I like a good dividend stock, and I’m a big fan of investment trusts. Trusts provide a great way to get some diversification for a relatively small investment. And by buying their shares, rather than handing your cash to a fund manager to handle (and take a slice from), you avoid a conflict of interest.
Today I’m looking at Apax Global Alpha (LSE:APAX), a FTSE 250 constituent. Apax has a strategy of paying out 5% of its net asset value (NAV) in dividends each year. And on Tuesday it confirmed an interim dividend of 4.87p per share. Payable on 25 September, that sum represents the expected 2.5% of the firm’s euro NAV as at 30 June 2020.Â
Big discount, big dividend
The first half for Apax was, unsurprisingly, dominated by Covid-19 concerns, but it did see some rebound. The firm said: “The impact and recovery is, however, very different between sectors.”
Pointing out that offline retail has suffered badly, Apax added: “Tech in general has proved more resilient and is expected to grow over the coming years driven by underlying trends.”
Apax shares are currently trading at a discount to NAV, which is common for investment trusts and other similar investment vehicles. And right now, with the share price at 165p and NAV at 30 June of 196p, that discount is quite wide at 16%. I like that for two reasons. Firstly, it suggests the stock is attractively valued in comparison to the investments the company holds.
And secondly, it boosts the dividend yield ahead of that figure of 5% of NAV. At today’s price, that suggests the full-year yield will reach around 5.9%. And I rate that as an excellent income prospect, especially during the 2020 market slump.
Capital allocation
With the company telling us its portfolio has been resilient, it looks like Apax’s investment specialisations are paying off. Its expertise lies “particularly in those sub-sectors benefiting from digitisation trends“. And Apax describes its focus as “driving business transformation, the pace of which has only increased in the past five months“.
The company’s core sectors cover technology and telecoms (44%), services (28%), healthcare (19%) and consumer investments (9%). With that split, I can see how the firm managed to avoid the worst of the stock market crash. And I see that allocation as being potentially very profitable in the coming years. I can see likely asset value growth there too, in addition to cash flow to fund a progressive dividend.
The balance sheet looks fine, with Apax having cash of €33.8m on the books at 30 June. There’s an undrawn revolving credit facility of €140m too. But how’s the share price looking?
Resilient share price
Apax shares crashed along with the wider market when the pandemic struck and almost every day we heard of another dividend being slashed. But the price has been rebounding of late, and we’re now looking at a year-to-date fall of only 4%. The FTSE 250, meanwhile, is approximately 20% down.
With the strong dividend, attractive capital allocation, and a tempting discount to NAV, I’m seeing a long-term income and growth buy here.