We have had a few updates and results from some well known high yielding UK shares this week which may well be held by yield hungry investors. The Companies I'm thinking of are Centrica (CNA), Talk Talk (TALK) & Vodafone (VOD). Now I mentioned Vodafone last week in a post where I explained why I don't hold it, which you can read here if you missed it.
Now as it happens they had a reasonable update and the new CEO seemed to be indicating a commitment to maintaining the dividend, which led to a relief bounce in the share price, as I suspect the market was rightly worried about the possibility of a dividend cut here. As for the other two I'll not go into detail on their trading updates here, as if you're in them I'm sure you will have read them and as it stands, I wouldn't recommend buying them given their poor scores in the Compound Income Scores.
Which is the whole point of this post, to point out how the Scores have helped me to avoid these high yielding losers and have helped direct me towards better performing yield stocks with growing dividends which I believe is the way to go. Don't take my word for it, take a look at the performance of the Compound Income Scores portfolio in comparison to these three and the broader markets too in the charts above.
If you have been holding stocks like these and are getting fed up with losing capital and seeing your dividends cut in some cases, then do feel free to check out the Compound Income Scores to see how they can potentially point you in the right direction towards growing, winning income shares and away from non growing, losing income shares.
The latest Scores will be out tomorrow, so if you'd like to try them out free for a few weeks, then don't delay and sign up today, as you won't have to pay until the third week of December. If you find they are not for you and you cancel before the middle of December then you won't have to pay anything, now I can't say fairer than that can I? So what have you got to lose, apart from a few losing high yield shares from your portfolio?
Don't forget you can get access to the Scores via Dropbox, Google Drive or Microsoft One. See the links below if one of those takes your fancy. If not and you'd prefer to get them via e-mail do get in touch via the contact form on the site or via Twitter if you follow me & I'll see what I can sort out for you. Any way thanks for reading, take care with your investments & how you choose them, good luck and don't forget to always do your own research as shares can go down as well as up as demonstrated by the three I've feature today.
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Further to my recent post on sell disciplines we have had a poor set of results from Centrica today. I'll not go into detail on the figures as I'm sure there will be metres of pixels written about it today.
The key disappointment for an income investor was the slightly unexpected, but not wholly surprising dividend cut of 30%, starting with the final dividend. This meant that the full year dividend was down by around 20% overall to 13.5 pence. This compared to forecasts of a small rise in the dividend for this year to 17.5 pence, although a small 3% or so cut was being forecast for 2015 to 17 pence. So the 30% reduction will take this number down from the forecast 17 pence and this years actual 13.5 pence to around 12 pence. At the pixel time price this morning of around 258 pence this will be a yield of 4.65%. Given the further fall of earnings that they are flagging for the current year I estimate this will leave the earnings cover at about 1.4 to 1.5x still only just about acceptable.
So based on my sell disciplines I would sell it given the dividend cut and the poor outlook for this year plus the heightened political risk over the election. I am pleased to note that this one had a Compound Income Score of 20 (stocks are scored 100 to 0 with 100 being best) yesterday ahead of these numbers putting it just in in the bottom quintile showing that the Compound Income Scores can be a good guide to point you in the direction of better income stocks and away from the weaker ones. Talking of which I updated the Scores again yesterday and added one new column in response to a readers comment on Saturday's video post, where you can see the comment and my reply at the end by clicking comments if that is of interest to you.
So the new column attempts to calculate a sustainable growth rate for each company to compare with their current growth rate and the 5 year compound dividend growth. This is based on the theory of the Plowback ratio which can be used to calculate the sustainable growth rate by multiplying the retention rate by the ROE. If a company is growing faster than this rate then they will need extra finance over and above the retained earnings. For this reason and because ROCE will tend to be lower than ROE I have chosen to use the 5 year average ROCE * retained earnings % to calculate this figure to be conservative and also so it takes into account the current financing arrangements, but you could obviously calculate the ROE based one if you prefer.