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Investors Chronicle dividend of the week 18/11/13

Investment Tools Ltd.

Investors Chronicle – Dividend of the week

This week we are going to review all of the previous ‘dividends of the week’ and analyse how the selections have fared and also to potentially reselect any laggards based upon events and developments since their initial selection. So the format will be completely different to our usual ‘dividend of the week’ format. Initially, we will create a table that tells us our previous selections, the price at which they were chosen, the price now and the highest price between selection and today. We will also highlight any dividends paid in the period to give a total return and we will state whether the option trade has been fulfilled. For an explanation of the option trade, please visit this link:

http://www.investorschronicle.co.uk/2013/08/21/shares/news-and-analysis/a-trading-strategy-for-income-6zlZqSIoLXuci881lVgMnO/article.html

Below is the table of all ‘dividends of the week’

Selection

Date

Price at publication

Price now

Highest price since publication

Option Trade fulfilled?

Dividends paid (i.e. gone Ex.)

Admiral

01/07/13

1327

1284

1416

No

48.9p

RPS

08/07/13

220

293

299

Yes

3.52p

Vodafone

15/07/13

193.8

231

231.8

Yes

3.53p

BHP Billiton

22/07/13

1863

1932

1994

Yes

37.7p

Catlin

30/07/13

494

517

524

No

10.0p

BskyB

05/08/13

837

819

950

Yes

19.0p

Chevron

12/08/13

12307

12009

12582

No

2x$1

Carillion

27/08/13

289

299

324.7

Yes

5.5p

Perpetual Income & growth IT

02/09/13

342

355

365

Yes

2.7p

Smiths News

09/09/13

185

214

214

Yes

N/A

Apple Inc

16/09/13

46500

52063

53191

Yes

$3.05

Amec

23/09/13

1107

1165

1207

Yes

N/A

Berkeley Group

30/09/13

2054

2235

2450

Yes

N/A

Smiths Group

07/10/13

1354

1431

1455

Yes

57.0p

Astra Zeneca

14/10/13

3159

3306

3330

Yes

N/A

Standard Chartered

21/10/13

1495

1456

1543

No

N/A

Serco

28/10/13

552

419

557

No

N/A

ICAP

04/11/13

381

388

391.8

No

N/A

Imperial Tobacco

13/11/13

2370

2426

2426

No

N/A

Out of the 19 selections since and including our first dividend of the week 12 have already met the option trade criteria well within the eighteen months timescale. Clearly the most recent four selections have not yet had sufficient time to have met the trade critieria. This leaves us with Admiral, Catlin, and Chevron.

Catlin, we are happy with because, firstly, they came very close to meeting the option trade conditions and secondly as you will see in the table below, they have outperformed the market since being featured. In addition to this, they have paid a dividend of 10p in the interim period. Admiral have also paid a dividend and almost reached the option trade, but unlike Catlin, they have underperformed the market. More on Admiral later. Chevron are in a sector that is performing badly across the board. They have paid two dividends of $1 since publication and the price has been above the price at publication, but not sufficiently for us to be happy with the performance.

Looking at what we have done I am actually surprised at how successful we have been. My mind immediately springs to the failures and the most obvious of these is Serco, which blew up last week and fell over 10% in a single day.

It is obviously no surprise that the most recent dividends of the week have not yet made the option trade as they have only had a matter of weeks to achieve that goal, but our overall track record is outstanding given that the timescale is over eighteen months and in the majority of cases we have achieved our goal well before the target timescale.

However, we need to look at our less successful selections and ask, is the market correct in its price judgement or not?

Admiral

We have seen nothing to detract from out original stance. Admiral stills sits third on the optimizer and we see no reason to change our stance. It remains a highly profitable business and they are committed to maintaining profitability at the expense of sales if necessary. The move into home insurance could prove to be successful and the international business continues to grow quickly. We continue to back the excellent management and we feel that the continuing yield attraction makes the shares a very strong hold.

British Sky Broadcasting

I cannot be too worried about British Sky Broadcasting because it met the option trade and we do advocate active trading. That said, was the market reaction to BT winning some champions league games on the British Sky Broadcasting share price was an overreaction. They remain a top company, extremely strong in their field and the market is not giving the company the credit that it deserves. It continues to buy back its own shares at quite a rate and rather like highly rated retailer Next, will drive earnings per share forward by doing this.

Chevron

Global oil has not had a good time of it recently and Chevron still remains our pick from the sector. The sector is too large not to have at least one stock in your portfolio.

Serco

At some point in our dividend of the week series, one of the stocks that we highlighted was going to blow up and so it happened just last week with Serco. In our analysis, we recognised that Serco had issues with the UK Government over its contracts with the ministry of justice, but the main thrust of our argument still remains in force; that there is sufficient dividend cover to secure increased dividends in line with the newly set dividend policy of cover between 2.5 and 3 times. If the newly reduced analysts forecasts for the company are accurate then dividend increases will take place in each of the next two years at least.

So, The market knocked almost 20% off the share price in spite of the fact that the company had made it clear that a profit warning was inevitable. The fall in Serco shares looks overdone and once the fallout from the profit warning is out of the way, this will prove to be a fantastic buying opportunity.

Standard Chartered

We see no reason to change our stance on Standard chartered and for us they still remain the bank of choice for dividend investors.

The only way we can really judge our success is relative to the market. If our selections have not outperformed the market then, they are not worth the paper that they are written on, so lets have a look at that. We will look at the performance of the relevant index to which the company belongs:

Selection

Date published

Price at publication

Price now

Index level (publication)

Index level (now)

Outperformed (Y/N)

Admiral

01/07/13

1327

1284

6307(FT100)

6693(FT100)

N

RPS

08/07/13

220

293

14473(FT250)

15246(FT250)

Y

Vodafone

15/07/13

193.8

231

6586(FT100)

6693(FT100)

Y

BHP Billiton

22/07/13

1863

1932

6623(FT100)

6693 (FT100)

Y

Catlin

30/07/13

494

517

14829(FT250)

15246(FT250)

Y

BskyB

05/08/13

837

819

6619(FT100)

6693 (FT100)

N

Chevron

12/08/13

12307

12009

756 (S&P100)

802 (S&P100)

N

Carillion

27/08/13

289

299

14768(FT250)

15246(FT250)

Y

Perpetual Income & growth IT

02/09/13

342

355

14875(FT250)

15246(FT250)

Y

Smiths News

09/09/13

185

214

4120 FTsmall

4360 (FTsmall

Y

Apple Inc

16/09/13

46500

52063

757 (S&P100)

802 (S&P100)

Y

Amec

23/09/13

1107

1165

6557(FT100)

6693 (FT100)

Y

Berkeley Group

30/09/13

2054

2235

14908(FT250)

15246(FT250)

Y

Smiths Group

07/10/13

1354

1431

6437(FT100)

6693 (FT100)

Y

Astra Zeneca

14/10/13

3159

3306

6507(FT100)

6693 (FT100)

Y

Standard Chartered

21/10/13

1495

1456

6654(FT100)

6693 (FT100)

N

Serco

28/10/13

552

419

15428(FT250)

15246(FT250)

N

ICAP

04/11/13

381

388

15468(FT250)

15246(FT250)

Y

Imperial Tobacco

13/11/13

2370

2426

6630(FT100)

6693 (FT100)

Y

Prices and Index levels as per close of play on Friday 15th November.

So, out of 19 dividends of the week, our choice has outperformed its constituent index on 15 occasions. Any fund manager would be more than happy with that performance.

So, if we are going to pick Dividend of the week from our laggards, it looks too early to buy Serco right now, although they should be on the watch list. Chevron still look to be in an unloved sector. Standard Chartered has not yet been given long enough to perform. Admiral and British Sky Broadcasting are excellent companies with fantastic dividend track records. On balance, I would just about give the nod to Admiral because of their superior yield.

This article was originally acceessible only to DividendMax members and is now publicly available.

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