Now I'm sure you are all bored with all the BREXIT chaos too, I know I am, but I can't stop thinking about it. As from the start, as soon as leave won the vote, I feared that we will either never leave or effectively not be allowed to leave - which is looking more likely by the day. Especially when Mrs May seems to be saying BREXIT means (back my bad deal or we'll make sure there isn't) BREIXT.
Like a lot of people I'm pretty hacked off about this especially given the history of how we got here in the first place. Amazingly this is the first time I've written a post actually about BREXIT, although I probably mentioned it in passing along the way.
See the following links to see how my parents generation were misled when we signed up for the EEC which was supposed to be a free trade area only.
Plus how John Major got us to sign up to the Maastricht treaty by threatening to hold a vote of confidence in his shaky small majority government - sounds familiar.
So for what it's worth my guess is that they'll either force the unpopular deal through somehow or make sure that we don't actually leave as the majority of MP's are Pro EU and don't want a no deal scenario to play out, when they should have used it as their main negotiating tactic and been prepared for going down that route. I reckon they might even use it as an excuse to have another vote which will be worded in such a way as to make sure that remain wins this time - which the EU has had a history of with previous treaties etc.
This piece was also interesting background on this from the Market Oracle.
Finally as a bit of light relief here's a little ditty I re-wrote - with apologies to Don McLean
Brexit Pie – (Sing to the Tune of American Pie).
A long, long time ago
I can still remember how politics used to make me smile
And I knew if I had my chance that I could make those people vote
And maybe they'd be happy for a while
But the BREXIT vote made me shiver
With every paper I'd get
Bad news on the internet
I couldn't take one more step
I can't remember if I cried
When I read about the Maastricht Treaty
But something touched me deep inside
The day that democracy died
So bye-bye, Democracy Pie
Drove my Rover to Dover, but BREXIT was over
And them good old boys were drinkin' Champagne and Schnapps
Singin' "This'll be the day that UK Democracy snaps
This'll be the day that I die"
Did you write the BREXIT withdrawal agreement, and do you have faith in May above
If the whips tells you to?
Now do you believe in free trade, can democracy save your mortal soul
And can you teach me how to BREXIT real slow?
Well, I know that you're in love with the EU
'Cause I saw you votin' in the commons
You all hacked off your voters
Man, I dig those referendums and blues
I was a lonely teenage Thatcher’s child
With a Tory Tree and a BREXIT vote
But I knew I was out of luck
The day that democracy died
I started singin' bye-bye, United Kingdom
Drove my Rover to Dover, but BREXIT was over.
On the face of it Vodafone is a large well known business with a decent position in the mobile phone market & has been building up an offering in broadband etc. too. On the back of this it pays a dividend of around 13p per share which at the current share price of 144p means it yields an amazing 9%.
Sounds great, what's not to like? Well quite a bit actually which is why I've not held it for a while now having sold out at prices over 200p between 2014 & 2017. The reasons for this were:
As I mentioned I think the big yield is more of a danger signal and this can be assessed by looking at the dividend cover by earnings and cashflow and on this measure Vodafone scroes in the bottom quartile i.e. the lowest 25% of the nearly 600 companies that are included in the Scores. To be fair it does have some positive attributes like the value it is offering thanks to the yield and an EBIT/EV yield of nearly 6% which puts it in the top quartile on that measure, as it is for financial security too, so it is not all bad.
Having said that though whatever you might think about mobile phones and telecoms as a business it does not score well in quality terms as they make low returns on all that capital they have to plough into buying mobile licences and investing in towers and fixed networks etc. While the margin they make is OK rather than spectacular as mobile is quite a competitive business these days rather than a licence to print money. So again it scores in the bottom quartile on that measure too. Added to that it has also been seeing downgrades to their earnings forecasts since the summer which are much worse than the average stock so it is also you guessed it bottom quartile on that measure too, in fact it is worse than that it is in the bottom decile or lowest 10%.
Now while the shares do look oversold and offer the high yield I'm still not tempted to buy back into this one given the above puts it on an overall Compound Income Score of 19, where 100 is the best, so once again it is bottom quartile overall despite the value and financial security. If that wasn't enough the other thing I monitor with the Scores, although it is not in the overall score, is the price momentum as winners tend to carry on perfroming and losers tend to carry on underperforming. Hence the investing axiom that you should run your winners and cut your losers. I suspect the risk here is that they will continue to drift and the risk is that at some point they may be forced to cut the dividend, given the cover and on going capital expenditure requirements, which doesn't usually go down well with investors who are mainly in it for the yield.
So there you go a quick example of how you could use the Compound Income Scores to quickly assess a company and see how it compares with hundreds of others and then potentially find more attractive candidates. I hope you might have found this post useful if you do hold Vodafone shares and if you would like to learn more about the Compound income Scores and see how you could see how your stock holdings measure up, then please see the link in the navigation menu on the site or click here if that's easier for you. mind how you go and safe investing.
"Indeed despite all the positive economic news out of the US, the markets are starting to feel a bit nervous again as bond yields head upwards and as we head into October which is often a dangerous month to invest."