the 2.0% yield from the S&P 500 Index at that date.

Holdings continue to deliver income growth

NAIT held 40 stocks and 11 corporate bonds at the year-end. Most of the equity holdings grew their dividend payments once more. The outperformance of the equity portfolio relative to the Russell 1000 was largely attributed to stock selection, in the IT, materials, financials and industrials industries. Individual contribution key drivers were the derivatives exchange operator CME Group, freight railway operator Union Pacific Corp., and specialty agricultural products maker Nutrien

James Ferguson, chairman of NAIT, discussed the company’s outlook, adding: “The price reactions in equity markets witnessed in 2018 appeared to be an adjustment of investor expectations, with fundamentals remaining broadly healthy, although decelerating. This slowing is not unexpected given where we are in the economic cycle. Market sentiment has improved since the beginning of this year but remains volatile and, whilst risks remain, there are positive developments worth highlighting. It appears that there has been some progress in US-China trade talks, and the consensus of opinion points to a compromise between the two countries being reached, though that is far from certain. Additionally, while it is still early in the year, US corporate earnings have been strong overall thus far, and the outlook for dividend growth in 2019 is encouraging.

Following market strength in January, valuations in general are no longer definitively inexpensive relative to growth expectations. However, our manager believes that given the growth in earnings and cash flow expected from our stocks, the portfolio provides reasonably good value.”

NAIT: North American Income delivers once more

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