When an investor starts to build aninvestment portfolio, a keyconsideration should be sector weighting, or more generally diversification. Just imagine if a large part of your portfolio had been invested in the oil and gas orindustrial metals and mining sector over the last 12 months, the latter being down by nearly 50%.
So,given my appreciation of dividend income, I feelits appropriate to share a diverse range of shares that could fit well into a diversified income generating portfolio.
Sainsburys tastes the difference
Commentators had written J Sainsbury (LSE: SBRY) off along with sector peers Tesco, Asda and Morrisons as they struggled with the growth at Lidl and Aldi. Along with the rest of the sector, the shares sold off to below 230p as the market seemed to forecast a long hard slog to regain the initiative.
However, the retailerdelivered a surprise withitsQ2 trading statement on 30 September, guiding the market moderately higher for the full year.
This new-found confidence seems to be well placed with figures from Kantar WorldPanelyesterday showing the supermarket to be thestandout performer of the big four, despite difficult market conditions. According to the data Sainsburys increased sales by 1.2%, growing across its convenience, supermarket and online businesses and increasing market share to 16.7%. This compares favourably to falls in sales at Asda, Tesco and Morrisons, though its not enough to keep up with double-digit growth at Aldi and Lidl.
The shares, witha twice-covered 4%-plus yield, are by far my favourite pick from the big four.
Barratt building confidence
Like most housebuilders Barratt Developments (LSE: BDEV) shares fell off their new-found October highs of late as the market pondered the potential for a rise in interest rates coupled with the daily prediction of a housing bubble set to burst at some point.
While I would be the first to admit that house building is cyclical, I prefer to listen to what the company has to say about the state of the market, and the general environment.
On this front, and particular to Barratt, management saidthe company was trading positively across all key metrics, recruiting more people, improving gross margin and continuing to improve ROCE (Return on Capital Employed), a key quality measure.
Importantly, Barratt haspledged to return 987m to shareholders by the end of November 2017. The total return for the year ending June 2016 shouldbe around 30p per share, which puts the shares on a chunky 5% yield, increasing to 6% for the year ending June 2017.
Weathering the storms
Despite the 50% plus rise in the share price this year, Direct Line (LSE: DLG) shares still dont look expensive. Alsoimpressive is the forecast 5%-plus yield still on offer.
When Direct Lineupdated the market last month, itpointed to further reductions in operating costs of 7% for continuing operations. It also reiterated itsexpectation ofa 2015 combined operating ratioin the range of 92% to 94% (anything below 100 is profitable) for ongoing operations after normalising for claims from major weather events. Underlying trends remained in line with prior expectations of a combined operating ratio of 94% to 96%, so not as good as theyd expected but still profitable.
Importantly, management intimated that they would consider a further special dividend at the time of the 2015 preliminary results inMarch dependent on their view of long term capital requirements. Even without this payment, the group intends to grow the regular dividend annually in real terms.
Will You Grow Richer In 2016?
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Dave Sullivan has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.