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Yesterday's trading: Investors turn back to blue chip

By Geoff Foster for MailOnline
Updated: 04:50 EDT, 15 October 2008

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When all is said and done, you buy a share for a dividend and a return on your investment. Banks used to be popular for this. But not any more.

Geoff Foster: Daily Mail

The government's intervention in the credit crisis, and effective nationalisation of three major banks, means future dividends will be restricted.

Income funds have therefore deserted the sector in their droves and have returned to safe blue chips, which offer a robust and defensive yield.

Broker Shore Capital reveals that against a likely market average yield of not much over 5%, investors can buy defensive stocks between yields of between 5% and 8%.

It believes the focus for investors will remain defensive for the foreseeable future and advises clients to fill their boots with high-yielding, strongly cash-covered, resilient global earners in a nervous market preparing for recession.

BP, which offers a yield north of 8%, closed 28½p better at 446¾p, while Royal Dutch Shell (7.2%) ended 79p dearer at 1496p. British American Tobacco (5.8%) was puffed 146p higher to 1717p, GlaxoSmithKline (5.6%) 32½p to 1118p and Astra Zeneca (5.4%) 85p to 2301p.

With taxpayers and old shareholders now probably having to wait until 2010 for their dividends, Royal Bank of Scotland was sold down further to 62½p before closing 0.7p off at 65p. HBOS fell 4¾p more to 85.3p and its ' saviour' LloydsTSB 10¾p to 151.3. Lloyds' offer is now worth 91p a share, or £4.5bn.

Wall Street's gobsmacking overnight surge of 936 points, or 11%, and Nikkei's staggering 14% leap in Japan guaranteed that London would begin trading with all guns blazing. The Footsie followed Monday's 324 point gain with a further jump of 277 points by lunchtime. It boiled over when shrewd fund managers locked in some profits, but it still closed 137.31 points higher at 4,394.21 and 11% above last week's low.

The Dow Jones yesterday soared a further 406 points after the US Treasury confirmed it would be injecting $250bn into nine major US banks, in a move which hopefully would break the back of the worst credit crisis for 80 years.

Oversold and trading its socks off during the market upheaval, Michael Spencer's interdealer broking giant ICAP jumped 43p to 386p. Investor 3i Group, which is rumoured to have put all potential investments and deals on hold until the dust settles, rallied 64½p to 591½p.

Vedanta Resources rose 68½p to 900½p after announcing production volumes of aluminium-zinc and iron ore reached record levels in the six months to end-September.

Director share buying lifted JKX Oil & Gas 56½p to 233½p.

All Bar One and Harvester pubs group Mitchells & Butlers regained 20¼p at 174p. Bahama-based billionaire Joe Lewis recently bought a 29.7% stake in the company from entrepreneur Robert Tchenguiz at 130p a share and is already showing a tasty paper profit on his investment.

Best Buy competition concerns and worries about current trading left electronics retailer DSG International 3¼p down at 35½p. Blacks Leisure, in which Sports Directs' boss Mike Ashley has 29%, fell 3¾p more to 27½p on worries about the outlook.

Better-than-expected annual results showing a rise in net profit to £15.2m from £11m helped support services group Connaught climb 27p to 385p. Broker KBC Peel Hunt has a target price of 475p. The order book has increased to over £2.6bn and it has a buoyant bid pipeline of £3.6bn. Net debt was a lower-than-expected £71m.

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Eruma, the producer of counter-terrorism and burglary protection products and emergency lighting, improved ½p to 17/8p following the appointment of Barbara Spurrier as Finance Director.

Oilex, the oil and gas explorer, gushed 3¼p to 24¾p following a positive update on its Indian drilling programme.

It reported excellent progress in its programme of appraising the Cambay field, in Gujarat State, onshore India.

Serica Energy shot up to 50p before profit taking left the close 2½p easier at 40¾p. Early buying followed news the company has submitted a field development plan for government approval on the Columbus field in the UK North Sea.

A £2m share placing left StatPro 2½p lower at 47½p. Graham Bird, fund manager at SVG Investment Managers, which now holds 6.7% following the placing, said: 'The move by directors to purchase 19.7% of the placing and the decision to accelerate its cost savings initiatives highlight the commitment to the company and their focus on shareholder value.'

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