Money Man Investments: 2019

Tuesday, 31 December 2019

The U.K. Stock Market’s Biggest Winners and Losers of 2019

In a year marked by political turmoil, U.K. stocks were widely shunned by investors awaiting clarity on Brexit. Some of the companies that fared best were ones that are most dependent on their home market.

The FTSE All-Share Index is up 15% this year, trailing the 23% jump in the regional Stoxx Europe 600 gauge. Stock buyers returned after the mid-December election gave Prime Minister Boris Johnson’s Conservative Party an 80-seat House of Commons majority, strengthening his power to set terms for the U.K.’s separation from the European Union.

Light-systems producer Luceco Plc gained the most in 2019 with a more than threefold surge, while news publishers and specialized consumer-oriented companies at least doubled in value.

Shares in U.K. companies are due for a “period of valuation catch-up” against other developed markets, said Gervais Williams, the head of equities at fund manager Premier Miton Group Plc. “Overall, we expect the U.K. stock market to be one of the best performers going forward, especially within domestically focused businesses that are mainly outside the FTSE 100 Index.”

Below we look at a curated list of some of the most interesting winner and loser stock stories in the FTSE All-Share Index in 2019.

The Winners

Luceco Plc (+267%)

The U.K. lighting manufacturer has been recovering from profit warnings in past years and winning some praise from analysts as it starts to rebuild a decent track record on earnings. Still, the stock remains 6.5% below its 130 pence-a-share initial public offering price in October 2016 after sinking below that level two years ago.

Future Plc (+205%) and Reach Plc (+103%)

These two companies are rare examples of publishers that are succeeding in the 21st century. Future, a digital magazine firm, has been consistently topping expectations and snapping up rivals in the sector. Analysts see a potential 14% gain in the stock in the next 12 months, bolstered by better margins and more takeover opportunities. Reach, the owner of the U.K. newspapers Daily Mirror and Daily Express, has also been buying more assets as it reaps the benefits of shoring up its finances in recent years.

Pets at Home Group Plc (+142%); JD Sports Fashion Plc (+142%); Dunelm Group Plc (+117%)

Three of the success stories of the U.K. retail industry this year -- pet-products seller Pets at Home, sneaker merchant JD Sports and home wares chain Dunelm -- have all consistently beaten expectations. JD Sports even has the auspicious title of the FTSE All-Share’s best stock of the decade. All three are reaping the benefits of tailoring their offerings to customers, including Pets at Home’s addition of veterinary surgeries and JD Sports’ successful loyalty program.

IWG Plc (+109%)

Even as the archetypal U.S. flexible-office firm WeWork crashed and burned, its older U.K. peer thrived. IWG, owner of the Regus brand, switched strategies to a franchise-focused model and is now looking to acquire smaller players struggling in the shadow that WeWork has cast over the sub-sector.

The Losers

Metro Bank Plc (-87%)

The high-street lender’s annus horribilis included plunging after reporting it had misclassified assets, briefly becoming the center of M&A speculation and spending a good portion of the year trying to shore up finances with bond sales and an equity issue. It will start 2020 with a new boss.

Sirius Minerals Plc (-83%); Petra Diamonds Ltd. (-77%)

The business of digging up potash and diamonds proved tough gigs for two stocks in 2019. Sirius, betting on building a huge potash mine in Yorkshire, plunged after financing for the project fell through. For Petra, it has been a rough year to be in the diamond game as an inventory glut has hit prices, and there are warnings this will remain the case in 2020.

Kier Group Plc (-76%)

The U.K. construction and infrastructure company ended 2018 on a poor note, and its woes continued into 2019, with the stock crashing because of concerns about debt and an outlook cut. Those ultimately resulted in job cuts and suspended dividends as Kier worked to fix its balance sheet.

Ted Baker Plc (-73%)

Beginning with a scandal involving the conduct of its founder in late 2018, fashion retailer Ted Baker has been battered by sales missing expectations and inventory write-offs. The company will begin searching for a new chief executive officer in January following the resignation of its top management almost three weeks ago.

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Wednesday, 25 December 2019

HSBC a solid dividend income stock for 2020

When I looked for a new Cash ISA just before Christmas, the top interest rate I could find with instant access was just 1.35%. Even if I was willing to tie up my cash for five years (I’m not) the highest rate available was just 2.03%.

I do have a Cash ISA, which I use for short-term savings and for my emergency fund. But I don’t keep my retirement savings in cash. If I did, I’d have no chance of hitting my savings goals.

In this article I’m going to discuss a FTSE 100 share yielding 6.6% that I would buy for a reliable cash income and for retirement saving.

A dividend heavyweight

As you’ll probably guess, most of my spare cash goes into my Stock and Shares ISA. This provides the same tax-free benefits as a Cash ISA, but it gives me the chance to earn much higher rates of return than I would in cash.

I prefer to invest in stocks that offer high dividend yields, as long as I think the dividend payouts are sustainable. One FTSE 100 stock I rate highly as an income choice is Asia-focused banking giant HSBC Holdings (LSE: HSBA).

This Anglo-Chinese bank has a market cap of £122bn and has been in business for more than 150 years. HSBC didn’t need a bailout during the financial crisis. And even during that extreme period of our financial history, it continued to pay a (reduced) dividend — unlike most UK rivals.

Low risk

HSBC is by far the biggest UK-listed bank. Its exposure to Asia adds complexity to the investment story, but I think it also provides a long-term opportunity. Asia — especially China — is a part of the world that’s developing fast and seems likely to continue growing.

For a UK-based investor like me with no special insight into Asian markets, investing directly in Asia could be risky. But owning shares in London-based HSBC gives me exposure to the same markets, with much less risk.

Indeed, low risk is one of the main attractions of this share, in my view. HSBC’s size means that it’s struggling to grow in today’s low-interest-rate world. But this global banking group is still in pretty good health.

The bank’s latest results show that its adjusted pre-tax profit rose by 6.8% to $12.5bn during the first half of 2019. Return on average tangible equity, a measure of profitability, rose from 9.7% to 11.2%.

Why I’d buy HSBC today

HSBC admits that current market conditions are making it difficult to achieve further gains. But for me, this isn’t the point. The bank is profitable enough and is returning some of its spare cash to shareholders through share buybacks ($1bn this year) and dividends.

Interim chief executive Noel Quinn is taking an active role in turning things around, and seems likely to be confirmed as permanent boss next year.

In the meantime, the shares are trading at a discount of nearly 10% to their book value and offer a well-supported 6.6% dividend yield. That looks good value to me. If I didn’t already own enough bank stock, I would be buying these shares.

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Tuesday, 24 December 2019

2019 review of FTSE 100 and FTSE 250 shares

Shares I’ll be watching in 2020

Currently there are several companies I’d consider buying, especially if there is any weakness in their share prices in the coming weeks. In the FTSE 100, they include:

Barratt Developments, YTD up 63.8% – dividend yield of 3.9%, forward P/E 10.2
Carnival, YTD down 5.4% – dividend yield of 4.0%, forward P/E 11.4
HSBC Holdings, YTD down 7.2% – dividend yield of 6.5%, forward P/E 11.1
Lloyds Banking Group, YTD up 20.2% – dividend yield of 5.2%, forward P/E 8.7
Royal Dutch Shell, YTD up 3.4% – dividend yield of 6.4%, forward P/E 12.9

In the FTSE 250, they include:

Bunzl, YTD down 13.8% – dividend yield of 2.5%, forward P/E 16.1
G4S, YTD up 8.6% – dividend yield of 4.5%, forward P/E 11.6
Inchcape, YTD up 25.7% – dividend yield of 3.8%, forward P/E 11.7
Marks and Spencer Group, YTD down 7.3% – dividend yield of 4.9%, forward P/E 11.8
Paypoint, YTD up 23.8% – dividend yield of 4.7%, forward P/E 15.4

It just remains for me to wish you a happy and prosperous 2020!

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Monday, 23 December 2019

3 dividend stocks yielding 5% I’d buy for 2020

A top FTSE 100 income stock that I would buy for 2019 is the global mining giant BHP (LSE: BHP).

After cutting its distribution to almost zero in 2016, this mining behemoth has since become an income champion as cost-cutting and debt reduction efforts have started to bear fruit.

City analysts expect the company to distribute a total dividend of $1.35 per share for its 2019 financial year, giving a dividend yield of 5.7% on the current share price.

However, I think there’s a good chance the company could beat this forecast. You see, BHP has prioritised shareholder returns over capital spending during the past few years. As a result, a record $17bn was returned to shareholders in its 2019 financial year, excluding the final dividend payout of $0.78. That’s a total dividend yield of more than 25%.

I think it is unlikely that the company will be able to repeat this performance. Still, considering the fact that last year BHP generated total free cash flow from operations equivalent to 14% of its market capitalisation, I do not think it is unreasonable to say that investors could receive a double-digit dividend yield next year despite City projections.

Depressed price

Sticking with the mining sector, another FTSE 100 income champion that I would buy for 2020 is Glencore (LSE: GLEN). Legal and operational issues have weighed on this company’s share price over the past 12 months. Nevertheless, as a long term investment, I continue to see value here.

As the world’s largest commodity trader, Glencore occupies a unique position in the global economy and is likely to remain a key global player for many years to come.

Looking past its short-term legal and operational issues, I think this business has a bright future over the next three or four decades. With this being the case, I believe that if you are looking for an income investment to buy and forget, Glencore ticks all the boxes.

At the time of writing, the stock supports a dividend yield of 5.7% and trades at a forward P/E ratio of just 13, slightly below its five-year average.

These metrics suggest to me that the Glencore share price offers the potential for income and capital growth over the long term.

Inflation-busting dividend

Finally, I would buy the National Grid (LSE: NG) share price as an income investment for 2020. Now that Jeremy Corbyn’s nationalisation plans have finally been put to bed, utility providers once again look attractive as income investments.

Shares in National Grid currently support a dividend yield of 5.2%, and the payout has a track record of growing in line with inflation every year.

Unfortunately, as a growth investment, this stock does not look particularly appealing. Thanks to strict regulations regarding how much National Grid can charge customers, earnings per share have grown at a compound annual rate of just 1.9% for the past six years.

As regulators have started to take a more robust line towards utilities, this is unlikely to change. Still, with dividend cover of 1.2 times, it looks as if National Grid’s dividend is here to stay and management has plenty of headroom to increase the payout in the years ahead.

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Sunday, 22 December 2019

Ditch cash deposits and buy undervalued dividend shares today.

Holding cash has been a popular investment strategy for many years. It offers low risk, as well as an income return which has sometimes been higher than inflation.

However, with interest rates currently being relatively low, the return prospects for cash could be rather disappointing. This contrasts with the income potential, as well as capital growth outlook, for dividend shares.

With many income-paying stocks currently trading on low valuations, now could be the right time to add them to your portfolio instead of holding cash.

Undervalued stocks

Low valuations could mean that investors can obtain high yields and capital growth potential from dividend shares. The uncertain outlook for the global economy has caused central banks to retain a relatively loose monetary policy, with risks such as the impact of tariffs and geopolitical challenges in countries such as the US and China weighing on investor sentiment.

Therefore, while dividend shares now offer far superior income returns compared to cash holdings, they trade on wide margins of safety in many cases. History shows that buying shares while they trade at large discounts to their intrinsic values can lead to improving total returns. As such, now could be the right time to buy income shares.

Income potential

As well as offering high absolute returns, dividend shares also have relatively impressive return profiles. For example, the returns on cash have historically been low. This is partly due to savings accounts being relatively low risk, with there being a minimal chance of losing money. The result of this is lower return potential compared to investing in shares, where it is possible to lose significant sums of money.

However, the gap between the returns on cash and dividend shares could widen further in the coming years. As mentioned, risks to the world’s economic outlook may mean that interest rate rises are slow, rather than fast. This could lead to dividend shares producing income returns that are many multiples of those offered on cash. When combined with the capital growth potential from buying undervalued shares, this may mean that now is a good time to pivot from cash to dividend shares.

Modest investments

Ditching cash deposits and buying dividend shares may seem like a daunting task. However, opportunities such as tracker funds make the process much simpler. They aim to follow the returns of major indices such as the S&P 500 and FTSE 100, and offer a large amount of diversity for minimal cost.

Additionally, the cost of buying shares has fallen significantly in recent years. Products such as regular investment services mean that building a diverse portfolio filled with a range of companies operating in different sectors is cheaper than ever. This strategy could reduce risk, and also lead to higher returns that are substantially greater than those offered by cash savings in the coming years.

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Saturday, 21 December 2019

Centrica. Is the Worst over?

£1,000 invested in Centrica (LSE: CNA) shares five years ago would be worth about £330 today. Ouch!

If you add in dividends, you’d have about £540. But that’s still a loss of more than 45% in five years. You probably won’t be surprised to learn that the Centrica share price has been one of the worst performers in the FTSE 100 since 2014.

Shareholders who’ve stayed with the stock during this time deserve a medal for endurance. Not only have they seen the value of their shares fall by more than 50%, but they’ve also suffered two dividend cuts.

I’d understand if you decided to cut your losses and sell. But I think that could be a mistake.

Centrica shares have started to rise recently. At the time of writing, they were trading at 90p — about 40% above their 52-week low of 64p. The latest news from the company makes me think that further progress is likely in 2020. I plan to continue holding my CNA shares and may buy more in the New Year, if I have cash available.

A tough period

Chief executive Iain Conn will be leaving Centrica next year, once the board has appointed a new CEO to replace him. Some investors have suggested that Mr Conn was too slow to make the changes that were required, and perhaps too reliant on cost-cutting.

I have some sympathy with this view, but I also think that Mr Conn has been a victim of circumstances. As the owner of British Gas, Centrica is automatically targeted by attention-seeking politicians.

The group has also had to face cut-price competition from start-up energy suppliers with weak balance sheets — many of these loss-making firms have now gone bust.

Making bold strategic decisions has also been made difficult by successive governments with no clear long-term energy policy. At the same time Centrica, like its peers, has had to face the threat of nationalisation by a potential Labour government.

A turning point?

Most of these pressures are now easing. And the changes put in place by Mr Conn are starting to bear fruit.

The group’s consumer business reported overall account growth of 528,000 during the 10 months to October.

Although the number of energy supply customers is still falling, customers are signing up for home services such as boiler repair and maintenance and the Hive Connected Home system. Some analysts believe these will be more profitable than selling electricity and gas, supporting a recovery in the group’s profit margins.

The planned sale of the group’s Spirit Energy oil and gas business should provide cash to help reduce its £3.4bn net debt, easing another concern.

Cheap at this price

British Gas remains the biggest energy supplier in the UK, with nearly 12m home energy supply customers. The company now also has nearly 8m UK home services customers.

Profits are expected to start rising next year. Earnings forecasts for 2020 value the stock at 9.5 times expected earnings, with a dividend yield of 5.6%.

Although this year’s dividend cut was a disappointment, I think it’s likely to be the last. Next year’s forecast payout of 5.1p per share should be covered 1.9 times by earnings and looks safe to me.

I think Centrica is through the worst. I rate the shares as a buy for value and income at current levels.

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Thursday, 19 December 2019

Are You Planning for your Retirement?

Since the State Pension currently amounts to just £8,767 per annum, generating a passive income in retirement is very important to many people. As such, building a portfolio of FTSE 100 shares could be a good idea, since they may be able to provide capital growth prior to retirement that boosts the size of your nest egg.

With that in mind, here are two large-cap shares that appear to offer favorable long-term growth outlooks. They could be worth buying today while they trade on relatively attractive valuations.

Unilever

Unilever’s (LSE: ULVR) recent sales update was disappointing. It showed that the company is now expecting to report sales growth for 2019 that is slightly lower than previous guidance, although its profitability is not expected to be affected.

The slowdown in sales growth has been caused by challenges in some of the company’s key markets in Africa and Asia. Although Unilever expects its performance to improve in the coming quarters, it could experience a period of slower growth in the meantime.

The sales update has negatively impacted the company’s share price. It now trades on a price-to-earnings (P/E) ratio of 20. This is significantly lower than its recent rating, and suggests that the stock could offer better value for money than it has done for some time.

As such, now could be the right time to buy a slice of the business. It has long-term growth potential from a large exposure to emerging markets. Although its near-term capital appreciation potential may be limited by uncertain operating conditions, its long-term investment potential seems to be high.

British American Tobacco

Another FTSE 100 share that has experienced uncertainty in 2019 is British American Tobacco (LSE: BATS). The threat of regulatory change in the US, which is a key market for the business, could have a negative impact on the sales performance of its next-generation products such as e-cigarettes.

They are expected to be a cornerstone of the company’s long-term growth prospects, and a disappointing performance from them at a time when cigarette volumes are declining may cause investor sentiment to weaken.

However, this risk appears to have been factored into British American Tobacco’s share price. It currently trades on a P/E ratio of just 10, which suggests that it offers a wide margin of safety.

Furthermore, it is forecast to post a rise in its bottom line of 6% in the next financial year. This suggests that its strategy of becoming more efficient, reducing debt and investing in next-generation products could pay off.

Therefore, it may be a relatively unpopular stock in the near term due to the regulatory risks it faces. But British American Tobacco could deliver high total returns in the long run that boost your retirement savings prospects and help you to beat the State Pension.

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Wednesday, 18 December 2019

A time to buy cannabis stocks.

This summer i decided to take up a small position in a cannabis stock. This was my first venture in to the cannabis sector. The company i chose was Aurora Cannabis Inc. (ACB) i believe that cannabis is the new coke-a-cola and getting in to the cannabis market now will in the future return massive gains. there has been some set backs for the market with increased legislation in the USA but with more and more states legalizing cannabis for me it is just a matter of time before we see this sector really explode. just recently the price of this company came down to such a price i had to buy even more of this fabulous stock. i intend to take up positions in other companies in this sector spreading my risk as i do so. for me it is such an exciting time when i see companies in a sector that i plan to buy in to drop. in my view cannabis stocks are on sale at the moment with some even hitting there 52 week lows. at these prices there very hard to resist. buy low sell high is what trade and investing is all about. so when you see a bargain grab it. it might not be on sale again for a very long time.

Looking in to the future i see the united kingdom just Itching to legalize cannabis. CBD oil is already sold in the UK by high street retailers. As with most big decisions the government of the day hesitates because of the so called consequences of its actions. in my view prohibition dose not work. it never worked with alcohol and it will not work with cannabis. a more sensible approach would be to legalize and regulate the market. that way consumers get a consistently pure product of a sensible quality and the UK Exchequer gets taxes from an sales. i am quite surprised this has not happen up to now but i suspect it will in the not to distant future. Boris Johnson has a massive majority in the house of commons and can now do anything he pleases. legalizing cannabis should be one of his priorities as it will bring revenue in to the coffers of many government for years to come. i want to see UK producers listed on the AIM market in the UK but i think i am pushing my luck a bit for that to happen anytime soon but then again stranger things have happened. all in all i feel the cannabis market is worth the risk and buying low now could see you selling high in the future and maybe retiring. you never know. Until then Peace Man :)

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Tuesday, 17 December 2019

A reliable dividend payer.

Get richer with 6.5%

There are certain shares that I believe every serious UK investor should own. This is a FTSE 100 company that no-one can deny is making money hand over fist and is one that I think will carry on enriching investors far into the next decade.

The Royal Dutch Shell ‘B’ (LSE:RDSB) share price has barely moved in the last 10 years: it’s just 3.1% higher than it was in December 2009. But this low volatility is actually something that I believe will make you richer with a long-term hold.

Between 2017 and 2018 Shell nearly doubled its operating profits from $19bn to $35bn, with revenues rising from $305bn to $388bn.

Shell should occupy pride of place in your portfolio for one good reason: you can take your 6.5% yields year after year, safe in the knowledge that the business is so competently run that it won’t cause you any heartache. The yield for next year is forecast at 6.8%.

As a snapshot of the company’s health, Q3 2019’s results are as good as any, showing strong cash generation, $10.1bn in free cash flow, a pretty conservative gearing of 27.9%, with “very strong earnings and optimization results” producing $4.8bn across the quarter.

In my opinion, the only consideration is the best price you can get your Shell shares at. The current P/E ratio is 10.4, forecast to increase slightly to 12.3 next year, so now is as good a time as any.

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Monday, 16 December 2019

Rules when Researching Dividend Stocks.

Four rules for finding dividend shares

1. High (but not excessive) dividend yield

Yield is an important dividend metric because it tells you the percentage of how much a company pays out in dividends each year relative to its share price. High yields are obviously appealing, but caution is needed. When the market anticipates a dividend cut, the share price will fall, which actually pushes the yield higher - but this can be a trap. So it pays to be wary of excessive yields. A sweet spot for me is between 4% and 5%

2. Safety in size

Part of the appeal of dividend stocks is their financial strength. Large size and scale means that their vast cash flows tend to be predictable. It gives them the resilience to maintain their dividends through the economic cycle. And while large companies aren’t immune from making dividend cuts, their financial strength is an appealing safety factor for income investors. Also take in to account the price of any commodity a company is producing and track that as well. a Gold miner will make more profit if there is a high gold price and less if the gold price falls. this is the case for oil especially.

3. Dividend growth

Another important marker for income investors is a track record of dividend growth. Progressive dividend growth can be a pointer to payout policies that are being handled carefully by management. Rather than aggressively dishing out earnings, dividend growth companies tend to have more modest yields, but are better at sustaining their payouts

4. Dividend cover

Attractively high yields obviously turn heads - but it’s important to know that a dividend is affordable. Dividend cover is a go-to measure of a company's net income over the dividend paid to shareholders. It’s calculated as earnings per share divided by the dividend per share and helps to indicate how sustainable a dividend is.

Dividend cover of less than 1x suggests that the company can’t fund the payout from its current year earnings. i look for a dividend cover of 1.5 and higher. the higher the better. learning to work out dividend cover for a company is essential for any investor.