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Lloyds Banking Group faces more troubled times

Despite the uncertainties that bedevil the companies at present, investors should view Lloyds Banking Group and Tesco as strong longer-term investments, according to William Meadon, co-manager of the JP Morgan Claverhouse investment trust.

Commenting on Tesco, a stock that has rumbled through balance sheet troubles and declining sales, Meadon revealed that he had not owned the stock at all in recent years, but begun buying at the point where the company announced that it was suspending its dividend.

He remarked, For some time we thought it was a company in crisis, which was not a particularly original insight. But when the company cut its dividend we took the opportunity to buy the stock. We hold Tesco because we believe that 12 to 18 months down the line, it will be in better shape than it is in today. It is a company that we think will come out the other side of its current difficulties.

He is also keen on the investment case for Lloyds Banking Group, despite the fact that there is no concrete evidence that a dividend, much awaited by investors, is to be paid this year.

Meadon commented, We have no strict rule that every stock must pay a dividend,

but there must be a reasonable prospect of them doing so in 12 to 18 months. With Lloyds, we believe it is paradise postponed, not paradise lost. Hopefully, Lloyds will pay a dividend, if not in the first half of the year then in the second half, which would be a good mark for a change in sentiment. We see value there.

He added that as an income investor he sees particular attractions in the insurance sector at the moment, nominating Prudential and Legal & General as stocks with strong yields, while commenting that the dividend of Aviva looks particularly secure at the present time as the management are committed to the dividend.

He added that while he does not believe that either BP or Shell will be forced to cut their dividend by the current turbulent oil price, he feels that it is hard to see GlaxoSmithKline and BP, for example, being able to grow their dividends in the coming years.

The JP Morgan Claverhouse investment trust has returned 87 per cent since 2010, and has a current yield of 3.4 per cent. The trust trades at a discount to its net assets of just over 7 per cent.