Sunday share tips: Diploma, Anglo American, Pennon Group

Shares in distribution company Diploma are worth holding, according to Questor in the Sunday Telegraph. The oil and gas slowdown saw the company recently warn of continued tough trading that bodes ill for the next financial year, with orders from the US badly dented by curtailed capital spending.

But the group has three divisions: a rubber seals arm sells into the construction and oil and gas sectors, the controls unit supplies electronics to the aerospace sector and the life science division is focused on the healthcare industry, and last week's trading update showed overall group sales increased thanks to acquisitions and the performance of the life sciences business. This shows the benefit of having three divisions that all supply products that need to be reordered regularly, leading to its good reputation for cash generation and a dividend yield of 2.5%. Acquisitions are another arrow in Diploma's quiver, which altogether offers investors an underlying quality that should help overlook the downbeat trading update. A doubled dividend over the last half decade and exposure to dependable healthcare sector should allow Diploma to battle through the oil price slump.

Sell shares in Anglo American, wrote Danny Fortson in the Sunday Times' Inside the City column. The share prices has already plunged on the back of almost as precipitous falls in the price of iron ore, platinum and copper. Although diamonds had been a rock, generating 31% of group profits, the company's 85%-owned De Beers diamond business has recently been chipped away at by fears over China's economy, with a July auction seeing two thirds of stones rejected, the worst result since the financial crisis. August's auction result improved only by a 10% price cut.

Anglo's Aussie boss Mark Cutifani is struggling to uphold the FTSE 100 company's credit rating for its $11.9bn of debt, a sixth of which is due by the end of 2016. Last week' announcement about talks over the sale of its Rustenburg platinum operations may help sentiment, but not alter the balance sheet much, with not much more than $100m likely to be paid. The 8.4% dividend yield looks vulnerable and tough times are ahead.

Water and waste group Pennon should be a rewarding long-term buy, said Midas in the Mail on Sunday. In times of fragile market sentiment, dividends are more welcome than ever, especially when they are booked in for a five-year stretch as they are for the owner of South West Water, Bournemouth Water and waste management firm Viridor. Pennon has pledged a payout of 4% above PRI until 2020.

In spite of this, its shares have dripped 20% lower since the start of the year due to worries about profits at Viridor, which remains profitable but hit by anxiety about declining landfill sites, recycling returns and the slow development of its waste-to-energy facilities. However, the company has long-term recycling contracts with local authorities and high hopes for its energy recovery arm. Profits are expected to grow 4% this year and 9% the next, with the dividend accelerating even faster.

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