Thursday 3 March 2016

Turning Tide? (Portfolio Buy)

In an earlier post I used a sailing analogy and wrote about being 'hove-to' (or 'parked at sea') while the world-wide economic jitters pulled down stock markets.

Continuing the sailing theme - it feels to me now that the tide might be changing.

Let me explain: if you are anchored in your sailing boat and the tide changes, your boat usually swings around the anchor. This is a subtle movement that you become aware of almost unconsciously.

After another negative month in January 2016, the DIY Income Investor portfolio stormed back in February, putting on 3.6%; March has started well, too. Of course, it's too early to call a recovery: there was a similar uptick in October 2015 - it turned out to be the proverbial 'dead cat bounce'.

But Spring is on the way and the sun is shining, so I've decided to put some cash (actually quite a lot) back to work.

My standard procedure when looking for something to buy is to check the yields on the exising portfolio. This portfolio includes 25 different securities, which - to be honest - is more than enough to try to keep fully up-to-date with. So I look for any securities that have a good current/forecast yield that are under-represented. Because my spreadsheet is home-made, it needs a little manual update to take account of any changes in dividend levels. Just as well, as this gives me the opportunity to catch up on company news.

The main development has been BHP Billington's dividend cut: my purchase in December 2015 doesn't look so clever now. I'm just about even on it now, so I'll continue holding - the forecast yield is around 5%.

Another poor performer has been HSBC Holdings (LSE:HSBA), which I've been holding for a while, and which is down a third and a quarter on my two holdings respectively. The good news is that the forecast yield is now nearly 8% - unusually high for a bank.

The latest 2015 Results Highlights is not brilliant but it contains the following statement:

"In approving the [tiny] dividend increase, the Board noted that prospective dividend growth remained dependent upon the long-term overall profitability of the Group and delivering further release of less efficiently deployed capital. Actions to address these points are core elements of the Investor Update provided last June."

To me, that reads as a qualified, but positive, mangement attitude to dividends. Also, the uncertainty about whether the bank would pull up sticks from London has also been clarified. I reckon it's worth buying for the income.

I've been burned by high-yield banking shares before, so fingers crossed.

[Purchase price: £4.72]

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. Some of the financial press are also tipping 'Challenger Banks'. The likes of Virgin Money Holdings (VM.) appear to have less legacy issues and a lower cost base.
    Although still subject to the general economic cycle - what are your thoughts on these?

    1. Almost non-existent yield - so not on my radar!

  2. As you like high-yield shares - have you considered Centaur Media (CAU) ?

    This is a small company (less than £100 million) with a yield of over 7% and a P/E ration of about 15

    It is a bit difficult to get your head around as it is engaged in the provision of business information, events and marketing solutions to professional and commercial markets.

    However it publishes "Marketing Week" which some people may be aware of.

    Recently it has cut staff and made savings etc so worth a look?

  3. Re HSBC. I have just recently bought into Lloyd's Bank (Lloy)as the shares were in the low 60s. The 2.25p dividend announced including a 0.5p special enthused the market and they now trade c70p.Profits are increasing and special provisions e.g PPI tailing off make this an attractive income and capital growth prospect.

  4. I have a (small) amount to invest at the moment - any suggestions? or sit tight and see what happens with the EU vote