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ADrunkenMarcus' 'Dividend Growth Portfolio'.

A helpful place to also put any annual reports etc, of your own portfolios
ADrunkenMarcus
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Re: ADrunkenMarcus' 'Dividend Growth Portfolio'.

#299075

Postby ADrunkenMarcus » April 8th, 2020, 7:07 pm

Wasron wrote:Victrex have held up extremely well over the last month.

In the Chemicals sector I added Johnson Matthey yesterday after their recent weakness. Seems like a good opportunity to pick up a quality business that’s embracing the challenges of climate change.


Victrex have held up well and ended up 3% or so today. :)

It looks like you got Johnson Matthey at a pretty good price compared to what it had been trading at recently.

Best wishes

Mark.

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Re: ADrunkenMarcus' 'Dividend Growth Portfolio'.

#310385

Postby ADrunkenMarcus » May 20th, 2020, 7:20 pm

My review for 2019-20 (1 May 2019 to 30 April 2020).

TRADES

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):



INCOME:

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.

RUNNING COSTS

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.’

Best wishes

Mark.

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Re: ADrunkenMarcus' 'Dividend Growth Portfolio'.

#310513

Postby TUK020 » May 21st, 2020, 8:36 am

ADrunkenMarcus wrote:My review for 2019-20 (1 May 2019 to 30 April 2020).

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.


Mark.


Mark,
thank you for sharing your portfolio in such a clear fashion.

Seeing how you have laid out the return versus indices over this time period, has made me challenge my own thought processes on one point.
Does this just clearly lay out that the UK market has been the wrong place to be since the Brexit vote? my bolding of your comment above.
Would it have been simpler to achieve the same returns from your investment strategy above, but at considerably lower risk, to buy the world index?

One of my better performers has been the ETF L&G Global 100. I am wondering if I should increase the % allocated to this

tuk020

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Re: ADrunkenMarcus' 'Dividend Growth Portfolio'.

#310767

Postby ADrunkenMarcus » May 21st, 2020, 7:04 pm

TUK020 wrote:thank you for sharing your portfolio in such a clear fashion.


I'm glad you found it interesting. :)

TUK020 wrote:Seeing how you have laid out the return versus indices over this time period, has made me challenge my own thought processes on one point. Does this just clearly lay out that the UK market has been the wrong place to be since the Brexit vote? my bolding of your comment above.
Would it have been simpler to achieve the same returns from your investment strategy above, but at considerably lower risk, to buy the world index?
tuk020


The answer to your final question is very probably yes, but that would be no fun! ;)

Since year end, my accumulation unit price has risen further and is more comfortably ahead of the FTSE All World, such that for every £1 of growth from the index I have enjoyed £1.17. Although it is only over a four-year period, the difference is in the order of a CAGR of 9.1% and a CAGR of 7.8% for the All World. It is, theoretically, possible to do better than the index and, while a tracker guarantees you most of the market's return, it also guarantees you a degree of tracking error and underperformance due to even small charges. Then again, I'm very aware that the odds of beating 'the market' consistently are rather slim - unless you're someone like Terry Smith!

There are all sorts of risks and I am not sure how you would calculate, quantify and rank them. It's beyond me, anyway. You may also have a situation where your total return matches the market but your dividends are higher - whether that's preferrable is down to your own circumstances and objectives. It might be that my dividends prove more resilient than the market and don't fall as far - or it might not. (I do note that the historic gross dividend yield for the FTSE All World is about 10% lower than my portfolio's.)

I have actually absorbed a huge hit from DP Poland - which soared to a peak in late 2016. I knew it was way overvalued but continued to hold and it reached over 21% of the portfolio. Had I sold it in entirety, and not earned any return on that capital but retained it in the portfolio, I calculate my unit price would be over 1.7. On balance, therefore, I have absorbed an enormous hit and yet done OK.

What I am thinking is that I have, so far and over a short period (and probably more through luck than judgement or wisdom), generated a slightly better return (surely for more risk, however calculated) and enjoyed doing so.

Best wishes

Mark.

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Re: ADrunkenMarcus' 'Dividend Growth Portfolio'.

#320051

Postby ADrunkenMarcus » June 20th, 2020, 3:34 pm

I noted at the close on 18 June 2020 that my PayPal holding was up 34.9 percent in Sterling terms.

Of course this is a pleasing increase in the space of less than two months but it is the long term that matters. The earnings estimates have edged up slightly. Nonetheless, when I bought it the estimated free cash flow yield was 2.9 percent for 2020 or 4.8 percent for 2022. These have come down from 2.9 percent to 2.4 percent for 2020 and from 4.8 percent to 3.8 percent for 2022 so Paypal is significantly more expensive. I note the earnings forecasts and free cash flow forecasts, which show free cash flow rising 19 percent in 2020, 23 percent in 2021 and 28 percent in 2022. The 'market value' of the company is undoubtedly based on such consensus estimates, whether they are achieved or not. It would be impressive if they were, since it implies scope for an increased share price of 56.3 percent on current levels if it traded at 2020's free cash flow yield in 2022.

The EBIT margin is forecast at 23 percent in 2020 and 25.3 percent in 2022. I will be watching with interest to see what scope there is for margin expansion, because PayPal should have a very scalable business model that can achieve increased revenues without a commensurate increase in costs.

When I did my 'year end' report, I said my accumulation unit was down 7 percent or so on its all time monthly high from February 2020, and that is now 3.6 percent down. It does make you wonder if markets reflect economic reality. They are forward looking, but aren't asset prices simply being pumped up by QE? I'd prefer they were not, since cheaper asset prices helps me accumulate for the long term.

Best wishes

Mark.

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Re: ADrunkenMarcus' 'Dividend Growth Portfolio'.

#320158

Postby ReallyVeryFoolish » June 21st, 2020, 1:43 am

ADrunkenMarcus wrote:I noted at the close on 18 June 2020 that my PayPal holding was up 34.9 percent in Sterling terms.

Of course this is a pleasing increase in the space of less than two months but it is the long term that matters. The earnings estimates have edged up slightly. Nonetheless, when I bought it the estimated free cash flow yield was 2.9 percent for 2020 or 4.8 percent for 2022. These have come down from 2.9 percent to 2.4 percent for 2020 and from 4.8 percent to 3.8 percent for 2022 so Paypal is significantly more expensive. I note the earnings forecasts and free cash flow forecasts, which show free cash flow rising 19 percent in 2020, 23 percent in 2021 and 28 percent in 2022. The 'market value' of the company is undoubtedly based on such consensus estimates, whether they are achieved or not. It would be impressive if they were, since it implies scope for an increased share price of 56.3 percent on current levels if it traded at 2020's free cash flow yield in 2022.

The EBIT margin is forecast at 23 percent in 2020 and 25.3 percent in 2022. I will be watching with interest to see what scope there is for margin expansion, because PayPal should have a very scalable business model that can achieve increased revenues without a commensurate increase in costs.

When I did my 'year end' report, I said my accumulation unit was down 7 percent or so on its all time monthly high from February 2020, and that is now 3.6 percent down. It does make you wonder if markets reflect economic reality. They are forward looking, but aren't asset prices simply being pumped up by QE? I'd prefer they were not, since cheaper asset prices helps me accumulate for the long term.

Best wishes

Mark.

Regarding PayPal, it's one of Terry Smith's biggest holdings in Fundsmith. Given the rigour that Smith applies to such metrics as return on capital employed and the like, Smith at least, is happy to continue to hold the stock? (Buy good companies, Don't over pay, Do nothing - The Smith mantra).

RVF

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Re: ADrunkenMarcus' 'Dividend Growth Portfolio'.

#320249

Postby ADrunkenMarcus » June 21st, 2020, 2:27 pm

ReallyVeryFoolish wrote:Regarding PayPal, it's one of Terry Smith's biggest holdings in Fundsmith. Given the rigour that Smith applies to such metrics as return on capital employed and the like, Smith at least, is happy to continue to hold the stock? (Buy good companies, Don't over pay, Do nothing - The Smith mantra).


Yes, it looks like it. Absent a noticeable deterioration in the fundamentals of the company's business, I guess he would only sell it entirely if the valuation - in his view - went mad (relative to other investments where he could deploy capital).

Mind you, assuming 2022 forecasts are met and then PayPal achieves ten percent annual growth in free cash flow (much less than historically), today's price could represent a 6.6 percent free cash flow yield on 2030, which would not be expensive in hindsight.

Happy to hold and hope the above scenario unfolds!

Best wishes

Mark.

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Re: ADrunkenMarcus' 'Dividend Growth Portfolio'.

#320358

Postby ReallyVeryFoolish » June 22nd, 2020, 12:48 am

ADrunkenMarcus wrote:
ReallyVeryFoolish wrote:Regarding PayPal, it's one of Terry Smith's biggest holdings in Fundsmith. Given the rigour that Smith applies to such metrics as return on capital employed and the like, Smith at least, is happy to continue to hold the stock? (Buy good companies, Don't over pay, Do nothing - The Smith mantra).


Yes, it looks like it. Absent a noticeable deterioration in the fundamentals of the company's business, I guess he would only sell it entirely if the valuation - in his view - went mad (relative to other investments where he could deploy capital).

Mind you, assuming 2022 forecasts are met and then PayPal achieves ten percent annual growth in free cash flow (much less than historically), today's price could represent a 6.6 percent free cash flow yield on 2030, which would not be expensive in hindsight.

Happy to hold and hope the above scenario unfolds!

Best wishes

Mark.

what you decribe pretty much happened recently when Smith bought Chlorox. Chlorox bounced sharply as a result of the virus panic. Somewhat unusually for Smith, he sold it a couple of months later for a nice profit, buying Nike and Starbucks instead both of which suffered significant share price falls as Chlorox went up. He was lucky on that one though. As far as I know, that's the nearest Smith has been to a short term trade in his Fundsmith portfolio.

RVF

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Re: ADrunkenMarcus' 'Dividend Growth Portfolio'.

#323084

Postby ADrunkenMarcus » July 1st, 2020, 8:48 pm

A new article analysing Kone has been added to Seeking Alpha (it may only be available a few days without logging in):
https://seekingalpha.com/article/435644 ... tor-sector

And the presentation referenced in it can be found here - lots of interesting info. IMHO:
https://www.kone.com/en/Images/KONE_202 ... -69602.pdf

I think the returns envisaged there may be a bit bullish, but my own Kone holding has now returned 60 percent in sterling terms on a total return basis since purchase in April 2017. It will not shoot the lights out but will hopefully continue to grind out moderate, reliable growth and dividends. And if it does return what the Seeking Alpha author suggests by 2023, then I will settle for my holding more than doubling in six years.

Best wishes

Mark.

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Re: ADrunkenMarcus' 'Dividend Growth Portfolio'.

#330172

Postby ADrunkenMarcus » August 1st, 2020, 1:25 pm

ADrunkenMarcus wrote:Mind you, assuming 2022 forecasts are met and then PayPal achieves ten percent annual growth in free cash flow (much less than historically), today's price could represent a 6.6 percent free cash flow yield on 2030, which would not be expensive in hindsight.

Happy to hold and hope the above scenario unfolds!


PayPal's results announcement for the second quarter of 2020 were promising and exceeded expectations such that, as a result, analyst forecasts are being nudged upwards again. Free cash flow growth is seen at 34 percent in 2020, 13 percent in 2021 and 32 percent in 2022. Earnings per share forecasts for 2022 have increased from about $5 to $5.44, mirroring this year's forecasts going up, meaning that some of PayPal's share price gains have come from genuine growth in the business as opposed to merely multiple expansion. As always the issue of whether this can continue, however all the metrics such as active users, total payment volume and margins all seem to be headed the right way. There's an argument that trends towards e-commerce and online, cashless payments have simply accelerated during the current crisis. The recent Dollar weakness has trimmed what would have been about a 62 percent gain to 49 percent.

PayPal was 1.7 percent of my 'folio at the end of April 2020 and has now increased to 2.5 percent. I would not mind the position getting much larger through natural growth.

Best wishes


Mark.

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Re: ADrunkenMarcus' 'Dividend Growth Portfolio'.

#332546

Postby ADrunkenMarcus » August 12th, 2020, 7:53 am

I've been happy with a number of announcements recently.

Rotork - the final dividend for 2019, due originally in May 2020, is now being paid in September 2020 instead of the interim for 2020. And a full year dividend for 2020 comprising interim and final will be paid in May 2021.

Domino's Pizza - the final dividend for 2019, due originally in April 2020, it now being paid in September 2020 instead of the interim for 2020. And a full year dividend for 2020 comprising interim and final will considered at the time of the 2020 results, so may be paid in c. April 2021.

Both companies are therefore off my list of dividend cutters or suspenders.

Spirax Sarco Engineering also reported it was increasing its interim dividend, due to be paid in November 2020, by 5 percent. This is naturally less than the c. 11 percent compounded growth in dividends over more than 50 years, however a dividend raise even in these current circumstances is what investors in Spirax have come to expect and it's priced accordingly with the dividend yield down to 1.1 percent. I am glad I purchased a holding when it was so much cheaper.

Potentially less welcome, depending on what is announced, is DP Poland's recent reverse merger announcement, however we'll need to await the specific details of what they are proposing.

I am hoping Diploma and Victrex will follow a similar pattern to Rotork and Domino's - both companies have healthy balance sheets and Victrex actually has a history of special dividends, so there are grounds for optimism that they will reinstate dividends. If so, my cutters among individual company holdings may be limited to Standard Chartered and Renishaw.

Best wishes


Mark.


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