So What if Greece Leaves the Euro?
May 29th 2012 9:28AM
Updated May 29th 2012 9:32AM
LONDON -- OK, so all of Europe is alight, and there's panic over Greece possibly leaving the euro, Spanish banks getting into trouble, and the great and good of the eurozone largely clueless as to how to get out of the mess.
And it's all driving our stock markets downward week by week. But what difference does it really make to the outlook for Britain's best companies?
Euro or drachma?
Look at Severn Trent (ISE: SVT.L) , for example. It's a solid, dividend-paying, FTSE 100 cash cow, widely held by income investors. It's been offering a steady yield around the 4.5% mark for years. A falling share price caused the yield to rise to nearly 7% in 2009, but it was pared back to 4.5% in 2011.
But other than the 2011 cut, the dividend has been steadily rising in actual cash terms, and forecasts for the next three years have it resuming that steady growth. How can it do this? It has a captive audience and is providing the ultimate necessities that we cannot live without: water and energy. And with no real growth or acquisition ambitions, the policy is to hand over as much profit as it can to shareholders. And the share price, currently at 16.90 pounds, has done well over the past five years.
Now, how is the currency that Stavros uses to pay for his hummus going to affect any of that?
The Spanish banking crisis
A whole bunch of Spanish banks have had their credit ratings downgraded, and trading in Bankia shares was suspended last week following reports that it was planning to tap the Spanish government for billions in bailout funds. (As it turns out, it seems the struggling bank is seeking 19 billion euros!) Spain is in the grip of a banking crisis.
But that wasn't on my mind when I popped into Greggs the other day to get some sandwiches and a loaf of bread. Greggs pays around 4% a year in dividends, and forecasts are pretty good for the next two years, too. Greggs, valued at 470 million pounds, hasn't got any debt, and the 460 pence shares are on a modest price-to-earnings ratio of around 11.
Maybe Pedro is having trouble getting a mortgage, but how exactly will that affect people buying their lunch at Greggs?
Halfords is a company I've liked for a while. Its share price has struggled during the U.K.'s credit squeeze, as discretionary spending for many has been put on hold, and it has lost around a third of its value over the past 12 months.
But Halfords Autocentres (formerly Nationwide Autocentres) are doing pretty well, and although profits for this year and next are expected to be down, there's a dividend of around 7.5% forecast. And net debt is modest and has been steadily falling. I reckon this is a strong business with great recovery potential over the next few years.
Now, are Halfords' customers really going to be thinking: "Poor old Luigi's in a mess -- maybe I shouldn't get my exhaust replaced after all"?
Strong shares galore
And there's a whole host of companies that have been performing just fine. Look, for example, at SABMiller (OTC: SBMRY) which has beaten the FTSE for 11 straight years and has announced a nice boost to its dividend.
And there's a whole bunch of companies whose share prices have been overall flat over the past five years, with a dip for the credit crunch followed by a recovery. But throughout the euro-fiasco years, they've been paying out steady dividends of 5% or more. Royal Dutch Shell (NYS: RDS.B) , for example, has kept a well-covered dividend going and is now offering about 5%. Vodafone (NAS: VOD) is another; though its share price is only just back to pre-panic levels, its dividend has been rising every year, and forecasts suggest 7.4% for 2013.
Want a highflier? You could always go for the high risk that is something like ASOS, though there is a hefty premium already in the share price for those optimistic growth expectations. But look at boring old Booker, the food wholesaler that has had a cracking five years and has seen its share price treble.
Not all rosy
There have been some pretty big tumblers as well, with banks notably taking huge hits from the eurozone fallout. But that's their sector, and they really do have a lot riding on all the euro loans they have made. If you invest in a sector that is doing badly, then yes -- you will lose money.
But the real point is that there are plenty of great British businesses out there that are doing just fine, and the day-to-day panics that send stock markets on rollercoaster rides don't affect them at all. It's business as usual, and every day they open their doors and carry on just like the previous day.
Right, I'm off to Greggs to get my lunch -- and I'm not going to check euro bond yields or the Portuguese deficit before I go.
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At the time this article was published Alan does not own any shares mentioned in this article. Halfords is a Motley Fool recommendation. Motley Fool newsletter services have recommended buying shares of Vodafone Group Public. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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