Monday 24 February 2014

Power Investing Like Gnasher! (2,5) [Portfolio Sale]

Buy! Sell!
Just when you thought the Beano's Dennis the Menace couldn't get more ill-behaved, impetuous and destructive - then they introduced Gnasher. This was, I am alarmed to read, in 1968: alarmed because I vaguely remember it (a couple of years after the first episode of Dr Who, in black and white).

Gnasher epitomises all that is perfect about a naughty boy's dog - it was more than willing to take part in almost any kind of mayhem (with gusto), and in some cases pushed Dennis' admittedly limited boundary of self-control.

Perhaps we all have a mental investing Gnasher that we don't always keep under control.

Gnasher came to mind because I have just sold National Grid (LSE:NG). [If you haven't spotted it yet - an anagram of Gnasher is -  NG Share.]

I have spend a couple of weeks sitting on my hands for a couple of weeks, biting my nails looking at the uneven rise of the share price (a rise for no apparent reason that I can identify). This Monday morning, the sun is shining NG is up again and I'm feeling reckless. My Gnasher brain takes over - "just sell it, yeah!"

As income shares go, NG has been a model. I bought it back in 2011 and since then it has oscillated in value but always paid a welcome 5%-plus dividend.

As regular readers will know, I have a weakness for grabbing a profit but I discipline myself by holding on until I have made a capital gain equivalent of 5 years' current income. I had to review my holding in April 2013 when they changed the dividend policy - but I held on. This time I held on a bit more, because of the continuing good yield and also the positive price trend - heading back to the 52-week high of around £8.50 (which I dithered on and missed). However, the yield cover has crumbled away, meaning that there should be a flashing red light on this share for DIY Income Investors.

Momentum being what is it, the price may well continue upwards but today Gnasher said "sell": 41% capital gain is too attractive a bone to just leave lying on the street.

[Sell price: £8.34]

I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.


  1. I was alerted by your comment "However, the yield cover has crumbled away..". This is an important measure in valuing yield shares, as you point out in your various commentaries and, being a suspicious b**tard I tend to look at a company's cash flow statements to see how the dividends are sourced (sometimes financed from debt) and see what the Cash Flow cover is from there.
    Sounds easy right, what with all the regulations to be transparent and provide Cash Flow Statements in financial account? BUT, the answer is no, it isn't easy!!
    Two financial sites give wildly different answers; Moneyam report cover at 1.53; DividendMax report it at 1.30. So I am justified in being a suspicious b**tard!!
    Looking at NG's accounts for 2012/2013 it is difficult (even impossible?) to see how dividends are covered on a realistic annual basis. For example, in the Cash Flow Statement they report a dividend cash flow cost of £810m whereas a whole year's dividends would cost them £1.524bn (40.85gbp x 3,730m shares). Putting this "full cost" into my Free Cash Flow spreadsheet the Cover comes to 1.16 AND I note that Net Loans of £3.86bn were raised in the year and Capex was £3.214bn.
    Looks to me like the dividend is being financed from debt in the 2012/2013 year (albeit this conclusion is simplistic, it is worrying… and, as you say, crumbling)!
    I am curious where you source your dividend cover data?

    1. Hi Unknown - Data from Digital Look: see link in the post. But as you say sources can differ, hence the need to do your own research, which you clearly are!