In this article I set out how I have used Stockopedia's screening facilties to identify some potential high-yielding investment candidates for my portolio.
At present, I have a target weight of 18% in my SIPP portfolio for high yielding equity investments (distinct from fixed interest investments). As time passes, my objective is to covert an increasing proportion of my portfolio to income-generating assets, so that I can spend less time on investing/trading and rely on the income to live on, whilst devoting my time to more productive things.
Given the low interest rate environment (with no end yet in sight), high yielding equities are one of the few ways of generating a decent return on capital (without being reliant on the vagaries of the market or M&A to realise returns). For that return to be reliable, I am seeking "relatively safe" investments, where the yield now is attractive and the chances of a dividend cut are reasonably low.
A number of my earlier higher yielding investments have risen significantly in share price, making their yield less attractive (e.g J Sainsbury (LON:SBRY) , GlaxoSmithKline (LON:GSK) , Keller (LON:KLR) ). Hence I have been trimming those (as those who follow my tweets @marben100 will have seen!). This has led to me now being underweight at below 14% of my portfolio and hence in need of some new investments... so time to try out Stockopedia's screening facilities. Must admit that I wasn't satisfied with the criteria of the built in high-yield screens, so decided to "brew my own".
Just for reference, the companies that are currently within my HY subportfolio are:
- Interserve (LON:IRV)
- Halfords (LON:HFD)
- Braemar Shipping Services (LON:BMS)
- Vodafone (LON:VOD)
- J Sainsbury (LON:SBRY)
- Smiths News (LON:NWS)
So, my screening criteria are as follows:
Yield > 4.9% [obvious!]
"Div Grwth Streak" > 3 [has been growing dividends for more than the last 3 years]
Net Debt/Price < 1 [not overgeared/overindebted]
Mkt Cap > £50m [For this subportfolio, avoid illiquid tiddlers]
Div cover > 1.5 [Margin of safety, dividend decently covered by earnings]
Well, I was pleasantly surprised to find that only 5 stocks in Stockopedia's entire universe passed that filter! Those five are:
|Name||Yield %||Div Gwth Streak||Net Debt / Price||Mkt Cap £m||Div Cover|
Going through that list, I have to drop Chesnara & Novae - both are insurers and I am not comfortable holding insurers whose results are dependent on investment returns and hence likely to be volatile in the current climate (and, potentially high risk).
Until fairly recently I have held GlaxoSmithKline (LON:GSK) in preference to Astra - but GSK became less attractive as the SP rose and I have now sold out. I hadn't spotted that Astra's yield had risen to such a high level. I do appreciate that investors are concerned about Astra's pipeline and patent expiries (which is why I preferred GSK previously, as their business appeared better diversified). However, for the next 2 years, these factors are already reflected in analyst forecasts - which still leave the divvy very comfortably covered and divvy growth still forecast. I note that the company has also recently taken on a new CEO, has divested some businesses and bought others. Let's see whether he has the nous to improve the company's pipeline. For the meantime, there seems little prospect of a divvy cut.
Finally, on Astra, I checked their annual report for pension liabilities. These can be a "hidden danger" not revealed in the data that Stockopedia is able to publish. I was pleased to see that Astra's GROSS liability was little more than their annual profits (and a small fraction of the market cap.)! So nothing really to worry about there (unlike, say £BT , where their pension liabilities vastly exceed the company's market cap.).
So, I concluded that Astra definitely belonged in my HY subportfolio and I have bought an initial tranche of shares today. I will be looking to add on weakness.
That leaves Tullet and IG. Funnily enough I had already added IG to my watchlist for a potential HY purchase recently, having identified it as a candidate from general reading and being a client of theirs. I am hoping for a dip in the market/SP to enter. Looking at Tullet, under Terry Smith's leadership that definitely also appears to be a candidate for the watchlist and again, I'll be looking for a good opportunity to enter that one.
All in all, I am well pleased with the results of this exercise and well done to the Stockopedia team for developing some institutional-grade screening tools.
Filed Under: Income Investing,
The author may hold shares in this company, all opinions are his own and you should check any statements that appear factual and not rely on them before making an investment decision. The author is NOT a qualified analyst nor authorised to give investment advice. Whilst the author is a director of ShareSoc, all views expressed are entirely his own and not necessarily those of ShareSoc.