Oil majors attractive but no rush to equities

By James Molony

LONDON (Reuters) - Oil majors are among the most attractive companies to invest in at the moment, but it is too early to rush back into equities even as dividend yields exceed UK gilt yields, Jim Stride, manager of the AXA Distribution Funds, said.

The funds, a range of mixed-asset funds with 4.22 billion pounds in assets under management, have BP as its fifth-largest holding, while Royal Dutch Shell is its eighth largest.

Stride, who is also head of UK equities for AXA Investment Managers, said the two companies are broadly diversified, integral to the global movement and distribution of oil and petrochemicals, boast solid balance sheets and have good dividend-paying capabilities.

AXA Distribution Funds are part of AXA Investment Managers, the fund arm of AXA (AXAF.PA), Europe's second-largest insurer based on premium income.

Aside from oil companies the fund has significant exposure to defensive sectors such as utilities, pharmaceuticals and telecoms, in spite of the fact that UK equities would appear to offer an attractive buying opportunity having "opened up a positive yield gap", Stride said.

The dividend yield on the FTSE All Share index currently stands at 5.6 percent while the yield on 10-year UK gilts is 4.1 percent. "That would be a very attractive buying entry if we could be certain about dividends," Stride said.

DIVIDENDS SLASHED

With a significant number of companies in the FTSE 350 having already cut or eliminated dividend payments, however, the lack of certainty on future dividend payments is still too great, Stride said.