ADrunkenMarcus' 'Dividend Growth Portfolio'.

[ADrunkenMarcus]

As I write, DOM is up about 8% at 379p. The dividend was nudged up and they have announced further share buybacks. The dividend for 2023 looks on course to be higher than forecasts for the 2024 dividend and they have increased guidance. Since March 2021, the £398 million they have spent on dividends and buybacks represents about 26 percent of the current market cap. Last time I checked, share count had been reduced about 19 percent since c. 2016 so it has shrunk significantly. Leverage is also below target range.

I have had concerns about DOM and saturation in its core UK and Ireland market, particularly with the exit from its ill-fated international efforts, but the most recent data shows them gaining market share and I don't think it impossible that they could double their market share (of a growing market) over time. Their rewards programme mooted for 2024 sounds promising, too, and has proven popular at rivals. As things stand, since purchase in 2010, the capital gain is about 227 percent and it has returned a further 82 percent of the book cost in dividends (taken as cash). It is a business nearing a state of maturity compared to when I purchased it, but I hope that decent capital allocation policies can still deliver good returns. Provided they do it at good prices, continuing share buybacks could reduce the current share count substantially further.

There is a call later this morning which I can't listen to live but hope to be able to play back.

Best wishes


Mark.

[kempiejon]

That's another one I share with you, I have had mixed feelings about DOM; they nearly got the chop a while back as I needed cash in the ISA that holds DOM for a corporate action but I didn't have enough. Their slowing of income growth put them in the cross hairs. In the end they stayed. Up 35% in a month, I hadn't even noticed.

[ADrunkenMarcus]

That's another one I share with you, I have had mixed feelings about DOM; they nearly got the chop a while back as I needed cash in the ISA that holds DOM for a corporate action but I didn't have enough. Their slowing of income growth put them in the cross hairs. In the end they stayed. Up 35% in a month, I hadn't even noticed.

Yes, slowing growth is a concern. Taking dividends as a proxy, I believe the first dividend increase I got after investing in 2010 was c. 30 percent and the latest was 3 percent for the interim. Since purchase the dividend per share has compounded c. 9 percent CAGR. I would hope it can nudge up to mid single digits from the current rate of increase.

The talk this morning has been interesting. An example on 'white space' was that they seem to think one store per 29,000 people is feasible and they are currently at 53,000, so there is still plenty of scope for higher store numbers in both the UK and Ireland. Executing that without cannibalising sales from existing stores (splits) is a risk. The statistics on the app usage were promising, because app usage is going up substantially and app users orders are greater.

Best wishes


Mark.

[simoan]

That's another one I share with you, I have had mixed feelings about DOM; they nearly got the chop a while back as I needed cash in the ISA that holds DOM for a corporate action but I didn't have enough. Their slowing of income growth put them in the cross hairs. In the end they stayed. Up 35% in a month, I hadn't even noticed.

From the Smithson IT July factsheet:
We exited our position in Domino’s Pizza Group after becoming dissatisfied with frequent management turnover and disappointing results.

Unfortunate timing! Shows even the best can't time the market but assume they enjoyed some of the run up YTD.

[ADrunkenMarcus]

They also missed today where it rose to over 400p a share and was a rare blue/green share in my portfolio.

I sympathise with much of what they said and the missteps. DOM took a hit over several years from international losses. However, they do have a new CEO coming in who is well regarded (let's see what they do). And, while forecasts are always to be taken with a pinch of salt, dividend growth is forecast at 10 and 9 percent in 2024 and 2025; growing profit margins are anticipated; and debt has come down vs. EBITDA. Much of what they said could have applied to when they acquired DOM in the first place, IMHO.

Best wishes


Mark.

[simoan]

They also missed today where it rose to over 400p a share and was a rare blue/green share in my portfolio.

Well, the good news is that it was the smallest Smithson holding at 0.9% at the end of June according to the recent HY results. The even better news is they used the sale proceeds to take part in the Oddity Tech IPO at $35. Price now is $54

All the best, Si

[monabri]

That's another one I share with you, I have had mixed feelings about DOM; they nearly got the chop a while back as I needed cash in the ISA that holds DOM for a corporate action but I didn't have enough. Their slowing of income growth put them in the cross hairs. In the end they stayed. Up 35% in a month, I hadn't even noticed.

From the Smithson IT July factsheet:
We exited our position in Domino’s Pizza Group after becoming dissatisfied with frequent management turnover and disappointing results.

Unfortunate timing! Shows even the best can't time the market but assume they enjoyed some of the run up YTD.

Fundsmith also sold out of AMZN in May....

[simoan]

From the Smithson IT July factsheet:
We exited our position in Domino’s Pizza Group after becoming dissatisfied with frequent management turnover and disappointing results.

Unfortunate timing! Shows even the best can't time the market but assume they enjoyed some of the run up YTD.

Fundsmith also sold out of AMZN in May....

Depends what they bought with the proceeds. Personally, I’m glad they sold out of Amazon. Not one of their best ideas although they probably made money on the trade. The fact is, nobody knows the future. and on any metric other than recent share price movement, the valuation of Amazon is pricing in a lot of future good news.

[ADrunkenMarcus]

Some pleasing announcements this week, with Rotork showing signs of its former glory and raising the interim dividend over 6 percent and Spirax Sarco raising its interim 8 percent (one of the lowest increases since I bought it in 2015, which shows its usual high standard - and following 12 percent in 2022).

Murray International's half year report shows a continuing revenue increase and addition to reserves, which bodes well for future dividend growth. The full year 2022 dividend was well covered so it seems they have scope to increase reserves and deliver a modest increase in the dividend per share for 2023 (they have aimed to at least match the 2022 figure). Comments in recent reports have indicated they have restrained dividend growth somewhat, recognising the current dividend yield is pretty high compared to peers and that they may wish to build up reserves further.

Murray International's dividend income makes up a substantial proportion of the portfolio's overall dividend income and so it has a disproportionate influence on the overall dividend growth rate per income unit.

Best wishes


Mark.

[simoan]

Lovely full year results from Diploma today: https://www.londonstockexchange.com/new ... s/16215558

Nothing to dislike at all, other than maybe a FY dividend increase of only 5% with regard to the subject of this thread! However, given the increased number of shares following the capital raise, maybe not entirely unexpected. But let's face it, who needs a dividend when the company can re-invest cashflow at these kind of returns on capital and continue compounding. A thing of beauty. Share price up over 8% as I write.

All the best, Si

[ADrunkenMarcus]

Lovely full year results from Diploma today: https://www.londonstockexchange.com/new ... s/16215558

Nothing to dislike at all, other than maybe a FY dividend increase of only 5% with regard to the subject of this thread! However, given the increased number of shares following the capital raise, maybe not entirely unexpected. But let's face it, who needs a dividend when the company can re-invest cashflow at these kind of returns on capital and continue compounding. A thing of beauty. Share price up over 8% as I write.

My main dislike is that the shares closed up about 11% and close on their all time high from almost two years ago. Quite frustrating when you have a chunk of cash coming your way, which you intend to invest into your dividend growth portfolio, and one of the contenders for a top up suddenly has a significantly lower dividend yield.

As a serial acquirer, Diploma have been criticised for even paying a dividend. They have compounded it about 14% CAGR since I bought in 2012 and so I am happy. They even raised it 42% and then 26% as I recall for 2020 and 2021 respectively. They also had a critical question about it on a recent call.

However, at their June 2023 investor day they presented their 'financial model' (page/slide 136) which targeted double digit EPS growth and 5% DPS growth. Some have read that as a minimum intention but I suspect they might run with it for a few years. What I think they are doing is continuing to grow the dividend (and even 5% is pretty healthy except by Diploma's recent standards) while bringing it down as a proportion of profit and free cash flow, thus freeing up resources for future acquisitions. As the company scales up, they need larger acquisitions to 'move the needle'. However if they continue their track record then we should see the dividend reduce as a payout ratio and then probably reaccelerate in the long run as acquisitions and double digit EPS carry on. I can live with that. The payout ratio is already down from about 50 to 45% but they have not set an explicit future target. (They did set a leverage target of debt at 2x EBITDA or under, and they've reduced it from 1.4 to 0.9.) It does make me wonder why they increased the dividend so much several years ago, though.

Today was a green day for me and several of my top holdings surged. DP Poland closed up about 13%; Diploma closed up about 11%; Biovenix closed up about 5%; and Spirax Sarco up about 3%. Against a flattish FTSE, my portfolio is up over 2% on the day. Again, all very annoying because I anticipate I will have a significant lump sum to add to the portfolio and some quality companies which were within my valuation tolerance are now edging away. I suspect DP Poland and Bioventix performed as they did due to low liquidity. Indeed, one of my purchases of DP Poland once was on its own the vast majority of shares traded on that one day.

Diploma is now 6.3% of the portfolio and DP Poland is 5.7%.

I assume I will be enlarging the portfolio by at least 10% of the current portfolio value (based on capital) in the coming months. What I have been doing since inception is sacrificing current dividend yield for higher dividend growth prospects and the latter has given me some of my best performers. I want to chose companies capable of growing their dividend (or earnings) at a double digit rate in the medium term.

I am attracted to topping up Blackrock Smaller Companies, which is at a discount to NAV and has grown its dividend 12% a year since 2003, earning the status of a 20-year dividend raiser. MasterCard, Spirax Sarco and Diploma are candidates for top ups, too, because I believe they can sustain double digit earnings growth for a while yet. I have my eye on some foreign companies as potential new holdings including some Swedish and Dutch firms (such as ASML). Dutch withholding tax is not too bad for dividends at 15%. I don't want to add too many holdings!

Best wishes


Mark.