My review for 2019-20 (1 May 2019 to 30 April 2020).
As explained here viewtopic.php?p=298454#p298454
, ‘No trades had been made since 1 May 2019, however new cash added to the portfolio near the end of March 2020 presented an opportunity to top up MasterCard today as the market presented me with a share price 28% lower than it had been less than two months earlier: I quadrupled the original position today so that it stands at 10.4% of the portfolio's capital value. Fortunately, I placed the trade as soon as New York opened because the share price then rose 12%. There's still some cash available, representing 1% of the portfolio, and I hope to add more over the months ahead. I suspect we're not near the bottom, but in the long run it doesn't matter much IMHO.’ I wrote that on 6 April 2020. The rationale for MasterCard remained as when I initiated a position in April 2019. However, as well as presenting a share price 28 per cent lower than its recent peak, the free cash flow yield was slightly higher than in April 2019.
I also made a small top up of DP Poland. More money was then added to the portfolio at the end of April 2020.
I used it to initiate a small position in PayPal, which I expect will see rising profit margins, growing returns on capital and an increasing amount of cash piling up on the balance sheet (twice annual earnings by 2022 according to forecasts). I bought it on an estimated free cash flow yield of 2.9 per cent for 2020, or 4.8 per cent on 2022 forecasts. It is held by Nick Train, Terry Smith and Stephen Yiu. I like the fact that as a payments company it has a scalable online platform – its goal to increase its number of users to one billion would, if achieved, more than treble customers but not expenses. I think it’s also likely that new users will use it increasingly over time so existing accounts will be a source of revenue and profit growth as well as an increasing ‘network effect’. Moreover, results released on 6 May 2020 were very positive and PayPal had risen 18 per cent or so in sterling terms in the week or so since I purchased. It might seem an odd choice for a ‘dividend growth portfolio’, but I think it possible it will pay a small dividend in the future and be able to raise it at a healthy rate. If not, any capital gains will be compensation!
The result of this new money has been that, between early March 2020 and end April 2020, the portfolio’s size increased markedly – the number of income units increased 10.7 per cent. Market weakness was a good chance to substantially increase my invested capital for the long term, IMHO, as I did in 2009 and 2011.
CURRENT HOLDINGS (% OF PORTFOLIO)
TOTAL RETURN - INDEX
The accumulation unit price fell 2.8% on the year compared to falls in the benchmark indexes of 3.8% in the case of the FTSE All World ($) and between 17.1% and 14.7% for the FTSE indexes. UK equities were not the place to be.
After all that, the accumulation units are comfortably ahead of the FTSE 100, 250 and All Share but just ahead of the FTSE All World.
I only calculate the unit price monthly, unless monies are being added or withdrawn, however the accumulation unit price today is down 7% on its all time monthly high from February 2020. Pleasingly, it has already recovered all the losses incurred in 2018-19 and 2019-20 and today equals the all-time yearly high reported on 30 April 2018.
TOTAL RETURN – INDIVIDUAL HOLDINGS
No fewer than seven of the current holdings showed a positive return over the year, including AstraZeneca at almost 50%, Domino’s Pizza Group at almost 34% and Kone at almost 17%.
M&G Recovery and Standard Chartered both had a shocker, losing over 30% and almost 40% respectively.
CURRENT HOLDINGS FROM PURCHASE TO DATE (20 MAY 2020):
The ordinary dividend income per unit came to 3.40 pence, with no special dividends, making a ‘yield on cost’ of 3.40 per cent and a ‘current yield’ of 3.14%, which compares to 2.86 per cent last year and is by far the highest current yield this portfolio has ever shown, as the focus is more on growth over time as opposed to higher starting dividend yield.
The decision to buy MasterCard last year was always going to have an immediate depressing effect on the dividend per unit for 2019-20, because it has a small starting dividend yield, nonetheless the dividend per unit was due to end the year with a slight increase until Domino’s Pizza Group postponed their final dividend and Renishaw cancelled their interim, which were both due in April 2020.
Dividend growth (ordinary dividend income per unit) came to minus 0.3%.
The portfolio has returned 13.4% of the initial income unit price in dividends (ordinary and special).
To date, about 37% of returns came from capital appreciation and 63% from dividends. That’s almost a mirror image of last year’s report.
Forecasting any dividends for the coming year seems rather mad, so we shall see what happens!
However, even without COVID I would have expected dividends to be slightly down at best in 2020-21, because of the new monies added to the portfolio in March and April 2020. The reason for this is simple: even though unitisation adjusts for new capital added to the portfolio, in the space of a few weeks I effectively added 10.7 units yielding 0.3 per cent for every 100 units I had had previously which were yielding 3.4 per cent.
The new capital expanded the portfolio by over one-tenth and yet the anticipated dividend yield for that new capital was barely one-tenth of the existing portfolio’s dividend yield, so it is bound to have a dilutive effect on the dividend per unit. However, given the pace of MasterCard’s dividend increases I don’t mind. I’m sowing a seed for the years ahead.
The running costs, based on the portfolio’s capital value at the end of the period, were: annual cost (inc dealing) 0.34% and annual cost (ex dealing) 0.24%.
As I said last year: ‘What will the next year bring? Who knows.’