...because above is a chart of their dividend growth and below is how the shares have performed longer term.
This has left the shares on a sub 10x P/E with a 4.8% yield which is 2.3x covered based on another 15% or so dividend growth on current forecasts. However as they state in last years report and accounts: "Consequently, over two thirds of our underlying profit is now earned in the global Energy and associated energy infrastructure markets."
So that accounts for the recent weakness given the fall in the oil price and suggests that next years estimates may be under threat. Looking at how their Australian operations were affected by the mining downturn - this led to a fall of about 33% in profits from that division. So applying a similar hit to the 66% related to energy could I guess lead to a 20% or so fall in earnings overall.
However, not all the work will be oil related, they do make add on acquisitions and they could take action to reduce overheads quite quickly as this is a people business. So maybe they could restrict the hit to 10% but lets use say a 15% hit to next years numbers. This could still leave it on just over 10x earnings and the dividend would still be just over 2x covered based on my assumption of 15% downgrades which may of course be too sanguine. But if it is anywhere near the mark or even conservative then this may have proved to have been a great opportunity, especially if the oil price should bounce back quickly.
So there's today's idea for you, which given the title (the clue is in the title) puts me in mind of the song below. But if you haven't worked it out yet and really want to know what it is and want to do some more research on this suggestion, which is not a recommendation, then click the Advent Calendar window below.
...or seeking the best of both worlds as they say. Following on from my post on Investment Trusts I thought I would offer up a reasonably dull idea which tries to offer income and capital growth in a complicated structure which means it is actually on a discount unlike similar more conventional trusts.
It offers a yield of just under 5% from a fairly conventional portfolio of large and mid cap UK equities and corporate bonds. It has around 10% gearing via bank debt which costs it 3.15%. They have 75% of the full years dividend in revenue reserves so they should be able to continue to edge the dividend up in line with or slightly ahead of inflation assuming UK equities still produce some underlying dividend growth. This was the general expectation in the document with yesterdays post.
The structure is complicated as they describe it in the annual accounts as follows:
The Company has a capital structure comprising A shares and B shares.
In addition, the Company has a bank loan.
The Company’s capital structure offers shareholders the opportunity to receive quarterly returns in the form
of either dividends, capital repayments, or both, to suit their own particular circumstances.
The Company has two classes of shares: A shares and B shares. The rights of each class of shares are
identical, save in respect of the right to participate in dividends and capital repayments. Irrespective of these
rights, the net asset value attributable to each class of shares is the same.
Only A shares carry a right to participate in dividends paid by the Company. B shares are not entitled to
dividends but each B share instead carries the right to receive a capital repayment at the same time as,
and in an amount equal to, each dividend paid in respect of A shares.
For certain shareholders, there may be tax or other advantages in receiving a capital repayment rather than
a dividend. Dividends paid on the A shares will be taxed on receipt in the normal way for dividends. Capital
repayments received on B shares will fall to be taxed in accordance with the rules relating to the taxation
of chargeable gains (see further information below) for non-corporate holders (including individuals).
It is the Company’s policy to maintain the ratio of A shares to B shares (excluding shares held in Treasury)
within the range 72.5 : 27.5 and 77.5 : 22.5.
These two securities can be traded together in the form of a unit with each unit consisting of three A shares and one B share.
The B shares are just like any other ordinary share except that, instead of dividends, B shareholders receive
capital repayments, so B shareholders will receive the same amount of cash on a quarterly basis as A
shareholders, but when it comes to the tax on these capital repayments there are potential benefits.
Effectively, no UK tax is due on receipt of the capital repayments. So a higher rate taxpayer, for example,
will not be liable on receipt to the additional income tax that would normally be applicable on receipt of a
dividend. This is because the capital repayment is taxed under UK Capital Gains Tax (‘CGT’) rules rather
than Income Tax rules for non-corporate holders (including individuals). It is only when the B shares are
disposed of that the capital repayments received need to be taken into account as part of the CGT
disposal calculation. From 22 June 2010, a flat rate of Capital Gains Tax has applied of 18 per cent on
disposals (28 per cent for higher and additional rate taxpayers). If the shares continue to be held until
death, no CGT arises in respect of the capital repayments. The value of the holding will, however, be taken
into account for Inheritance Tax purposes, if applicable.
Summary & Conclusion
If I haven't lost you already this one is a fairly conservative and conventional type of mixed UK portfolio which is wrapped in a complicated wrapper which offers some gearing and tax advantages too, perhaps. The attractions are a 5% yield which should grow with or slightly ahead of inflation. It has performed well in the first 5 years to 31 March 14, it delivered 56.8% v 47% for the Capped FTSE All Share, although the past is no guide to the future.
The charges have come down this year to 0.75% per annum and they have dropped the performance fee too and the Units are currently trading on around a 10% discount which as I say is unusual for this type of trust and towards the top end of its range. If you have got this far and still want to know what it is then open the Advent Calendar Window below.
...they are for the long term too. I have tended to prefer IT's or Investment Trusts to OEIC's or Unit Trusts because:
However, in recent years during the rising market we have had, as discounts have come in and disappeared in many cases, this means there are less bargains around in this space and gearing may not be so attractive at this stage of the market cycle.. Thus the risk of buying IT's today on a premium is that they may slip to a discount in a future market decline or as a result of poor performance which can give a double whammy on the downside and potentially be exacerbated by gearing.
So if that hasn't put you off - click today's Advent calendar window below to download an Income Investor Publication from Citywire which looks at amongst other things: trusts with 40 years+ of rising dividend, how IT's compare to OEIC's from the same manager and some views on the outlook for dividends in the UK next year.
I suggested yesterday that you might want to keep calm and carry on with your investing while markets are volatile. It also put me in mind of a character from Dad's Army and you certainly need character to stay calm in the current market circumstances. However, I have been trying to practice what I preach and have been looking around for interesting stocks on the back of this.
Having said that one stock I uncovered in my research was not necessarily a victim of the current market turmoil but one that has managed to deliver its own Santa rally, despite the market move, on the back of some positive results recently. However, it does operate in an industry which has a slightly chequered history, while they themselves have also had their share of ups and downs over the years.
So I wouldn't suggest going crazy in it but it does look interesting as an appropriate stock for this time of year and it could be a cracker which is not just for Christmas. However note, this is just a suggestion not a recommendation, especially as it is a small Aim listed company with a volatile history and it has just had a spike up to new highs, but if that has whetted your appetite and my caution has not put you off then click on today's Advent calendar window below to see if you want to play it.
investing when markets are having a panic attack. Which puts me in mind of an old character below.
Talking of which like some of the other old stuff such as the Sinclair ZX Spectrum and Status Quo which I have written about being revamped in a new form, apparently there is going to a new Dad's Army Film next year. I digress as I'm supposed to be talking about investment here, but hey I took your mind off the awful market for a moment didn't I?
Any way it is important at times like these to keep a cool head and as the poster says keep calm & carry on with your investing while all around are losing their head. So I wouldn't recommend you panic unless of course you are still holding some rubbish stocks that you really shouldn't be in then by all means go ahead. Otherwise I'd recommend going about your business, hunt for some bargains that have been thrown up by the volatility. After all life goes on, companies will still be going about their business and paying their dividends which is what its should be all about at the end of the day. So what if your shares are worth a bit more or a bit less at the end of today? I know it takes character but more on that another day.
So while you go about your investing today why not heed the following poster and have a listen to an appropriate song for today in the Advent Calendar Window at the end of today's post.