|A lot of eggs in a lot of baskets|
The DIY Income Investor portfolio has recently hit an all-time valuation - that is very reassuring but the portfolo does contain some problem holdings.
Buying high-yield securities directly (as opposed to a high-yield ETF) exposes you to specific security risks. In a sense, that is what the high yield should tell you: buyer beware!
So what should you do when a security goes bad?
I bought Huntsworth (LSE:HNT) back in May 2013. Huntsworth PLC is an international public relations and healthcare communications group, now operating from 71 principal offices in 28 countries. At the time I noted: "the time to do your homework is at the beginning. Once you have made your purchase, it is too late". I thought I did: although it had a 6% yield, it had a new tie-up with a seemingly dynamic Chinese partner.
A year later, the price had dropped and I thought it might be a good idea to buy some more: the yield was still around 6% and there was a commitment to maintain it for the next year.
But now the axe has fallen. In response to continuing poor performance, the dividend has been cut "to better align the Group with the dividend payout ratio of its peer group". The preliminary results for 2014 are disappointing, with a massive £71m of 'goodwill' being written off (which usually means they paid to much to acquire a business); worryingly, the downward trend in profit has extended into 2015.
The trailing 12-month yield is now around 4.4% and I am looking at a capital loss of around 18%.
Going against commonly quoted financial advice, I don't really like to sell my losers (like most investors). The type of high-yield securities I specialise in tend to get worse before they get better. But - of course - they do sometimes go completely pear-shaped; then difficult decisions must be made.
My 'sell' indicator for loss-making holdings is to compare the capital loss with 10-years'-worth of current income. When that flags up (as it has for some of my Huntsworth holdings) I really need to think about what to do.
However, on the positive side:
- they have a new CEO
- banking facilities are in place up to 2019
- net free cash flow £9.1m, not too different to the previous year
- although the dividend has been cut, it still remains just-about acceptable
So, I don't think this is a basket case, although it is disappointing - and there are some positives. On balance, I think I will stay with this one for now. And, hey, it's edged up a little this morning.
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.
Huntsworth tempted me last year. I am glad that I something else caught my investing eye instead.ReplyDelete
I think it will turns itself around eventually. But it is certainly struggling with itself at the moment. As you say, the yield is still not that bad. So if the capital loss position improves all will be well (or at least better!).
Good luck with it!
I hope Huntsworth are able to turn around. I also do not like to sell - there's no point when it's difficulties that may be turned around quite easily. If it were a more serious problem e.g. mass fraud throughout the company or something like that, I might consider selling. But I think you're sensible to consider the yield/income aspects and not just the price having gone down a significant amount. All you would achieve when you sell is a realised loss...ReplyDelete
On a dividend play, Huntsworth has been good to me. I have an average price of 50p and I will continue to hold and watch how it plays out. So I'm in the same boat as you, not losing any sleep - just yetReplyDelete
I also bought a year or two ago and am in much the same situation, but likewise holding for the reasons you outline. There's a solid business in there and with decent new management it should come through.ReplyDelete