A note for you today on three stocks that provide income underpinned by different assets / operations. Yesterday we had Anglo Pacific (APF) which from its announcement about a placing describes itself as: 

"A global mining royalty company. The Company's vision is to create a leading international diversified royalty company with a focus on base metals and bulk materials. The Company's strategy is to build a diversified portfolio of royalties, focusing on accelerating income growth through acquiring royalties in cash or near-term cash producing assets. It is an objective of the Company to pay a substantial portion of these royalties to shareholders as dividends. Further details can be found on the Company's website at www.anglopacificgroup.com."

In the announcements yesterday they raised gross proceeds of £10 million by placing shares representing about 5% of their issued share capital at 180 pence. The recently appointed executives and directors also subscribed and now own around 9% of the equity between them. This was done to help finance the acquisition of a royalty in something called the Maracás Vanadium Project for up to $25 million, for which they get a 2% net smelter return royalty interest on all mineral products sold from the area of the Maracás Project to which the royalty interest relates. This is in line with the new managements strategy of expanding their portfolio with high quality base metals and bulk commodity mining projects that have existing or near-term production. You can download a presentation about this acquisition here and about investing in royalties and the new management team's strategy here.

I like this one as it is a way of playing commodities but with reduced cost risks as their royalties tend to be related to production volumes, although obviously production outages or delays are a risk. It trades at a small discount to its year end book value of 196 pence and offers a decent 5.7% yield, although it is not very well covered or forecast to grow that much in the short term, but it has grown by 5.5% per annum over the last five years.

Meanwhile moving on to today we had a final results announcement from LondonMetric (LMP) a UK property REIT which has invested in commercial and residential property in the past. In the last year or so they have now shifted the emphasis of the portfolio to out of town retail and distribution assets. The highly experience Chairman Patrick Vaughan commented on the property market outlook by saying: 

The NAV on this one (a key metric for property related shares) came in at 121 pence up by 11 to 12% so the shares, like many other property companies these days trade at a premium to this, trading at around 145 pence reflecting some of the expected growth to come. The other attraction is the yield which based on the declared unchanged dividend of 7 pence gives a yield of 4.8% which they say is fully covered by contracted rental income. Other key things to watch on these type of funds is the debt or the loan to value ratio which here came in at a reduced level of 32% versus 43% last year and had a weighted average cost of 3.9%. So they should be making a decent return over and above that. The other swing factor is occupancy levels or voids, rental increase potential and lease lengths. They have 99.6% occupancy, 32.6% of rent roll benefiting from fixed uplifts and unexpired leases averaging 12.7 years. So all fairly solid if a little dull, but a reasonable way of getting exposure to commercial property if you want to) with an experienced management team that gives you a decent yield, although it has not grown in the last couple of years but is forecast to edge up by around 2% this coming year.

Finally, today we had Preliminary results from Pennon (PNN) the water utility and waste recycling group. Which as it is fairly self explanatory I won't go into too much detail. The headlines were that the regulated side was good and has got it plans for the next regulatory period - K6 approved already. While the waste side Viridor saw profits down around 19% due to difficult market conditions in recycling and investing for future growth especially in energy from waste facilities. They increased the dividend by a useful 6.5% in line with their RPI +4% guidance that has been in place in the current five year regulatory period (K5). We will not know about the future dividend policy until next year as they said: "The Board will review the dividend policy for the K6 period following the Final Determination for South West Water and will make an announcement at the 2014/15 Preliminary Results." So some uncertainty there until things are finalised but at least we know their plans have already been accepted so hopefully their shouldn't be any nasty surprises. Indeed, the last time I wrote on this one I referenced their document about the latest regulatory round which given that their proposals have been accepted, seemed to suggest that they would expect to deliver around 5% dividend growth, which at the current level of starting yield should give a total return of 9% assuming an unchanged rating. So overall another reasonable yield of around 4% from this one but with a little uncertainty as to the level of growth going forward. In fact I was a bit surprised to see it was as low as 4% so I guess it could drift off from here unless there is another bout of demand for defensive stocks.

Any way sorry it was such a boring note today and well done if you got this far - but hey who ever said income investing was exciting? So as a reward if you did get this far see the following which carries on my recent dog theme and sums up what I have been saying here - enjoy, hopefully it will brighten up an otherwise dull day. Note: if you are reading this on the e-mail you may have to visit the site to view it.

Well here we are with another day of wind and rain lashing the UK and by strange coincidence we have two regulated water utilities reporting trading updates today. Now these are really dull so I'll try and keep it brief.

Severn Trent confirms that the group's trading performance overall remains in line with its expectations and prior guidance.
They also say that currently they anticipate no material financial impact from the present floods. The only other thing of interest to me is their comment : "Under our dividend policy of RPI+3% growth the dividend for 2013/14 is set to be 80.40 pence, representing growth of 6% year on year." Which is nice but these companies are facing a regulatory review to determine what returns they will be allowed to make from the water business for the five years between 2015 and 2020. This is called K6 and Severn Trent and the others are awaiting more details from OFWAT in March 2014. This one yields just over 4.5% but it is worth noting that they did have to trim their dividend after the last K determination so that could be a risk again this time around I guess. Since then and up to the end of this K period it looks like they will have provided compound dividend growth of around 5%. Interesting Severn Trent did fight off a £20+ bid last year versus the current £17.50 price - make me go hmm.

Pennon is the other one that reported an update today and they also said they were on track but within that they said their non regulated business was going though a transition period and was "broadly in line with management expectations" which I never think is that great. However, they did give a link to an interesting document on their proposals submitted to OFWAT. This seems to imply, assuming OFWAT don't ask for lower returns that Shareholder returns could exceed 10% and dividend growth be around 5% to 2020 which does not seem too bad when it is on a starting yield of around 4.5% this years expected dividend. This would however be a step down from the 7.5% or so compound dividend growth they have achieved in the last five years, although I guess it does not factor in any extra distributions that could be funded by the non regulated waste business.

So all in all some nice steady growing yields here although some regulatory risks and uncertainty at the moment. This might throw up some buying opportunities over the coming months and the determination need watching as it could lead to dividend reductions. The current storms and floods could I guess still lead to some issues for them and it does surprise me that these ones have not been singled out for as much opprobrium as the energy companies given their seemingly upwards only bills in recent years. Perhaps because it is "only" £400 or so and only goes up once a year it doesn't register as much in the public consciousness?

Any way rain rain go away - I'll be back another day.