As a DIY Income Investor, I am interested in shares that pay a nice dividend. These 'high' yielders will (hopefully) give my cash a home that will provide a nice cash flow and minimise the risk of losing capital. And even better, I like it if the company management is explicit about its commitment to maintaining - and increasing - the dividend.
Unfortunately, you don't find a lot of that about - but such opportunities do exist...
How about this:
- sustainable business model
- diversified product range
- international business activities
- low debt
- positive cash flow
The DIY Income Investor portfolio has some cash available (unfortunately mainly because of some cash-outs from poor investments). What I usually do is review the existing portfolio (on the basis that I am more familiar with those securities that are already owned) and see if there are any with a reasonable yield that are under-represented.
I've been holding on to GlaxoSmithKline (LSE:GSK) for a long time - since 2007, in fact. I sold most of my holding in November 2011, taking a 30% profit. I held on to the rest as there was a reasonable return to justify a 'wait and see' strategy. In fact, the price has recovered to nearly what I paid for it and the yield has crept back up to nearly 6%, with a potential (as noted above) of a special dividend.
The big change over that time has been, of course, the Novartis 'transaction' (as it is referred to) and the consequent re-structuring. The Q3 results give the latest picture and is worth looking at (the quote above is taken from it).
But first a caution: shares are not 'high yield' purely due to the generosity of their management. The market reflects uncertainty and concern over a company with a low price relative to the dividend. In other words: high yield = buyer beware.
The market concerns are probably related to the fall in profitability, due - it is claimed - to some dilution impacts of the Novartis acquisition. The net cash inflow from operating activities for the nine months was only about one-third of 2014. The company says that this will change in the coming year. Net debt is down (at 30 September 2015, net debt was £10.6 billion, compared with £14.4 billion at 31 December 2014).
However, this is a well established and well diversified company with an extensive pipeline of products. I see healthcare as a key market segment for the future. So, given the management's positive view of shareholder returns, I'm ready to jump in again.
[Purchase price: £13.65]
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.