Sign up United Kingdom
Proactive Investors - Run By Investors For Investors

Aim sustainable divis portfolio is cashed-up after banking handsome profits on Somero Enterprises

Concrete slabs
Now that's what I call concrete gains

In terms of its membership of the Aim sustainable dividends virtual portfolio, Somero Enterprises Inc (LON:SOM) has been in an out like a fiddler’s elbow.

A review of the portfolio in early March indicated that the forecast dividend cover for Somero, a manufacturer of laser-guided equipment used in levelling concrete, has dropped below our required minimum level of 1.25 to 1.2, so out it goes again.

READ Plus500 and Somero join the Aim Sustainable Dividends portfolio

READ Dividend payers on Aim: not as rare as you might think

READ Taking AIM at sustainable dividends

Dividend cover is simply earnings per share divided by the dividend pay-out; the higher it is, the more scope there is for the company’s board to push up the dividend; forecast dividend cover simply uses the consensus broker forecasts for the current year’s earnings per share and dividend, rather than the most recently completed financial year.

Brokers are not infallible, of course, but the market usually values companies on its best guess of what is happening now rather than what happened a few months back.

Somero missed the cut this time around by a small margin and all it would take for it to re-enter the portfolio (again) would be for brokers to raise their earnings forecast or, I suppose, cut their dividend forecast, although the latter is not really the sort of company we are looking for in this portfolio.

The farewell to Somero is a fond one, fortunately, as we bought our holding (second time around) for £986 and sold it for £1,296, trousering a 31.4% gain in just over three months.

The sale gives the portfolio a cash balance of around £6,300 and nothing in which to invest it, based on the most recent trawl by the stock screen filter.

Companies such as Mortgage Advice Bureau (Holdings) PLC, Quartix Holdings plc and K3 Capital Group Plc are all bubbling under, as they once liked to say in the groovy world of pop charts, but like Somero they all come up a bit short on the forecast dividend cover.

Archontech Group PLC and Abcam PLC are among those knocking on the door, but with yields of less than 1.7% neither has the inflation rate-matching sort of yield we are looking for.

NAHL Group plc, meanwhile, does have an eye-catching forecast yield of 9.3% but last year its free cash flow per share merely matched its dividend pay-out, and we like it to surpass it, however marginally; besides which, a 9.3% yield is a red flag so I am not inclined to bend the rules for the operator of the national accident helpline.

So, we’re left with just four stocks in the portfolio and a big pile of cash. Three of the four stocks are underwater, so holding a pile of cash has not been a bad policy but if the next review of the portfolio still fails to find new candidates to join the four we have, I’ll consider doubling up the holdings, i.e. investing another £1,000 in each.

For the three stocks showing a loss, this would be what is known in the investment business as “averaging down”, making it a bit easier for the holdings to struggle into profit. Other people call the process “throwing good money after bad”; we shall see which applies, should we pull the trigger at the next review.

In the meantime, here are the scores on the doors.​

 

Company

Number of shares

Total cost

Average price per share

Current bid price

Current value

Profit/loss (£)

Profit/loss (%)

Brooks Macdonald

48

£1,003

2090.25p

2010p

£965

-£39

-3.8%

James Halstead

195

£998

511.69p

417p

£813

-£184

-19%

Miton Group

2,240

£1,000

44.67p

38.5p

£862

-£138

-14%

Plus500

102

£998

978.21p

1,095p

£1,117

£119

12%

 

  • Cash: £6,299
  • Market value of current holdings: £3,757
  • Market value (including cash): £10,056
  • Unrealised profit on current positions: -£242
  • Dividends received: £62
  • Profit/loss from closed positions: £237
  • Total realised profit/loss + dividends: £299
John-H.jpg


Register here to be notified of future SOM Company articles

© Proactive Investors 2018

Proactive Investors Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use