3 Income Stock Picks

VIDEO: Murray International Trust manager Bruce Stout talks dividend-paying stocks

Holly Black 2 September, 2021 | 10:28AM
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Holly Black: Welcome to Morningstar's "3 Stock Picks". I'm Holly Black. With me is Bruce Stout, he's manager of the Murray International Investment Trust. Hello. 

Bruce Stout: Hi, Holly. 

Black: So you've got three stocks from the portfolio for us today, where would you like to start? 

Stout: I think we'll start with Atlas Copco, which is a Swedish industrial company. It manufactures and develops compressed air products, vacuum pumps, and pneumatic tools. And this is a company that really is the best in class for executing and creating shareholder value over a long period of time. It does it through very efficient operating and very efficient acquisitions and use of very strong balance sheet. And what it does, it provides mission critical products to niche applications. They're not high capital investment for the customer, but they're very important and it dominates these markets. It also has a model whereby about 75% of what it sells it assembles so it's a very capital light type business model, which means it has a good return on capital employed, very high profit margins and has consistently delivered over time. So that's a company that's been in Murray International for over 10 years, very high quality, industrial.

Black: Really interesting one. So what's stock number two?

Stout: Stock number two is completely different. And that's I guess it's one of the benefits of a diversified portfolio like Murray International. Stock number two is Grupo ASUR, which is a Mexican airport operator, it operates nine airports in Mexico. It also in partnership, operates the airport in Puerto Rico and has six airports that it operates in Colombia. And obviously, this is a company that has been hit very hard by the pandemic, earnings evaporated last year. But believe it or not, this is a company that has got experience of seeing its revenues disappear. Because anytime there's a tornado or a hurricane, through the Gulf of Mexico, the business to Cozumel and Cancun dries up. So it weathered the storm very well. It's very well positioned for recovering traffic, passenger traffic, and has again, a business model that is highly geared to a captive audience of passengers and the terminals who we expect revenues to significantly rise from here, strong balance sheet. And a good dividend payer. 

Black: Does that not make it really difficult to hold as a stock if it is seeing those ups and downs pretty regularly.

Stout: It does, actually you need to have a strong nerve. And we've actually owned Grupo ASUR for 20 years in Murray International, not always in the same weight and there have been tough periods. You may remember swine flu that hit Mexico about 10 years ago, and again it impacted the holiday business. And but it just is a very high quality company that as it grows and gets bigger, significantly adds value for shareholders, and is very shareholder focused. So we're quite happy to hold it through the tough times as well as the good times. And that's the benefit again of the investment trust structure. 

Black: Okay, what's our final stock. 

Stout: So the final stock is a company that's very different to the previous two, and it's called Hon Hai Precision, and it's based in Taiwan. And it is an electronic manufacturing services company. So it manufactures electronics for computer equipment, but mainly for communications equipment, in this case, iPhones, but also some computer. And it was a very low margin type business, typically in the 4% to 5% range. But recently, Hon Hai has started to get involved in manufacturing components for factory automation. And importantly for electronic vehicles it already sells round about 200 different components to Tesla. And those types of products have margins of between 15% and 20%. So over time, we hopefully will see Hon Hai grow its gross margin and deliver more free cash flow for higher dividends. So it's a company that is undergoing significant change at the moment, which we feel is not reflected in the valuation of the company. 

Black: Fantastic. Well, Bruce, thank you so much for your time. For Morningstar I'm Holly Black.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Holly Black  is Senior Editor, Morningstar.co.uk