February 8th, 2013
Tesco’s revival in the make
Exponentially grow your dividend shares portfolio
The inner workings of our dividend growth investment strategy
Company results and dividends
Tesco's profit warning, just over a year ago - its first in two decades - wiped nearly £5bn off the value of the company in one day. At one stage, later in 2012, the shares reached a low of around 300 pence having traded at over 400 pence in the lead-up to Christmas.
In the past two or three months, the shares have been recovering and now trade at around 360 pence.
The market has clearly reacted positively to CEO Philip Clarke's comments, earlier in January, that Tesco's UK recovery is on track and also to the news that Tesco is abandoning its plans to conquer the USA.
How to exponentially grow your dividend shares portfolio?
You can massively increase the dividends you receive every year by using just two simple investment strategies. In fact there is almost no limit to how much money you could accumulate using these relatively little know strategies
Pound cost averaging is something you may want to consider as it puts your investments on auto-pilot. It basically refers to the principle of investing an amount of money in equal amounts and at regular intervals. This get you started to build a portfolio of dividend paying shares.
As soon as your portfolio of high quality dividend paying shares is set up you will begin to receive those companies’ regular cash dividends. Using these dividends to invest in the same shares you start to ‘exponentially’ grow the number of shares you own, without adding new money from yourself. This will lead to bigger dividend payments over time.
Also your dividend yield on your initial shareholding starts to grow, in line with each new dividend payout. You benefit from a combination of steadily increasing dividend pay-outs and dividend re-investment putting your portfolio into ‘turbocharge’ mood.
Read more about the workings of pound cost averaging and dividend reinvestment and how it can turbocharge your dividend share portfolio in order to maximise the returns of your dividend share portfolio at relatively little risk.
The sooner you implement a pound cost averaging and dividend re-investment strategy, the sooner you will see your dividends multiply in size.
The inner workings of our dividend growth investment strategy
Over the last few months a number of people have asked me to disclose how Dividend Income Investor.com came about, explain our unique dividend share valuation algorithms, how our proprietary Yield and Price charts are created, my views for 2013 and much more.
For the first time ever, I am disclosing the story behind the making of Dividend Income Investor.com plus the workings of its various tools and charts via a four part article series, which you can access here:
- Click Here for Part 1: How did I become a dividend growth investor?
Here I am covering the background on why and how I became a dividend growth investor and how we developed our unique dividend share valuation methodology.
- Click Here for Part 2: Why does dividend growth investing appeal to me?
In this article I cover the benefits of our dividend growth investing, showing that 2008/09 was a pivotal moment in the development of our dividend share valuation methodology.
- Click Here for Part 3: Halma Plc – Price is what you pay, value is what you get
In this article, using engineer and dividend champion Halma Plc as an example, we delve a bit deeper into Warren Buffett’s famous saying ‘price is what you pay while value is what you get’ and its impact on dividend growth investing. We introduce the workings of our proprietary Price and Yield Charts that support our buying and selling decisions.
- Part 4: Financial strength is in the eye of the beholder – still to be released
In this article I intend to give my views on dividend paying companies for 2013. I will also introduce the concept and workings of our proprietary ratio - Price Dividend Growth ratio (PDG) - as well as the importance and constituent parts of the financial strength of individual dividend paying companies and how we manage risk
Company and dividend results
During the last few months, some of the companies we report on have seen share prices exceeding substantially their dividend rises. As a result, in some cases dividend yields have now fallen considerably, including:
AstraZeneca released its annual results to 31 December. Due to the loss of patent exclusivity on several drug brands, government measures to curb healthcare spending, coupled with tough conditions generally in the pharmaceutical industry annual sales were down 17 percent to $28bn.
The group is increasingly focused on emerging markets. Revenues in the Emerging Markets rose by 6% in the fourth quarter, with good growth in China, Saudi Arabia and Russia highlighted.
The final dividend will be 120.5 pence going ex-dividend on 13 February and payable on 18 March. This brings the full financial year dividend to 178.6 pence, against 175.5p last year, up by a below inflation 1.8%.
Accompanying management financial forecasts for the current 2013 financial year provided little comfort. The board expects a mid-to-high single digit percentage decline in revenue as patent expiries continued to erode business.
AstraZeneca held net cash of $2.8bn at the end of 2011 but by the end of 2012 this has become net debt of $1.4bn, part due to spending $2.2bn in share buyback, with gearing now at 6 percent. Analysts expect no improvement in the dividend for 2013/14.
Total full year sales across the group declined by 1 percent to £26.4 billion, as growing consumer healthcare sales helped to counterbalance a 2 percent decline in pharmaceutical and vaccine sales. Total sales to the Emerging Markets grew by 10 percent over the year, and now account for 26 percent of overall group sales. This helped to offset declining sales in both the USA and Europe.
The final dividend will be 22 pence going ex-dividend on 20 February and payable on 11 April. This brings the full financial year dividend to 74 pence - an inflation beating increase of nearly 6 percent.
During the year, the group repurchased 174.5 million of its own shares (£2,493 million). Based on current market conditions, management is targeting share repurchases of £1-2 billion in 2013, while analysts expect further dividend increases.
This year GSK is aiming for sales growth on six potentially significant drugs, which have completed testing and been filed to European and American regulators for approval.
The group’s portfolio of activities continued to be adjusted, with both acquisitions and disposals being made, efficiency and cost saving initiatives pursued, whilst products such as its Lucozade and Ribena brands are to be assessed for further growth potential.
Only last week, GSK announced the acquisition of a further stake in its publicly-listed Indian consumer healthcare subsidiary to 72.5 percent from 43.2 percent, deepening its footprint in emerging markets and non-prescription products.
The world's largest spirit company, Diageo reported steady sales growth of 5 percent to £6.04 billion in the last six months of 2012. The interim dividend, up an inflation beating 9 percent, will be 18.1p going ex-dividend on 27 February and is payable on 8 April.
Faster growing markets accounted for 42 percent of Diageo's net sales in the second half of 2012 and delivered organic net sales growth of 14% and operating profit growth of 21%. European sales, which make up about 28 percent of Diageo's total, fell by 2 percent as fast-growing Turkey, Russia and Eastern Europe helped compensate for a fall of 19 percent in southern Europe.
Free cash flow improved somewhat with a reduction in still massive gearing to 125 percent from 136 percent at the year end of 30 June 2012. The 2013 dividend forecast is 46.8 pence for a below inflation dividend yield of 3 percent.
Emerging markets managed like-for-like sales growth of 10.8 percent, helping Unilever to propel full-year sales to 31 December over the €50bn (£42bn) level for the first time ever. Of this growth, 2.9 percentage points came from price rises, with 4.8 percent from volume growth. The profit margin also rose by 30 basis points to 13.8 percent. These days, emerging markets make up 55 percent of Unilever sales.
Free cash flow increased to €4.3bn from €3.1bn in 2011. This is mainly due to higher operating profit and an improved performance in working capital. Net debt also fell to €7.4bn from €8.8bn over the year.
The company announced a final quarter dividend of 20.39 pence which went ex-dividend on 6 February and will be paid on 13 March. This brings the full financial year dividend to 78.8 pence, compared to 2011’s 77.61 pence - a below inflation rise of 1.6 percent due to the weakness of the Euro over the period.
With 2013 dividend forecasted in Pound Sterling at around 86 pence, some analysts expect Unilever to raise its dividend in the mid-single digits annually, during the next five years, while also repurchasing about 2 percent of shares outstanding each year.
National Grid issued a management statement covering 01 October 2012 to 28 January 2013. In spite of the impact of hurricane Sandy on its US business, and despite some analysts arguing to the contrary that the costs of dealing with disruption caused could run to hundreds of millions of pounds, National Grid confirmed that it is on track to deliver improved turnover and profits.
Consensus forecasts for the year to March 31 point to National Grid edging up pre-tax profits from £2.7bn to £2.8bn on turnover above £14bn.
National Grid raised its dividend 8 per cent to 39.28p last year and predicted it would deliver a 4 per cent improvement this year, based on a one-year rollover of UK transmission price controls and a 3 per cent prediction for inflation. The new dividend policy for the period from April 2013 will be announced by the time of the full year figures in May.
Uncertainties over the impact of new regulatory agreements has prompted speculation that National Grid will be forced to trim back on its dividend policy for the next eight years. With some analysts fearing a dividend cut next year and/or a further capital raise.
SSE announced a nine month trading update. The group reported an adjusted profit before tax of £1,336m for 2012, suggesting the figure for 2013 could be almost £1,4bn.
The group is set to lift its payout for the fourteenth year running after the company predicted its full-year dividend would be around 84 pence per share – 4.5 percent higher than the 80.1 pence per share declared for 2012.
Disconcerting is that SSE’s operating cash flow, which for the year ending March 2012 was negative, was assisted by the company having to borrow £1 billion to fund the dividend, which in my mind raises a question about its sustainability. Red flag in my view.
It was also announced that its CEO Ian Marchant would step down in July after a decade at the helm, who commented that "SSE's balanced model of market-based and economically-regulated businesses and strategy of focusing on operations and investments in these businesses is again proving to be robust. The overall performance of the company has been good in 2012/13."
Are any of the above companies currently historically overvalued?
Buying dividend paying shares when they are priced too high will often lead to long-term disappointing returns.
Our unique share valuation service provides you with information the share prices at which many dividend paying companies are historically undervalued and overvalued. Our proprietary financial strength database provides you with information whether these companies can sustain and increase their dividend payments.
Find out if SSE or National Grid shares are currently historically undervalued, overvalued or trading somewhere in-between’.
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