Due to their projected earnings and free cashflow growth, businesses such as these are often in a position to grow their dividends faster than the market.
Markets went up last year but earnings forecasts went down on average, resulting in a general rerating of the market.
Nevertheless, this does not always mean the types of businesses in favour require a rerating in order to generate an attractive total return over the next year, owing to their growth in earnings and healthy dividend yield.
In spite of the temporary shift in market sentiment in recent months, there is not necessarily a case for migrating from stocks with the potential to grow their earnings above forecast expectations to what could be considered the illusory security of value and defensive businesses, many of which arguably offer little upside and considerable downside.
David Urch is fund manager at EEA
