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Somero and Plus 500 give "Aim sustainable dividends" portfolio a big lift

Published: 14:21 05 Feb 2018 GMT

Concrete slabs

It’s only been a couple of months since the last update on the “Aim sustainable dividends” portfolio but those two months have been transformational.

Well, when I say “transformational” – an adjective I have picked up from chief executives who want to convey the impression their company will stop being a loss-making money pit as a result of some new development – I mean splendid, which is British English for “awesome”.

On December 1, the portfolio was worth £9,625, including £3,939 of cash. Seeing as it started out with a virtual £10,000 in March of last year, a £375 loss represented a poor performance.

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

Happily, both of our recent additions to the portfolio have done fantastically well; Plus500 Ltd (LON:PLUS), an Israeli firm that develops and operates an online trading platform for retail customers to trade contracts for difference (CFDs), has gained 15% since we bought it and Somero Enterprises Inc (LON:SOM), a manufacturer of laser-guided equipment used in levelling concrete, has done even better, gaining 28%.

(This update was written last week, since when markets have taken a step back).

Plus 500 received a boost from a trading update in early January in which it said profits and revenues would be ahead of expectations. We'll find out just how far ahead on Valentine's Day when the company releases its full-year results.

READ Plus 500 leaps after saying full-year profit and revenue seen beating market expectations

As for Somero, it also had an upbeat trading update, saying revenues for 2017 would be slightly ahead of market expectations while underlying earnings (EBITDA) would be “comfortably ahead” of market expectations.

Both stocks have seen their share prices go stratospheric over the last five years – Plus500 is up 840%, Somero up 677% - and the natural inclination of many people (me included, I must confess) would be to bank profits, but our “sustainable dividends” screen is telling me these stocks are still jumping over all the hurdles, so they will stay in the portfolio.

Bending the rules to keep Brooks Macdonald in the portfolio

One stock that should be out on its ear this month is asset manager Brooks Macdonald Group plc (LON:BRK).

Brooks has risen 20% over the last month, and that is just enough to take its forecast dividend yield for the current financial year down to 2.3%, which is bang on the cut-off point for inclusion in the portfolio.

The recent surge in the share price has only just put us back into profit on the stock, and all of the other numbers look OK: forecast earnings comfortably covers the forecast dividend (cover of 2.4) as does forecast cash flow (cover of 3.2); debt (plus pension deficit) as a ratio of free cash flow is minimal and debtors form less than 25%.

I have made an executive decision, therefore, to bend the rules just a shade to keep it in the portfolio and see what happens next.

A quick tweak to the current minimum requirement of a forecast dividend yield of 2.3% to 2.299% sees the stock keep its place.

I won’t tell anyone if you don’t.

The company’s half-year trading update at the end of January made heartening reading, with funds under management rising 12.3% over the six month period to £11.7bn; this compared to a 4.3% increase on the benchmark index, calculated by MSCI, against which the company measures its performance.

The group intends to issue its interims on Wednesday, March 14, after which we shall revisit its continued inclusion in the portfolio.

Debt collection a concern at Zytronic

There will be no rule-bending to save Zytronic PLC (LON:ZYT), which designs and makes touch sensor products.

The stock has been a solid, upstanding citizen of the sustainable dividends portfolio for some time, though the shares have been heading south since around early November, when they were trading at around 580p, to the 480p level where they trade now.

Results for the year to the end of September had much to commend them, with cash generation of £4.7mln, albeit down from £5.6mln the year before; a 39% hike in the final dividend to 15.2p, bring the full-year dividend up to 19p, a 32% increase on the 14.41p paid the year before; and news that the company had paid off its property mortgage and was, therefore, debt free.

Where it failed the screening test was in debtors-to- turnover, which basically measures how long it takes for the company to collect the money it is owed from its customers.

The proportion of remittances due had risen to 76.9% of annual turnover, which is three times the level we like, so out it went, raising funds of £1,061 after assumed £15 dealing costs.

That’s a profit of £61.60 on a £999.70 investment; throw in a dividend of £8.70 and you've got a 7% profit on a stock held for nine months.

We have more than £5,000 in cash but no new stocks were generated by the stock screen for us to buy, so we'll check back in a couple of months' time. 

Here is where we currently stand​ with the Aim sustainable dividends portfolio

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

2,090.25p

£1,032

£29

2.9%

James Halstead

195

£998

511.69p

423p

£825

-£173

-17%

Miton Group

2,240

£1,000

44.67p

43p

£963

-£37

-3.7%

Plus500

102

£998

978.21p

1,127p

£1,150

£152

15%

Somero Enterprises

365

£1,001

274.11p

274.11p

£1,277

£277

27.7%

 

  • Cash: £5,031
  • Market value of current holdings: £5,247
  • Market value (including cash): £10,265
  • Unrealised profit on current positions: £247
  • Dividends received: £44
  • Profit/loss from closed positions: £18
  • Total realised profit/loss + dividends: £62

 

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