A quick update & reminder for Scores Subscribers after last weeks Red December update. Just in case you missed it in that post or didn't read to the end. As a subscriber to the Scores you will now have access to the Portfolio and transaction details along with the Scores. For this there is no extra charge so effectively a free upgrade. In addition in case you have not noticed the Scores are also now being updated on a daily basis too.
We hope to maintain this service level with the exception of quiet holiday times or when I am away myself, although this should in all be no more than about 4 weeks in a year in total accounting for Bank Holidays and public holidays too. Thus with around 48 weeks worth of Scores or 240 a year it works out at a bargain price of just 20 pence a day.
If you are not currently a subscriber but would like to gain access to the Scores, the Portfolio and transaction details and a free e-book explaining the research behind and background to the Scores then head over to the Scores page where you can learn more about them and sign up to receive automatic updates via either Dropbox, Google Drive, Microsoft One Drive.
Compound Income Scores Portfolio
Well I say year end, but I should point out that the performance numbers I am about to talk about are based on closing prices up to 28th December 2018 as I was visiting family and in laws over the New Year period and therefore not around to collect the figures after the last half day of trading on 31st December. As I'm sure you are all aware December was another pretty tricky month for investors and Santa singularly failed to arrive with his rally.
As a result the FTSE All Share provided a total return of -3.74% in the month to the 28th & -9.47% for the year to the same date. By comparison the Compound Income Scores Portfolio (CISP) produced -5.12% in December which meant it produced or rather lost 8.52% for the year to the 28th December. So another year of outperformance, this time by 1% or so, but you can't live off of relative performance, although the portfolio will have produced between 3 & 4% in income which could be used to live off of. Still overall OK but not a lot to write home about as I know some who are prepared to run with much more concentrated portfolios and who have may be made use of stop losses etc. may have produced positive results even in this negative market background.
Now these type of losses may have come as a shock to more recent investors who have become accustomed to steadily rising equity markets on the back of low interest rates and Quantitative Easing by central banks. It is however quite a regular occurrence to see occasional bad years and in a proper recession induced bear market you can get falls of up to or in excess of 50% which you need to be able to stomach or take action to avoid or mitigate losses if you can't.
The CISP is designed to be a demonstration of whether the Scores they are based on are any good at selecting quality, growing dividend stocks and as such is generally run on a fully invested basis to allow it to do this. So far in the relatively short three and three quarter years or so it has been running, it has done a reasonable job by producing Compound returns of +54.4% in total or +12.3% per annum over that period. This compares with +14.3% or 3.6% per annum from the FTSE All Share. Again I'm sure people with more concentrated and actively traded portfolio may well have done better, but for a relatively relaxed monthly approach I don't think it's a bad result for limited effort. It certainly compares pretty well with what one could have got from investing in the index or an actively managed main stream fund for that matter, although here the CISP is probably benefiting form being more concentrated and active than most main stream funds.
Market Timing Indicators & other matters.
Regular readers will know that I have been producing these for the UK market since January 2014 despite my own reservations about trying to time the market. This was after reading some useful research which helped to eliminate the whip sawing that you can get by following these moving average / trend based indicators by adding economic indicators to them to keep you in the market for longer.
Given the falls in markets in December and during 2018 it will come as no surprise that these ind actors, based on moving averages, continue to be negative. Indeed after December they have mostly moved to the most extreme negative position that I have seen since I started producing them in 2014. FTSE 100 is the only one that has seen a more negative reading back in September 2015, so may be it has been helped more this time around by the overseas exposure it brings and the benefits or weak Sterling perhaps?
So these are all very negative and the markets are looking quite oversold, so I guess it is possible we could see a counter trend rally in the short term which could take us back up by 5 to 10% perhaps. I say this because the economic indicators that I track along side these are all still painting a more positive picture, although clearly there have been some signs or economies coming off the boil & some other more local difficulties with BREXIT and trade / growth in China more generally.
It is also worth noting that the US yield Curve (2 Year minus 10 Year) has not yet inverted, which is something that has been a precursor to previous recessions and something that everyone has suddenly become an expert on this year. I guess that's the power of the internet and information being more widely available. If however you don't know what I'm going on about, or even if you do, I would highly recommend this piece from dear old John Mauldin, whose writing I have followed for years and which acts as a great teach in on the subject with lots of useful links on the subject too.
One of the other things I have been following along side the timing indicators, as in the past it was shown to be a good coincident indicator of a turn in the economy, is the trend in US Unemployment. Now this has been firmly trending down and shows no signs of turning up just yet. So again that would also suggest that it too soon to panic or take evasive action.
One thing that did give me pause for thought on this though was a very good video below, which looks at the confluence of the current economic and debt cycles and issues coming out of the demographic situation in the US with baby boomers coming up to retirement. This had some interesting observations on possible trends in employment and other things coming out of that and is well worth a watch in my view. It did therefore call in to question whether the unemployment trend will be such a useful coincident indicator this time.
Monthly Screening for the CISP
This was also carried out just before the end of the year given my travel schedule. It resulted in two sales, the proceeds of which were reinvested into two new positions and a top up to an existing holding which had been halved after it had doubled on risk control grounds, but which had now come back to earth and was therefore now a smaller holding despite still scoring very well. I am not going to be detailing these changes here on the Blog anymore as I am giving a Free New Year upgrade to existing Scores subscribers who will now be able to view the full Compound Income Scores Portfolio together with details of the transactions each month alongside their weekly Scores updates. If you are not a subscriber or are not familiar with the Scores and if that is something that interests you then you can find out more about them and how to sign up here.
Summary & Conclusion
So after the first difficult year for a while for investors one can't help feeling nervous as we come into 2019. That being said I wouldn't be surprised if we saw some kind of rally in the first quarter although no guarantees of course, as the FTSE chart looks a bit like a top and seems to be in a pretty bearish trend in the short term. If anything I'd personally be more tempted to view any such rally as a selling opportunity as we may have entered into a more major bear market as the stock market anticipates the next recession, but as ever time will tell on that.
As for the CISP it will remain fully invested and continue to focus on the top quartile of Compound Income Scores stocks until such time as the economic indicators flash negative too, when I'll then think about what action I want to take for the portfolio on the back of that.
I've talked a bit recently about high yielding UK share that I'd avoid based on their Scores. So today as it's Black Friday I thought I'd flag up:
This led them to forecast a minimum level of total revenue of £102m for the whole of their 2018-19 financial year with an EBITDA margin comparable with that achieved in 2017-2018. This looks to be about 4% ahead of current revenue forecasts and given the margin comments this should, I would have thought, flow through to the bottom line too. Thus some upgrades here seem likely. I would also note that they have set this as a minimum expectation, so presumably they may under promise and over deliver.
The shares look good value on around 12x earnings and come with forecast yield of 5% based off of 8% forecast dividend growth, which is reasonably well covered, although that is the weakest thing in their score. They make a decent operating margin of around 17% and a huge return of capital, although that's probably not that relevant for a people / service business such as this. They have had upgrades already this year and as discussed I suspect we should see some more on the back of this update or when they actually report their first half numbers in January 2019. Putting it all together they come out with a Compound Income Score of 96 (where 100 is the best) and as such they will remain in the Compound Income Scores portfolio and in my own portfolios too, as I eat my own cooking as it were.
So there you go there's a buying idea for you sourced from the Scores and as mentioned at the start don't forget you can read more about and sign up for a free trial of the Scores by clicking here. Once you sign up you'll get your Free e-book explaining the research and rationale behind the Scores. You can then try them for free for the next three weeks if you then cancel by the 16th December 2018. If you like them you won't need to do anything as your payment will be taken on 21st December 2018 for you to then enjoy a whole year of Compound Income Scores at the equivalent of just £1 a week.
Cheers, mind how you go in all the Black Friday bargain hunting mayhem, but I don't think you'll find a better value offer than our 1-2-3 Free offer get it while it's hot this weekend.
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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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.