Some investors in search of steady income flows could have ignored the technology or the overlooked impact the sector brings into other industries said Kera Van Valen, a portfolio manager at an investing firm.
Van Valen believes that most have discounted technology in terms of dividends and the changes companies have made related to cash generation. “Within the tech sector you have seen a slight shift in appreciation towards the discipline of returning cash to shareholders. That’s something people don’t expect,” she said.
The firm uses a Shareholder Yield strategy and has invested in several companies which use technology for the improvement of productivity, asset utilization and the reduction of capital requirements. The outcome is the increase in return on equity and ability to return dividends, share repurchases and debt reduction.
A play that investors could have disregarded was McDonald’s Corp, which recently signed a deal with UberEATS and gained the use of a mobile app which offers delivery in 3,700 restaurants. McDonald’s is advertising its technology to increase efficiency which flows to a company’s bottom line, said Van Valen adding, “You don’t necessary think of a large global fast food chain as a technology company,” she stated. “It’s helping with the growth in the revenues, profits and cash flows, which, from our perspective, that means growth in the dividends”.
Another unnoticed stock is Red Electrica, it is expected for the dividend to increase 7 percent to 8 percent a year, according to Van Valen. “It’s a regulated utility so it falls within that boring mantra that we like so much,” she said.
Altria Group Inc has also been favored by Van Valen because its solid pricing power and remarkable cash flows enjoyed the company is “very consistent about returning cash to shareholders through dividends and share buybacks and debt reduction,” she added.
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Van Valen’s firm supports the position for 2018 as the market moves from a period of central bank-driven low interest rates to one fixated on profit growth and margins.