slider img

         

  Watching for Value and Growth Stocks

  •    Focused on the Mid-250 & Small Cap

  •    Fledgling & AIM     

  •    News & Market Information               

  •    Cambridge Companies

 

Dividends

29th June, 2013

In this section of the site, I will be covering a number of differing topics over time.

These will vary from the likes of scams to beware of, (a couple of which are already highlighted) onto my own various methods of assessing a company. There will also be ongoing interviews with Directors from both quoted and private companies, some of which will go to print first in the Cambridge News.

 

Currently, I have two visits lined up for July and both fortunately, are local to Cambridge.

 

For now though, I thought I would just touch upon Dividends and what I tend to look for or steer clear of, when taking a look at a company.

It is understandable that in the current low interest rate environment, investors are going to perhaps warm to those stocks which are providing a decent yield.

After all, if you can pick up five or six per-cent by holding some shares, it ranks pretty well with the current alternatives.

However, it is never that simple as fortunes can change within a company just when you least expect it. To emphasise the point, it could be argued, that while the yield from a dividend can be highly attractive, it can soon be eroded by the share price falling on news of sale delays, or at worst profit warnings coming from a company. To mitigate the possible downside in this area, I find it pays to at the very least check out the level of dividend cover from earnings and trading prospects.

Each investor has his or hers own parameters on which they operate, but from a personal perspective I like to see dividend cover of no less than 1.6x, preferably higher. Too often in the past, I have seen companies opt for maintaining a dividend out of cash resources, at a time when profits have seriously slipped.

And unless there is visibility in relation to an upturn in earnings, this can inevitably lead to further erosion of the share price. I guess the ideal situation is to seek out those stocks which are not only trading profitably, but are generating cash along with maintaining a decent level of growth.

That, as most Investors will know, is no easy task and as things can change very quickly in this game there can be no guarantees.

There are couple of companies that I have covered in my Cambridge News column that are committed to progressive dividend policy’s which have also seen their share prices perform well over the last year.

Amino, the Cambridge based set top box designer and producer has been generating serious cash and now sits on an £18m pile of it.

As it has delivered profits, so too has it commenced dividend payments with Brokers now looking for a 3.5p dividend for this year which is expected to be covered 1.75x yielding circa 4% at the current 88p share price

In the case of Dillistone, a supplier of software products and solutions to the recruitment Industry, although it does not sit on a huge cash pile, it nevertheless is profitable, cash generative and importantly has a debt free balance sheet.  That has enabled the company to pay dividends which also appear adequately covered, with Broker WH Ireland anticipating a 3.7p payment for this year with cover of 1.9x. That, at the current price of 80p would yield around 4.7% which appears to be a decent enough return.

Again, like Amino, the most recent news appears to imply all remains on track here, despite the board understandably remaining cautious.

Of course, there are numerous companies out there offering as good, if not better yields than the two companies I have looked at.

Equally though, I feel there are others that may on the surface appear attractive that could be in danger of cutting its dividend, therefore looks can be deceiving.

I tend to view Companies not only on the basis of the dividend and level of cover, but a whole host of other aspects that enable to me to form an opinion on a stock.

 Both Amino and Dillistone are quoted on the more lightly regulated AIM market which is worth mentioning.

Although I penned pieces on both of these Companies, I only bought shares in Amino, moving in at at 56p which I  continue to hold.

There are links to both articles below, which although largely historic may be of interest.                

Dillistone -April 2012

http://www.cambridge-news.co.uk/Business/Private-Punter/Dillstone-can-deliver-if-you-seek-solid-dividends-06112012.htm

Amino- October 2012

http://www.cambridge-news.co.uk/Business/Private-Punter/Future-looks-bright-for-Amino-as-worldwide-sales-surge-for-its-set-top-boxes-16102012.htm

News

THIS MORNING 2 September 2013   NORCROS-Having been tipped in the main press over the weekend Norcros has this morning moved ahead of its previous...

Behind The Scenes

INTERVIEW WITH RICHARD GREEN Later this month I am off to visit  Ubisense  and Interview the Chief Executive Richard Green. This will be...

Companies

AIREA 5 September 2013   I thought now might be a reasonable time to have a quick look at flooring specialist AIREA, not least as the share price...

Cambridge news

real logo