This week Mark Riding reviews all his previous Dividend of the Week recommendations and analyses how the selections have fared. He also considers whether to reselect any of the laggards based upon events and developments since their initial selection.
See below for a table of all Dividend of the Week recommendations since the series began in July detailing the price at which the shares were recommended, the price now and the highest price they have traded at between publication and today. We also highlight any dividends paid in the period to give a total return and state whether the option trade has been fulfilled. For a full explanation of the option trade, please visit this link - A trading strategy for income.
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 | 01/07/2013 | 1327 | 1284 | 1416 | No | 48.9p |
| RPS | 08/07/2013 | 220 | 293 | 299 | Yes | 3.52p |
| Vodafone | 15/07/2013 | 193.8 | 231 | 231.8 | Yes | 3.53p |
| BHP Billiton | 22/07/2013 | 1863 | 1932 | 1994 | Yes | 37.7p |
| Catlin | 30/07/2013 | 494 | 517 | 524 | No | 10.0p |
| BskyB | 05/08/2013 | 837 | 819 | 950 | Yes | 19.0p |
| Chevron | 12/08/2013 | 12307 | 12009 | 12582 | No | 2x$1 |
| Carillion | 27/08/2013 | 289 | 299 | 324.7 | Yes | 5.5p |
| Perpetual Income & growth IT | 02/09/2013 | 342 | 355 | 365 | Yes | 2.7p |
| Smiths News | 09/09/2013 | 185 | 214 | 214 | Yes | N/A |
| Apple Inc | 16/09/2013 | 46500 | 52063 | 53191 | Yes | $3.05 |
| Amec | 23/09/2013 | 1107 | 1165 | 1207 | Yes | N/A |
| Berkeley Group | 30/09/2013 | 2054 | 2235 | 2450 | Yes | N/A |
| Smiths Group | 07/10/2013 | 1354 | 1431 | 1455 | Yes | 57.0p |
| Astra Zeneca | 14/10/2013 | 3159 | 3306 | 3330 | Yes | N/A |
| Standard Chartered | 21/10/2013 | 1495 | 1456 | 1543 | No | N/A |
| Serco | 28/10/2013 | 552 | 419 | 557 | No | N/A |
| ICAP | 04/11/2013 | 381 | 388 | 391.8 | No | N/A |
| Imperial Tobacco | 13/11/2013 | 2370 | 2426 | 2426 | No | N/A |
Out of the 19 selections since 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 option trade critieria. This leaves us with Admiral, Catlin, and Chevron.
Catlin, we are happy with because, firstly, it has come very close to meeting the option trade conditions and secondly as you will see in the table below, its shares have outperformed the market since being featured. In addition to this, they have paid a dividend of 10p in the interim period. Admiral has also paid a dividend and almost reached the option trade, but unlike Catlin, its shares have underperformed the market. Chevron are in a sector that is performing badly across the board. It has paid two dividends of $1 each since publication and the shares have traded above the price at publication, but not sufficiently for us to be happy with the performance.
Looking at the returns that have been enjoyed, I am actually pleasantly surprised at how successful we have been. The winners are often overshadowed by the smaller number of notable failures, such as Serco, which blew up last week and fell more than 10 per cent in a single day.
It is obviously no surprise that the most recent dividends of the week have not yet met the option trade criteria as they have only had a matter of weeks to achieve that goal, but our overall track record is outstanding given that the theoretical timescale is over an eighteen month period 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?
We have seen nothing to detract from our original stance. Admiral stills sits third in the DividendMax Optimizer tool of most compelling dividend opportunities and we see no reason to change our stance. It remains a highly profitable business and is committed to maintaining profitability at the expense of chasing sales growth if necessary. The move into home insurance could prove to be successful and the international business continues to grow quickly according to its recent trading statement. We continue to back the excellent management and we feel that the continuing yield attraction makes the shares worth holding on to.
British Sky Broadcasting (BSY)
I cannot be too worried about British Sky Broadcasting because it met the option trade and we do advocate active trading. That said, the market reaction to the BSkyB shares price on the news that BT had won the latest Uefa Champions League auction was overly harsh. It remains 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, too, and rather like highly rated retailer Next, will drive earnings per share forward by doing this. The Investors Chronicle concurred with our opinion on BSkyB recently when it kept the shares on a buy despite the short-term damage done to the share price by BT's victory.
Chevron
Global oil has not had a good time of it recently and Chevron still remains our pick from the sector. Commodities in general have suffered weakness in recent months but a diversified portfolio should always include some exposure to what is one of the world's largest sectors and including quality income stock from the oil and gas sector such as Chevron is a sound strategy for those seeking proper diversification.
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 recently 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 per cent 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 could prove to be a fantastic buying opportunity. Indeed, Serco still has an enviable order book worth more than £18.5bn stretched over the next two decades and significant management change is afoot in an effort to persuade the UK government that Serco remains a trusted partner.
We see no reason to change our stance on Standard Chartered and they still remain the bank of choice for dividend investors.
The only way we can really judge our success is relative to the market. We will look at the performance of the relevant index to which the company belongs:
|
Prices and Index levels as per close of play on Friday 15 November.
So, out of 19 dividends of the week, our choice has outperformed its constituent index on 15 occasions.
So, if we are going to recommend one of our laggards as Dividend of the Week again, it looks too early to buy Serco right now, although it remains on the watch list. Chevron is still stymied by its position in an unloved sector. Standard Chartered has not yet been given long enough to perform. Admiral and British Sky Broadcasting are both excellent companies with fantastic dividend track records. On balance, I would just about give the nod to Admiral because of its superior yield.
