I mentioned in my post earlier this week about the possible advantages of focussing on stocks which have shown a consistent track record of increasing their dividends. S&P also provide an index for this in the UK and other regions around the world. The UK version is also offered as an ETF under the ticker UKDV which has been available since 28th February 2012.
You can get a copy of a recent fact sheet by clicking the highlighted ticker above or see it on line if that is of interest to you? If you want to get a spreadsheet with a list of the 30 holdings making up the fund you can download that here because I like to be helpful.
One interesting things is that I see Tesco (whoops) is in the top ten with a 4% weight - guess after their dividend cut it will drop out on the next index re-balance. I also note that Glaxo is also in the top ten and as I mentioned recently I have some concerns about the sustainability of their dividend distributions in the longer term, so you probably need to do your own research on stocks in this list and make sure you are comfortable with them if you were thinking of investing, this is why I prefer to do it myself.
However, I think the concept behind this index / ETF overall is a good one and if you wanted to follow it blindly then this offers a relatively cheap 0.3% (total expense ratio - TER) way of doing it with a current yield of around 4%. It looks like it has outperformed the FTSE by around 12% in capital terms since inception and obviously a bit more in total return terms given the extra yield. However as you'll see in the chart below is has underperformed over the last year after a poor run since June this year, probably primarily on the back of weakness in Glaxo & Tesco more recently.
Some tasty looking results from Restaurant Group (RTN) this morning with
Thus it looks like they are on track for a strong second half too with the Chairman summing up the outlook as follows:
"These are strong results and reflect an out performance against our sector. The Group benefits from operating in market segments with barriers to entry which have proved to be very resilient. We have a strong portfolio of complementary brands and have an impressive pipeline of new sites, in terms of both quality and quantity. These factors will ensure that the Group remains on track to double in size over the next eight to ten years.
The second half has started well; year to date after 34 weeks total turnover is up 10.4% and like-for-like sales are up 3.5%. With an improving economic outlook, lower inflation and higher levels of employment the prospects for TRG continue to look good. I am confident that the Group is well placed to deliver another year of profitable progress."
So a strong set of numbers that would seem to leave scope for upgrades to forecasts which is probably just as well as having rallied strongly from their lows (when I last wrote about them and suggested buying back in) they look reassuingly expensive again on around 21.6x with a 2.4% yield. So probably not one to rush out and buy despite these numbers, although hopefully upgrades (3 to 5% may be) could help make it look slightly less expensive. The other slight concern I have is that the long standing and successful CEO - Andrew Page is stepping down, although remaining as a consultant for a while I believe.
Quick heads up and further to my post from 18th August about the potential for a dividend cut from Tesco. Well they have delivered a profits warning and a spectacular 75% cut in the interim dividend today before their new CEO starts on 1st September. Sure there will be acres of news coverage on this so I'll leave it there.
This is the final thing to monitor and score for Compound Income Stocks. To recap from previous parts we have been trying to identified good value yield stocks, with well covered dividends, solid financial and operating statistics which have demonstrated dividend growth in the past and are forecast to in the year ahead.
Having perhaps identified a stock which looks good on those criteria and having put it on your watch list or maybe even purchased it you then want to monitor its prospects. By that I mean following news announcements and reactions by brokers and other investors to the news. If these are positive then this should support the case for the dividend growth which is forecast.
I find the best way to get a quick indicator on this, as you cannot hope to follow news flow on every stock in the market, is to look at estimate revisions over the last one and three months. I then combine these into an earnings momentum indicator a a quick guide to whether prospects are improving, deteriorating or unchanged. Obviously as a support to the case for receiving the expected dividend you would prefer to see earning forecasts being either stable or upgraded overall. That will then increase the likelihood of the forecast dividend being made or even exceeded. Conversely you will probably be less sure of and those companies with downgrades to their prospects which may undermine the dividend, cover and growth going forward.
You can of course track changes in dividend forecasts but I find that these are changed less frequently unless there is a dramatic change in the earnings as analysts seem to be more focussed on earnings rather than dividends. In addition I also have forecast dividend growth elsewhere in my scoring so this is already being picked up to some extent there. Thus I find using earning changes to be more effective as a guide to these changes and using one and three months captures the most information even if it is somewhat dated after three months. Obviously a ranking will be relative to other companies so you will need to look at the actual numbers to get a feel for the absolute change in the numbers.
I hope you have found this series of posts on how to score Compound Income Stocks useful, as it has been quite quiet on the news flow front being August. If you have enjoyed this series of posts bear with me and I might have something of interest for you in the near future.
However in the meantime, you may be pleased to know, I'll be back to talking about some stocks tomorrow.
Having talked about S&P Dividend Aristocrats fund in my previous post just wanted to add this to reinforce the point. First there is an interesting piece on Historical Returns from Dividends by a US value manager called Heartland Funds which is good discussion and look at long term returns and drawbacks from focussing exclusively on the highest yields. Then below I present a couple of graphs for you from a fund brochure for the Oppenheimer Rising Dividends Funds, which sums up nicely what I was talking about.