Saturday, 29 November 2014

Shares Portfolio - November Update

I last updated on my shares portfolio in August. Since then I have made just one further purchase - small cap financial services firm, Charles Stanley in September.

The portfolio has therefore expanded to a total of 24 shares and I have allocated £1,500 to each of the additions making a total capital input of £36,000.

Although this is demonstration income portfolio, it mirrors my own holdings in all aspects except weighting for each share. As with my investment trust holdings, I withdraw most of the income from my shares for living expenses. With this demonstration portfolio I will reinvest the income at the end of each year either into an additional holding  or recycle the income generated into one of the existing shares.

With any portfolio, it is rare for all shares to travel in the same direction at the same time - this is why its good to have a mix of shares from diverse sectors of the market. It is therefore no surprise that performance since the start of the year has been mixed. Some shares have struggled to make progress this year - notably global miner BHP Billiton, owner of British Gas Centrica, more recently, oil services specialist Amec Foster Wheeler and engineering group IMI. Of course, the supermarkets Tesco and Sainsbury have slumped following the well documented problems and these two have impacted quite heavily on the portfolio, reducing the overall returns by around 3.5%. On the other hand, there have been some good gains to even things up - Unilever, Reckitt, Next, Imperial Tobacco, recent additions IG Group and Legal & General

At the close of business yesterday, the FTSE 100 was 6,722 - still below the level of 6,749 at the beginning of January 2014. The shares portfolio has returned 3.4% year-to-date which includes dividends of 3.7%.

The effect of the additions in recent months means it is difficult to make an accurate comparison. The only way to do this would be to unitise the portfolio. Also, some of the additions made later in the year have not yet contributed a full years dividend. However, it appears the portfolio has made a little progress since the last update in August.

Dividends

As I have said in previous posts, I am not particularly focussed on capital values - share prices will rise and fall. The dividend income is far more stable and predictable. It is well documented that, over the longer term, dividend growth and, where appropriate, the reinvesting of dividends will provide the lion’s share of overall returns from an equity portfolio.Dividends are the most important aspect for me and these continues to roll in very much as expected with the exception of Tesco. 

All the companies in my portfolio have declared full year dividends for 2014. Most have delivered above-inflation uplifts, and several have increased their dividend by over 20% - IG Group, DS Smith, easyJet, Legal&General, Sky and Plastics Capital. The average increase for the portfolio over the past year is 13% which has made quite a difference to income this year. According to the rule of 72, if dividends were to increase at a similar rate each year, my dividend income would double every 5.5 years. 

Of course, I am not expecting double digit income growth every year. The interim dividend for Tesco was reduced by 75% and the final dividend is likely to be significantly lower next year. Likewise with Sainsbury.

Reinvestment

Commodities have been under pressure for most of the year. Working on the principle of reversion to mean, I have decided to top up my holding of BHP Billiton. At the current purchase price of £14.60 - down from £19.85 in August - the yield is now approaching 5.0% subject to currency exchange. The surplus dividends of £1,416 will cover the purchase of a further 96 shares after dealing costs making a new total of 166 shares.

Here’s the current portfolio 

(click to enlarge)
As ever, slow & steady steps…..

7 comments:

  1. Hi DIY Investor UK,

    Thank you for sharing this information. I have several shares within my portfolio that mirror yours. You also have some that I've been watching and would like to add at some stage.

    With the FTSE 100 declining over the last 12 months, I believe your capital increase and dividend yield is quite respectable.

    I we can all see a little more capital and dividend growth in 2015 with the FTSE.

    All the best
    Huw

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    1. Hello Hew,

      Thanks for dropping in.

      Yes, I see we share some half dozen or so shares in common - including Tesco! I was a little relieved when I saw the total as it was looking a little battered mid October. December is usually a good month so fingers crossed for a decent run.

      I will be interested to see how the shares performance compares with my investment trust portfolio this year - in the previous four years it has lagged a little behind. Having said that, the yield on both is currently identical at 3.7%.

      Be interested to see the additions to your portfolio over the coming weeks/months - it seems to be growing very rapidly this year..

      Cheers

      Delete
  2. Hi John

    "The only way to do this would be to unitise the portfolio." This is something I took the time to do with my HYP. While the higher than FTSE100 average dividends are invaluable to my long term early retirement strategy I want to be sure that I'm at least matching the total return of the index. Otherwise all that stock selection effort is wasted and I might as well buy trackers and go fishing.

    Cheers
    RIT

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    Replies
    1. Hi RIT,

      You are correct - the only way to make an accurate comparison when new money is added to a portfolio or money withdrawn is to create unit, like a unit trust. It would be good to have a go but probably will need to wait until I have a little more spare time.

      Thanks for stopping by.

      Delete
  3. John,

    Fab that you are able to put so much into BHP - I've nto pulled the trigger on it yet, although it's been in my watchlist for ages.

    You mentioned Tesco and Sainsbury's - what do you think? Is it worth holding onto Sainsbury's just to have a foot in the grocery sector's door? I know their final dividend is likely to suffer, so I am torn between selling off what I consider to be the best of a difficult sector, and getting rid of it due to the likelihood of a severe dividend cut.

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    Replies
    1. Hello TV,

      I topped up my holdings of both Tesco and Sainsbury in September - whether that was a good move or foolhardy, only time will tell. Many good companies will go through a rough patch but, over time, they seem to find a way to get back on track.

      Whether to buy into the sector at present will be a decision for each individual but dividends may be a little sparse from both for the next couple of years.

      Thanks for leaving your comment and sorry not to be more helpful.

      Delete
  4. hear you. I bought more sainsbury's when it was almost at rock bottom... it's good to know a fellow blogger did the same!

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