Interest in ‘high quality’ companies over ‘low quality’ counterparts

Local interest has been raised in companies that show sustainable dividend growth and high returns on capital, to which the market is currently attaching low premiums, says Prudential Portfolio Managers.

“We are particularly interested currently in “high quality” companies over “low quality” companies, especially given that the market appears to be attributing very little premium to the higher quality companies,” says John Kinsley, Managing Director, Prudential Portfolio Managers Unit Trusts.

“By high quality companies, we mean companies that show sustainable growth in dividends and high returns on capital year in and year out,” explains Kinsley.

According to Prudential Portfolio Managers, it makes sense in these times of global uncertainty to buy large well-diversified companies, for example, Anglos and BHP Billiton, over highly-leveraged more specialist companies, particularly where the former are trading at reasonable valuations.

“In the international markets we find that many high quality companies with low levels of debt are trading at low levels relative to riskier more highly indebted companies. For the patient investor many quality global companies offer attractive buying opportunities,” adds Kinsley.