Over the past week I have published various portfolios; Focused Income, Compound Growth and Special Situations which combined, make up my overall equity portfolio. I have also launched an ISA portfolio to reflect and track how I invested this years’ allowance. The main reasons for dividing my overall holdings into different strategies were outlined in my recent article Towards a Balanced Portfolio and in short, it helps me to clarify my thinking around each investment, focus on realistic goals, monitor the level of success and refine my investment approach.
In this series of follow-on articles, I provide a commentary on each of my portfolio holdings, starting with those that form the Focused Income Strategy. The criteria used to select stocks in this strategy are not rigid and as I have said previously, this is a strategy that I am still refining as I move from growth to income orientation over the medium term. Typically, I am looking at historic and forecast dividends, dividend history, dividend cover and the prospects for special dividends in the future. I do also look at the company and other valuation metrics to see if there is room for growth.
Berkeley Group (BKG.L)
I am into my second year of holding BKG shares and to be honest, the daily share price fluctuations are a little scary to me. It is a much larger company than I would normally be attracted to (Market Cap of £4,350m) and at this size, there are plenty of analysts and commentators that know more about the company than me. Of course, there is a correlation to the housing market, especially in London, and it seems too, that many commentators also see a correlation with Brexit for BKG (staying in would be good for the company whereas an out vote would be seen as bad news).
What I do know is that the company has laid out a very clear dividend policy for the next three years which is an extension/enhancement of the one they have been operating for the past three years. Trading on a forward PER of 8.1 and a forward yield of 6.3% these shares really don’t seem too expensive to me. While revenue and profit for 2016 might well see a small dip, the dividend cover is 1.35 and therefore, I am happy to continue holding – indeed, I have added to my holding this year.
The company also has an overall StockRank of 97 which is driven by Value and Momentum with only a modest Quality ranking.
Braemar Shipping Services (BMS.L)
BMS is an international provider of services to shipping, marine, energy, offshore and insurance industries. It operates in four business segments: Ship broking, Technical, Logistics and Environmental. The company is seemingly recovering from a trading dip last year and has a forecast yield of 5.83% (potentially covered 1.33 times) on a PER 12.2. The dividend has been maintained even when it wasn’t fully covered but even so, I see this holding as medium risk. It has an overall StockRank of 95 which is driven by Value and Quality which implies there is scope for capital appreciation as and when business performance is confirmed as being back on track. I have a relatively small weighting at this juncture.
This is a brand new holding for me and therefore, my initial exposure is relatively low. The company is headquartered in Singapore (which is a pink flag for me) but does have large international exposure (I like this trading diversification for an income stock). A forward yield of 6.05% (covered 1.73 times) and a forward PER of 9.54 suggests there is some scope for capital appreciation. The overall StockRank of 85 is not bad and the ValueRank of 86 supports this view. As with BMS, CIU have maintained the same dividend level for some years now. I’d prefer to see a progressive dividend policy so I am limiting my exposure here until I become more confident in company’s performance and direction.
City of London Investment Group (CLIG.L)
This is my second year of holding shares in CLIG and the dividend is very high with a forward yield of 9%, covered only at around 1 which would explain the lack of share price appreciation since I have been holding. Indeed, the shares have fallen a little in the past few months as their Funds Under Investment (FUI) have declined marginally. I don’t think holding CLIG will ever make me rich but the dividend track record has been consistent and holding CLIG does provide some quasi exposure to emerging markets. I have increased my holding in CLIG this year, hopefully taking advantage of the higher yield presented by the share price dip.
NetPlay TV (NPT.L)
In truth, I wasn’t sure whether I should categorise NPT as an income play, a growth play or even a special situation. In the end, I decided my main reason for buying was the income. The regular and special dividends combined gives a yield of around 10% in Q2. There are some decent arguments to suggest additional share price growth is possible now that the TV contracts have been renewed for another 3 years (NPT are responsible for those horrible late night bingo games etc. on ITV and Channel 5), although I am not overly excited by the business and would not buy it purely as a growth play. The metrics aren’t great either with only mid-ranging StockRanks. I’ll review this holding again in the summer once I’ve collected my initial 10%.
NVA is another company paying a special dividend in Q2, alongside what has been a progressive dividend policy for several years with a forecast yield for this year at 3.74% which is covered more than twice. This said, I am hopelessly out of my depth valuing or understanding the financials of the insurance and reinsurance sector in any depth so I doubt I will ever be prepared to go overweight here.
Primary Health Properties (PHP.L)
This is my favourite income share. I have held PHP on and off for several years, although in the past I have often become bored with a lack of share price action and sold out. I have come to realise that actually, when investing for income, a rock solid, progressive dividend with only very modest share price appreciation is actually a pretty good thing. I have added to my PHP holding this year and also participated in the recent open offer.
When I look back at my write-up above, it is clear to me that I haven’t quite nailed the strategy yet. Some dividends are better covered than others. Some companies have a progressive dividend policy whereas others have been static for a while. A couple have growth characteristics whereas a couple clearly don’t. Some will be long-term holds but I doubt the likes of NPT will be. So, clearly there need to be more refinements in my approach which I’ll be working on over the next couple of years.
Disclosure – I hold long positions in all of the shares discussed in this article. Please DYOR