28 Jul 2011
Building an Income to Retire On
Remember the mantra from last time – income first, capital growth second, invest for the long term. With shares, income means dividends and the higher the yield the better. However, there’s more to it than that.
If you go to your favourite stock screener (or just google ‘stock screener’, there are plenty out there) and sort all the shares in the UK market by dividend yield you are probably going to get a large number of junk shares. That’s because the quoted dividend yield is based on the last dividend that was paid out, not the one that’s going to be paid out next; and it's what gets paid out over the next few years that really matters.
26 Jul 2011
SOLD – Creston Returns 22.2% in Only 237 Days
This small media company has been doing pretty well recently
and after the latest annual report at the end of June it was time for a
revaluation. I originally bought Creston
back in November last year and only barely mentioned it in the 2010
performance review, so I’ll go into more detail here.
22 Jul 2011
Are Your Shares as Safe as Houses?
Generally there are two ways that people invest for their
retirement. The first is in the stock
and bond markets and the second is in property. In both cases this can be either through a fund of some sort or directly as a stock picker or buy-to-let investor.
Thinking about the stock market in terms of property
investing is useful as the two fields have quite a lot of overlap, even if they
aren’t usually compared directly.
A sensible approach for both property and stock
market investors is to focus on income
first and capital growth second with each individual investment being viewed with a long term perspective.
15 Jul 2011
AstraZeneca versus the FTSE 100 – Which is better?
If you’re going to be a stock picker then one of your goals has to be to beat the market. It must be, otherwise why would you bother with all the extra work? And if you’re out to beat the market then it makes sense to check each potential investment against the market to see which is best.
11 Jul 2011
New fund launch, The UKVI 20 (part 1)
I will shortly be launching a new model fund which will be called the UKVI 20. This fund will be separate from my personal investments, although the two will be very similar to start with and I expect them to eventually have exactly the same constituent parts but with slightly different weightings.
I’ll put up the facts and figures for the UKVI 20 onto the web site in due course and I’ll keep posting my private investment performance for several more years until the new fund has some reasonable amount of history behind it.
I’ll put up the facts and figures for the UKVI 20 onto the web site in due course and I’ll keep posting my private investment performance for several more years until the new fund has some reasonable amount of history behind it.
1 Jul 2011
Are you a good investment manager?
Let's face it, investors go down the stock picking route because they think they can outperform both the 'market' (typically the FTSE 100) as well as fund managers. Of course there is an element of interest and even excitement in stock picking, but at the end of they day if you're investing thousands of pounds in your own stock picks you're doing it to make more money than you could elsewhere.
Since that's the case, tracking your returns over the long term is important just to make sure your efforts are worth it and if they're not, then perhaps you should either buy the footsie and find another hobby, or get someone else to make your stock picks.
Since that's the case, tracking your returns over the long term is important just to make sure your efforts are worth it and if they're not, then perhaps you should either buy the footsie and find another hobby, or get someone else to make your stock picks.
27 Jun 2011
10 Beefy stocks to chew over
The companies in this month’s shortlist are sorted and selected based on their growth, both past and estimated future, as well as their current dividend and earnings yields. They all have steady histories over the past decade and I’d go so far as to describe them as good companies at good prices.
| Company | Index | Industry | Rolling PE | Dividend (%) |
| ASTRAZENECA | FTSE100 | PHARMACEUTICALS | 7.2 | 5.4 |
| JD SPORTS FASHION | FTSE250 | APPAREL RETAILERS | 7.7 | 2.7 |
| CHEMRING GROUP | FTSE250 | DEFENCE | 11.6 | 2.7 |
| BAE SYSTEMS | FTSE100 | DEFENCE | 7.6 | 5.8 |
| CLARKSON | SMALLCAP | TRANSPORTATION SERVICES | 10.2 | 4.0 |
| RECKITT BENCKISER | FTSE100 | NONDURABLE HOUSEHOLD PRODUCTS | 14.4 | 3.5 |
| BALFOUR BEATTY | FTSE250 | HEAVY CONSTRUCTION | 8.5 | 4.4 |
| INTERSERVE | SMALLCAP | BUSINESS SUPPORT SERVICES | 7.6 | 6.0 |
| MITIE GROUP | FTSE250 | BUSINESS SUPPORT SERVICES | 10.9 | 3.8 |
| CARILLION | FTSE250 | BUSINESS SUPPORT SERVICES | 9.0 | 4.4 |
14 Jun 2011
Vodafone - From growth to value in 10 years
Paying too much for a company is never a good idea. 10 years ago Vodafone was a cool tech company that was going to grow to the moon and was worth, at least to investors of the time, about 60 times its adjusted earnings which gave an earnings yield of 1.7%. Ouch, is all I can say.
Behind the whacky share price is a real business which operates year in year out, doing its thing to the best of management’s ability. For example, since 2002 Vodafone has doubled revenue, almost doubled operating profit, tripled adjusted earnings per share and increased the dividend six-fold. Compound growth of adjusted earnings and revenue has been about 10% while returns on equity hovers around 9%. I estimate return on the last 10 years retained earnings at around 15%.
And the share price? After falling below 150 pence in 2001 it's been more or less stuck there ever since.
Back in the real world Vodafone continued as a market leader in an ever growing market and became the owner of the world’s fifth most valuable brand.
Somebody much smarter than I once said “If the business does well, the stock eventually follows”, it’s just that in Vodafone’s case that ‘eventually’ has taken 10 long years. But with the current earnings yield over 10% and the dividend yield over 5% it’s highly likely that future growth will cause the share price to follow since a dividend yield of 5, 6 or 7% on a company like Vodafone is going to suck in investors like a black hole (not the most positive metaphor, I know).
The question then is can Vodafone be expected to keep growing over the next few years through whatever outrageous fortune the future may throw at it?
I think that is can. The market for mobile telecommunications is still growing, mostly in emerging markets. In mature markets growth is likely to come from data revenue rather than voice as people switch to smart devices like smartphones and iPads. I see no reason why Vodafone cannot grow as the market grows.
As for outrageous fortune, telecommunications is a defensive industry and generally isn’t too heavily impacted by economic downturns. In the same vein Vodafone is a global company which may protect it from issues in any one country. If things get ugly (should that be more ugly?) in the next few years it should provide a relatively safe harbour for any cash I invest.
Other levers to increase the share price are the progressive dividend policy and the £7 billion of cash allocated to share buybacks.
In the wise words of Warren Buffett:
“Your goal as an investor should be simply to purchase, at a rational price, a part interest in an easily understandable business whose earnings are virtually certain to be materially higher, five, ten, and twenty years from now”
Vodafone may just fit that bill.
As at today I would consider buying more shares under 185 pence (disclaimer – I already have), whereas if the price shot up due to some good news then I would consider selling at anything over 250 pence.
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