A few of my portfolio holdings have gone ex.dividend today. As at 9:08am:
- Centrica @ 311.23p, -11.3p (-3.5%) v. a dividend entitlement of 11.11p on the 13 June.
- Rolls-Royce @ 812p, -8p (-0.98%) v. a dividend entitlement of 10.6p on the 4 July.
- Tesco @ 317.82p, -7.63p (- 2.34%) v. a dividend entitlement of 10.13p on the 6 July.
- Tesco @ 317.82p, -7.63p (- 2.34%) v. a dividend entitlement of 10.13p on the 6 July.
So more or less in line with the actual dividend entitlement and the fact that the FTSE100 is more or less flat this morning at 5718.58, +9.09 (+0.16%) with these dividends adjusted for.
Rolls-Royce in particular has been pulling at the reins recently with plenty of positive newsflow in March and April, which even includes the recent re-entry into service of the repaired Quantas A380 that cast a very dark shadow over the company when an engine apparently exploded on its wing.
Elsewhere, Jefferies has upped its price target for Rolls-Royce to 950p (http://www.sharecast.com: Friday broker round-up) and the company continues to create news momentum with contract wins.
The largest recent announcement being a potential $598m contract (including options), spanning 5 years with the US Department of Defense.
The largest recent announcement being a potential $598m contract (including options), spanning 5 years with the US Department of Defense.
Interestingly, March and April's announcements and contract wins are all either Defence (US) or Marine, rather than Civil, which can only help to diversify the company's revenues going forward.
At 812p (xd), the company's share price continues to show strength and resilience and a return to the 52 week high of 844p doesn't look beyond it.
It continues to be my portfolio's largest holding and has already achieved the first of my 2 stage target for the year which was 825p (Rolls-Royce Powers through the £1bn Profits barrier for the first time).
The second stage, 880p, continues to look achievable if the company achieves what it says it will and markets retain some stability.
Co-incidentally, 812p was the company's share price as at 31 March so looking at my March Portfolio update (March 2012: Portfolio Update.) I can see that the shares have gained 8.77% year to date plus a dividend payout to come (4th July), worth 1.49% (11.11/746.50p).
With the Aerospace season set to kick off in June with the Paris Air show there could be plenty more to come from Rolls-Royce.
Article links:
- http://www.rolls-royce.com: Rolls-Royce to power two further Littoral Combat Ships for the U.S. Navy
- http://www.sharecast.com: Rolls-Royce to upgrade engines for the US Air Force
Previous related posts:
- Rolls-Royce Powers through the £1bn Profits barrier for the first time.
Hi MA,
ReplyDeleteAs I am new to the game, just wondering if you can give me a heads up......
As these are testing and volitile times, reviewing your portfolio, what would be your average yield? Then compare that against the average top range hi interest savings rate given by the best reputable banks or building societys, say in an isa. Overtime, do the yields track the interest rates given by the banks? Under better market conditions, companies earn more, pay bigger dividends, would these divis pull away greatly when tracked against hi street banks?
Hi Ritsut,
ReplyDeleteinteresting question.
Taking March's update and if held for the next 12 months my portfolio is "forecast" to yield 3.94% on a portfolio value that is up 7% year to date. This is effectively tax free to a basic rate tax payer as it comes with a notional 10% dividend tax paid.
Suffice to say that dividends are largely dependent upon profits so aren't guaranteed. However committed dividend payers or mature cash cows are loath to cut the dividends as they can form a strong stable shareholder prop to a company's share price.
Given your better times scenario, it isn't unheard of for consistent dividend payers to declare double digit increases to the dividend which can have a significant compounding effect.
For example a series of 12% year on year increases would double the actual dividend over 6 years when based against your "original" investment.
Indeed there are many, many companies out there who have grown strongly and doubled there dividend payouts over 4,5, and 6 years. Most of the time this is lost as the share price has also appreciated at a rate that might maintain a headline 3% or so against the current share price (e.g Reckitt Benckiser.)
Some companies, particularly across the pond, can demonstrate an unbroken sequence of dividend increases stretching back decades.
As ever the trick is re-investment back into your portfolio to get the benefit of compound returns.
High st interest rates wouldn't normally benefit from year on year increases (as there is no link to earnings) instead they fluctuate on the back of a tool used to control inflation by curbing/promoting spending.
So whilst maintaining a balance in the bank would give you some compounding, your original capital will only grow by the interest received which itself will only fluctuate within a narrow band. I have seen 0.5% to 10% and everything inbetween in my lifetime.
I would therefore suggest that for the right companies dividend payouts have pulled away greatly (as earnings have risen) when tracked against the average high st. account even ignoring the negligible rates available this last few years.
Its also nice to be able to see the dividend safely covered by a multiple of earnings and many companies do declare a desired dividend payout ratio e.g 45% of earnings.
But depending upon your risk profile it should be noted that, in the main, your capital is not at risk in a savings account, there are no dealing charges/stamp duty, and access is relatively easy.
Finally, you might also have noted that with many of my holdings occupying a 2% weighting, a 4% yield enables me to buy 2 new tranches every year and...if they in turn grow and yield, I get diversification, growth, and compound returns.
Hope that helps
MA
Hi MA,
ReplyDeleteI'm interested in finding out how you pick your stocks, what your criteria are, etc. When did you get into RR, and what were your reasons for doing so?
I'm getting started on putting together a value base dividend paying portfolio, with the aim to find solid dividend growers and re-invest the returns. Not looking for quick wins, I'm looking for slow, steady wins.
Hi Niall,
ReplyDeleteI have a long history with R-R and have seen the company mature from a debatable balance sheet (high working capital and low cash) to the relatively cash rich position it has today.
Central to this was a clear, simple strategy to compete in an industry with long term horizons where it just about enjoyed a place at the restricted top table with the 2 US giants, UTX and GE.
The strategy was brave and not immediately appreciated by investors due to the upfront capital investment required (jam tomorrow) to develop its market leading technology.
Since then this strategy has passed through a number of time gates and now yields substantial aftermarket revenues across a 20-30 year engine lifecycle(like an expensive Gilette razor) that completes a virtuous circle allowing the company to re-invest in the next 20 year project and diversify its core technology into additional sectors such as energy, oil & gas, and marine.
I applaud your objective and think that we are still in a "twice in my lifetime" window of opportunity to pick up the type of companies that could deliver slow steady wins which could ultimately be significant.
Dividend growth is significantly under appreciated when put up against a slick sales pitch re. the capital growth on the next big thing but does provide real returns that once given are yours to decide where to re-invest.
This type of commitment to shareholder returns often comes with a more solid company with stable predictable cashflows so there is arguably less downside risk (unless dividends are cut). And, like the chicken or the egg analogy because there is a link to earnings capital growth will soon follow dividend growth.
If you can minimise losing money then you can take advantage of lower but slightly more certain gains to achieve your goals.
If you take a look at my millionaire post you will see what compounding can achieve with a relatively low return e.g 12% per annum will double your capital every 6 years, or 10% can turn £30k into a million in 35 years.
Still learning myself but I am looking for a clear recovery potential/perceived valuation gap, and a unique selling point/brand/product/strategy.
I also tend to look for trends on debt levels, cashflows (along with earnings), and cash balances. All support my view that cashflow is king as it gives choice and flexibility.
Best regards
MA