As market volatility returns, BlackRock’s Adam Avigdori highlights the importance of income to investors

As market volatility strikes treasuries, gilts and dividend stocks in anticipation of the end of quantitative easing, Adam Avigdori, manager of the BlackRock UK Income Fund, highlights the continuing importance of income to investors.

“The potential tapering of quantitative easing in the US will be an interesting period for markets. QE has certainly helped avoid disaster in the UK, Europe and the US. The US is in a healthier economic position than the UK or Europe and that is why this question has arisen.

“However, QE in some form will be around for longer than many people think, although I expect the markets to worry about it continuously and remain volatile as a result.

“In the meantime, in an environment of rising bond yields investors should consider the importance of future dividend growth. If you already have a high dividend yield and it doesn’t grow, your shares will be far more susceptible to profit-taking in the event of rising yields.

“If companies can convince investors that they can grow dividends faster than inflation, gilts or corporate bonds become relatively less attractive.

“Right now I am focused on predictable earnings, dividend growth in real terms and high free cash flows that are sustainable.

“Companies like National Grid, Spectris, Reed, Admiral, eSure, GlaxoSmithKline and Imperial Tobacco spring to mind. Equally important are companies that have competitive long term advantages and franchises such as Reed, Spectris, Legal & General, Wolseley, Shire, Tate & Lyle, or HSBC.”

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