MARS top up

[tjh290633]

More dividends to reinvest have rolled in, so this time Marstons (MARS) has benefitted. About 17% aded at 128.2p this morning. The resulting situation in my top up table is:

Top-up          Income                     Cost                
Rank     EPIC   Rank     EPIC   % Income   Rank   Epic   % Cost
     1   CLLN        1   RDSB      4.69%      1   PSON    4.34%
     2   PSON        2   TW.       4.66%      2   RDSB    4.33%
     3   BP.         3   CPG       4.30%      3   SGRO    4.33%
     4   BT.A        4   MKS       4.24%      4   LLOY    4.30%
     5   WMH         5   SSE       4.24%      5   MARS    4.22%
     6   VOD         6   BP.       4.19%      6   CLLN    4.16%
     7   BLND        7   ADM       3.80%      7   SSE     4.07%
     8   IMB         8   MARS      3.79%      8   AV.     4.07%
     9   BLT         9   CLLN      3.78%      9   MKS     3.91%
    10   LLOY       10   PSON      3.72%     10   BLT     3.83%
    11   MKS        11   LGEN      3.54%     11   LGEN    3.71%
    12   RDSB       12   GSK       3.51%     12   BP.     3.64%

MARS is now about 4% above median holding value, and has risen to just over 4.2% of capital cost, so is ruled out for further top ups. However BP. now falls below 4.2% of income and so becomes eligible again, as would CLLN being below 4.2% of cost. However my gut feel tells me to hold off on CLLN for the time being.

TJH

[Gengulphus]

MARS ... is ruled out for further top ups.

That's rather comprehensive-sounding, but I suspect all it actually means is that it's ruled out for the next top-up, or just possibly two top-ups. Once that top-up or two have happened, the total cost of the portfolio will have risen, and the cost of the MARS holding won't, so in percentage terms it will have dropped - and it takes only a very small drop to take it below 4.2%.

Gengulphus

[pyad]

...MARS is now about 4% above median holding value, and has risen to just over 4.2% of capital cost, so is ruled out for further top ups. However BP. now falls below 4.2% of income and so becomes eligible again, as would CLLN being below 4.2% of cost. However my gut feel tells me to hold off on CLLN for the time being.

TJH

Proportion of original cost for this purpose is the second in my view of the three flaws in your top up method, following our recent discussion on your use of historical dividends and yields. I know you have given your reasons before for using original cost but I don't find them valid.

What in my opinion matters for top ups is the proportion of current portfolio value, specifically those sectors standing below current average value. Those should form the short list for potential top up, regardless of original cost.

[Changeable]

pyad

What in my opinion matters for top ups is the proportion of current portfolio value, specifically those sectors standing below current average value. Those should form the short list for potential top up, regardless of original cost.

pyad, I'm always interested to read what you have to say.... Can you tell us why please?

Changeable

[tjh290633]

MARS ... is ruled out for further top ups.

That's rather comprehensive-sounding, but I suspect all it actually means is that it's ruled out for the next top-up, or just possibly two top-ups. Once that top-up or two have happened, the total cost of the portfolio will have risen, and the cost of the MARS holding won't, so in percentage terms it will have dropped - and it takes only a very small drop to take it below 4.2%.

Gengulphus

Correct. A couple more top-ups and it will become eligible again.

TJH

[tjh290633]

Proportion of original cost for this purpose is the second in my view of the three flaws in your top up method, following our recent discussion on your use of historical dividends and yields. I know you have given your reasons before for using original cost but I don't find them valid.

What in my opinion matters for top ups is the proportion of current portfolio value, specifically those sectors standing below current average value. Those should form the short list for potential top up, regardless of original cost.

So you would propose that, all other factors being similar, you would pour unlimited funds into a share because of its high yield? I've been down that path once and regretted it, which is why I have my rule.

TJH

[blobby]

There is a good quality article on Marston's here:

https://seekingalpha.com/article/4085494-look-pub-operator-marstons-plc

The share price has dropped quite a bit recently to 123 pence and I think the article explains this could be to do with the perceived high level of debt. It now stands on forecast a yield of 6.2% and p/e of 8.6.

I've taken the view that there is a reasonable amount of protection with net assets and it looks like there are some hedges in place in case interest rates soar. It's a good business with a long history and an active management who have achieved over the last few years. I'm also fan of the beer, food and shareholders Privilege Card.