We’re long overdue an update on the “Dividends don’t lie” stock filter that focuses on stocks near the top of their historical dividend yield range.
In fact, it is so long since we last looked at the stock-picking system – May 2017, would you believe? - that it is probably too late to ask for the assistance of the video-assisted referee (VAR) for a stock we looked at last time out - unwisely, as it turned out.
The VAR, in case you did not know, is the highly controversial technology that will be used in this year’s football World Cup to determine whether a referee has got a key decision wrong.
So, it certainly ticked the “yield at the top end of the historical range” box but a warning sign should, perhaps, have been that the dividend had not risen since the company paid out 27.12p in respect of the year 2014.
According to the principles of Geraldine Weiss, the investment guru who (quite literally) wrote the book on the “Dividends don’t lie” system, we should be looking for stocks that have raised dividends at a compound annual rate of at least 10% over the past 12 years.
At the time we ran the stock screen, Aggreko presumably met that requirement but unlike other virtual portfolios in the Stockpot series where a “computer says yes” philosophy applies, the “Dividends don’t lie” filter is used merely to generate investment ideas that can then be assessed by a human … unfortunately, that human was me.
My final assessment was: “It all comes back to that dividend, however; it looks safe enough and while 3.2% may not be the most exciting return, it is better than you would get on Unite Group (2.8%).”
The dividend was maintained all right, but the outlook for 2018 was less than stellar in last month's results statement and the shares have been a poor investment since we looked at the stock back in May.
Back then, the shares were trading at 861p; when I woke up to Aggreko’s stalled dividend growth the stock had fallen to 718.6p, so despite a dividend of 9.38p in the holding period, a nominal £1,000 invested in the stock would have been reduced to £846 (including dividends) by the time we nominally sold (on March 26).
That wipes out the profit we made on previous dabbles in Aberdeen Asset (+£100) and RPS (+£28), plus we’ve spent £90 in assumed dealing costs (£15 a time; four buys, two sells and one takeover – Aberdeen Asset – that did not incur selling costs).
The stock came to our attention at 631p and is now trading at 794p; factor in 19.3p in dividend payments and that’s close to a 29% rise, which is enough to put the portfolio in profit to the tune of £172, or 4.2% on the initial £4,000 investment.
It does mean the portfolio is dangerously dependent on just one stock but fortunately, the stock filter has thrown up five potential new investments so we will look at those in more detail later in the week.
Trades to date
Aberdeen Asset: Invested £1,000 at 269p a share; taken out by Standard Life at 296p. No dividends. Dealing costs of £15. Profit of £85.
Aggreko: Invested £1,000 at 861p a share. Sold at 718.6p a share. Dividend of 9.38p. Dealing costs of £30. Loss of £184.
RPS: Invested £1,000 at 251p a share. Sold at 258p. No dividends. Dealing costs of £30. Loss of £2.
Unite Group: Invested £1,000 at 631p. Still holding at 794p a share. Dividends of 19.3p. Dealing costs of £15. Paper profit of £274.