Dividend Alerts - January 2012 issue 2




January 13th, 2012

  • Timing and selection is all important

  • Tesco’s Big Share Price Drop – is Tesco a Buy?

Dear Subscriber

With 2012 almost two weeks old I want to talk about some simple steps you can take right now to greatly improve your financial future.

In fact, I suppose, you could call each of these belated financial "New Year's Resolutions."

Let's start with a simple one ...

Resolution #1:

"I am NOT going to accept paltry interest yields for another year!"

With 2011 past, you'd never know it by looking at the interest rates posted in your favourite newspaper or at your local bank.

In fact, savings accounts and money market funds have been handing investors practically nothing for much of the last five years.

Sure, there are reasons to believe this has to change sometime ... but why wait at all? Why risk earning practically nothing for yet another year or two?

After all, there are plenty of high quality dividend-paying companies that are currently handing out safe, steady yields of 5 percent, 6 percent, even 7 percent right now. There's nothing stopping you from putting at least some of your nest egg to work in them immediately.

Resolution #2:

"I'm not going to take big risks with my money!"

Some people have probably been avoiding dividend paying companies because they consider them "risky."

Given the stock market's gyrations the last few years, I understand why you might think that. And I'll be the first to say that share prices can — and do — decline sometimes.

However, let me give you a quick rundown of how the Dividend Income Portfolio I run actually did in 2011...

For starters, my £76,000+ Portfolio's six picks have posted a 5.2 percent total return since the launch of the portfolio – 1 February 2011 - through to December 30 even as the FTSE100 was DOWN 5.6 percent over the same period.

That means we outperformed the market by more than ten percentage points — something most fund managers would kill to do.

What’s more . . . as we only purchase high quality dividend paying companies when they are attractively priced, i.e. historically undervalued, we only receive dividends from them once they have paid out their dividends. As a result, no dividends were received from two of our picks in 2011.

And I should also mention that we still had 69 per cent of the portfolio in cash the whole time, generating no return at all!

As a long term Dividend Income Investor an increase of “just” 5.2 per cent is less important to me than the dividend payments and likely growth of these, because the eventual goal of this portfolio is to help fund my retirement through its increasing tax-free dividend stream.

I am pleased with our performance last year. Of course, it is very early days. I would have preferred to have more high quality dividend paying shares owned in the Portfolio, generating an increasing income.

However, we have remained steadfast in our investment strategy to invest only in high quality dividend paying shares when they are (near enough being) historically undervalued at the point of purchase.

It is far too early to discern any long term trends, but for what it is worth the current portfolio is generating a return which I expect to be much higher in a year’s time.

You too can benefit from an increasing dividend stream for years to come.

More than 90% of the total returns in the UK stock market can be directly attributed to dividends and dividend growth.

Timing and selection is all important!

Buying dividend paying shares when they are priced too high will often lead to long-term disappointing returns.

Worse, selling in a ‘panic’ when the overall stock market is in a down trend will further disappoint your overall returns.

Make sure to benefit when a select group of high quality dividend paying companies is historically undervalued.

Let me show you whether Astrazeneca shares are historically undervalued or not. Use this information to make better informed long term buy and sell decisions.

Join the Dividend Income Investor.com community.

Use our unique share valuation service to get the share prices at which many dividend paying companies are historically undervalued and overvalued.

Enter and exit the stock market at the right time while receiving increasing dividends from companies that have been paying dividends for decades and are financially strong.

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Tesco’s Big Share Price Drop – is Tesco a Buy?

Let’s be clear of this Tesco UK’s figures were not good. Not good at all! But does this warrant a 17 per cent share price drop, so far?

Phil Clarke, Tesco’s chief executive, comment, that, apparently he has been doing much “soul searching” lately about what went wrong rings rather hallow. It’s not as if UK consumers have suddenly become cash-strapped overnight just before Christmas?

At least, Tesco has admitted that “the shopping experience” just wasn’t as good as it should have been. Much more than soul searching is required to rectify the situation. A return to Tesco’s archives in order to work out how they got out of the 1999ties recession in such a successful fashion may well help.

However, of all the major UK retailers Tesco is the only one with the prospect of significant growth over the next decade(s) via several new areas of business in the UK e.g. Tesco bank services, and its international operations.

What the City, the stockmarket and the media seem to have forgotten, hopefully only temporarily, is that increasingly growth, growing earnings, and subsequently growing dividends will flow from Tesco’s growing Asian emporium in due course.

Lets not forget that already, Tesco’s Asian business activities are vast, spanning more than five emerging and rapidly growing developing countries such as South Korea, Thailand and China.

To me it is clear that Asia will be key to Tesco’s growth over the next 10 to 20 years. In fact, based on current growth rates, it is likely to surpass the UK before much too long.

Unfortunately, the City’s short term view doesn’t recognise this yet. Steeped as they are in next quarter performance . . .

Ok, so lets factor in that Tesco UK is likely to be suffering no or low growth rates during the next few quarters. As per Tesco statement profit growth would be “minimal” in its next fiscal year.

However, we should also not forget that the UK still remains its prime cash cow, albeit perhaps somewhat shrinking currently.

Utilising this wisely will be key, to support growth elsewhere, and should allow overall earnings to keep growing following this ‘episode’, resulting in dividend growth going forward. But not necessarily the next few months! Think more 2013/14 onwards.

Is Tesco's dividend safe? Likely, though we may not see much of a dividend increase during 2012.


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Is Tesco undervalued at these levels?

Buying dividend paying shares when they are priced too high will often lead to long-term disappointing returns.

Worse, selling in a ‘panic’ when the overall stock market is in a down trend will further disappoint your overall returns.

Make sure to benefit when a select group of high quality dividend paying companies is historically undervalued.

Let me show you whether Tesco shares are historically undervalued or not. Use this information to make better informed long term buy and sell decisions.

Join the Dividend Income Investor.com community.

Use our unique share valuation service to get the share prices at which many dividend paying companies are historically undervalued and overvalued.

Enter and exit the stock market at the right time while receiving increasing dividends from companies that have been paying dividends for decades and are financially strong.

Subscribe Now

Remember our life time guarantee!

Once you are a subscriber you will never pay more for your subscription.

Till next time

Steven Dotsch
Managing editor
EMAR Publishers
Dividend Income Investor.com
Twitter.com @Investoretire

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Dividend Alerts is an unregulated product published by EMAR Publishing, publishers of Early Retirement Investor.com

EMAR Publishing is not registered as an investment advisor or financial advisor.We do not and will not provide personalised investment or financial advice, or individually advocate the purchase or sale of any security or investment. We publish opinionated information about the stock market and companies that we believe our subscribers may be interested in.

There is no guarantee that dividends will be paid. Figures are calculated using the closing prices. All gains are gross, and returns will be affected by dividend payments, dealing costs and taxes. Profits from share dealing are a form of income and subject to taxation. Tax treatment depends on individual circumstances and may be subject to change in the future. Editors or contributors may have an interest in shares featured.

Past performance and forecasts are not reliable indicators of future performance. Shares are by their nature speculative and can be volatile. Your capital is at risk so you should never invest more than you can safely afford to lose.

Information in Dividend Alerts is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment or financial decisions. Appropriate independent advice should be obtained before making any such decision.

No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned. While we believe the sources of information to be reliable, we in no way represent or guarantee the accuracy of the statements made herein.

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