ADrunkenMarcus' 'Dividend Growth Portfolio'.

[Dod101]

Source. https://www.hl.co.uk/funds/fund-discoun ... ion/charts
Total Return over the last 5 years.



What were you thinking about Victrex? I was surprised to see RSW poor 5 year returns, but where do the founders go?

5 years is a reasonable timeframe to see which way the wind is blowing.

Over the last 5 years, even CTY has trumped SHEL. ( of course, if you bought during max Covid it would have been a different story).

You know, with the benefit of hindsight, I thought to myself that I should have focused more on Spirax and Diploma. Then I realised it was not solely hindsight, because I topped up BOTH in 2018!

Note how strong Spirax's return is despite the share price dropping about 31% from the late 2021 'bubble'-style peak to today's 11900p. (In late 2021, the share price was up 421% on my 2015 purchase and the CAGR stood in the thirties.) It has always looked overvalued in the last decade or so.

Rotork has underperformed my portfolio and has been going through a 'recovery' type situation IMHO, but strengthening recently. It was much weaker in 2016 than 2018, and that was when I bought much of my holding (2015-16).

Victrex's five year return is pretty poor but does reflect it was flying rather high in 2018. My dilemma is whether to stick with it until when (or if) the mega programmes start paying off, or switch into Bioventix.

Renishaw's performance will look shocking in a few years' time. It surged a while back on talk the founders were selling their controlling interest. Then it fell sharply when they made the correct long term decision for the business!

As an aside, the portfolio is up 3% as I write. Diploma up over 6% today, Spirax over 5%, Renishaw over 5% and Victrex over 3% and Rotork over 3%. My best performer today is Evolution, up 9.5%. Mid caps seem to be doing well (although Spirax outgrew the FTSE 250!)

Best wishes


Mark.

I thought this was a Dividend Growth portfolio? You seem to be concentrating on the share prices. If it is a dividend growth portfolio it would seem reasonable to produce numbers for dividend growth over the last five years or so and possibly the yields in each of these five years as well.

Just as a matter of interest, my almost entirely domestic, mostly income, portfolio is up over 10% in the month of January.

Dod

[ADrunkenMarcus]

I thought this was a Dividend Growth portfolio? You seem to be concentrating on the share prices.

My prime focus is on the business performance and the growing dividends that result from it. I posted data for 2000-22 reflecting that growth in dividends - maybe you missed it? (Share price performance tends to follow and the combination / total return is what Monabri kindly shared with us, which is what I was responding to).

I can look the numbers up for dividend growth on an annual basis, however I know from memory that Spirax has compounded its dividend 11% a year since about 1965 (and in recent years too) and Diploma has compounded its dividend about 14% a year since I bought in 2012. All the companies listed have grown their dividends very substantially.

Best wishes


Mark.

[ADrunkenMarcus]

Rotork announced its annual results for 2022, showing an operating margin at over 19% and a ROCE at over 20% (their own ROCE definition is at 31%). It is one of those shares that has been somewhat in the doldrums in recent years and management have implemented various initiatives to improve growth and efficiency, however it continued with delivering (slower) dividend growth through the pandemic. It's now announced a 5% increase in the full year dividend for 2022 (dividend cover strengthened from 1.8 to 1.9 times); increases are forecast at 6% in 2023 and 8% in 2024, supported by stronger free cash flow.

The increases is below inflation for 2022, but hopefully real terms dividend growth will have resumed by 2024. If we're lucky, 2023 might even match inflation if it keeps falling. At least with some level of nominal increases then there is less of a deficit in real terms to claw back in the future!

Best wishes


Mark.

[ADrunkenMarcus]

Rotork announced its annual results for 2022, showing an operating margin at over 19% and a ROCE at over 20% (their own ROCE definition is at 31%). It is one of those shares that has been somewhat in the doldrums in recent years and management have implemented various initiatives to improve growth and efficiency, however it continued with delivering (slower) dividend growth through the pandemic. It's now announced a 5% increase in the full year dividend for 2022 (dividend cover strengthened from 1.8 to 1.9 times); increases are forecast at 6% in 2023 and 8% in 2024, supported by stronger free cash flow.

The increases is below inflation for 2022, but hopefully real terms dividend growth will have resumed by 2024. If we're lucky, 2023 might even match inflation if it keeps falling. At least with some level of nominal increases then there is less of a deficit in real terms to claw back in the future!

Best wishes


Mark.

[ADrunkenMarcus]

Happy to see a further 5% dividend increase from one of my holdings, this time Reckitt (RKT) - dividend growth resumed in 2022 after three years of freeze.

Best wishes


Mark.

[ADrunkenMarcus]

Spirax Sarco Engineering reported today, including a 12% increase in the 2022 dividend. The consensus forecast was for a 9% increase and this company always seems to be underestimated by analysts. Forecasts for 2023 and 2024 also showed a 9% dividend increase in each year, but I suspect they might turn out to be conservative. Spirax's record is now a 55-year streak of paying dividends with an 11% CAGR over that period (although the dividend was maintained in some years...I think back in the 1980s).

Domino's Pizza Group raised its dividend 2%.

Best wishes


Mark.

[simoan]

Diploma have announced an acquisition, trading update and placing after the close. There is also a retail offer through Primary Bid that should be available via any decent broker platform (I have applied within my AJ Bell SIPP). However, you will need to get your skates on as it closes at 6:30pm i.e. 40 minutes time. I have applied for a bunch but I assume it will be oversubscribed and I will be scaled back.

See:
https://www.investegate.co.uk/diploma-p ... 45012723T/
https://www.investegate.co.uk/diploma-p ... 46012725T/
https://www.investegate.co.uk/diploma-p ... 47012727T/

All the best, Si

[doug2500]

I saw that but have missed the deadline.

Despite browsing both Primarybid's website and HL's I am none the wiser about how I could have applied, apart from via the app in a taxed account. Really poor communication IMO

I'm annoyed, but it's already a large position for me so I probably shouldn't have invested more anyway, and it's not exactly cheap. I doubt it'll be much of a discount.

[ADrunkenMarcus]

Thanks for the head's up.

I remember they did a retail offer much the same way in September 2020, prior to Windy City Wire. Then, too, I missed it because there was so little time! I would prefer they involved existing investors in some other way. However, Windy City Wire has performed so well and we saw 42% and 26% dividend increases for 2021 and 2022. If the new acquisition(s) achieve similar, I will be very pleased.

Best wishes


Mark.

[ADrunkenMarcus]

Placing came out at 2525p (about a 2.1% dividend yield on the last year’s dividend).

Earnings accretion in year one sounds good. Consensus forecasts were already for 6%, 6% and 7% dividend increases in 2023, 2024 and 2025 respectively. Forecasts for Diploma tend to be unduly pessimistic!

Best wishes


Mark

[simoan]

I saw that but have missed the deadline.

Despite browsing both Primarybid's website and HL's I am none the wiser about how I could have applied, apart from via the app in a taxed account. Really poor communication IMO

I'm annoyed, but it's already a large position for me so I probably shouldn't have invested more anyway, and it's not exactly cheap. I doubt it'll be much of a discount.

I stopped using Primary Bid because it was just too difficult. I took part in a couple of placings with them when you could use their website but the app just looked rubbish to me and so I quickly uninstalled it. Since most of my investable funds are in SIPPs and ISAs using Primary Bid in taxed accounts wasn't really much use for me anyway - just about better than nothing. However, using AJ Bell for retail offers seems to work well. I took part in the H&T placing within my SIPP last year and it was all quite seamless. Hopefully this placing will be the same.

With regard to valuation... Diploma is a quality company and never looks cheap. I missed the last placing in 2020 and thought it looked expensive then - price of that placing was £17.11. Last time I bought in the market the share price was £14.30 which is the most I'd paid previously and I winced at the rating then too! I think it's much better value currently with the forward PER being nearer 20 than 30. I was looking to top-up anyway and I will probably buy some more in due course. I guess I should mention the dividend given the subject of this thread, but frankly, who cares when you're buying one of the great FTSE compounders which is still cheaper than Halma, the other great buy and build.

All the best, Si

[ADrunkenMarcus]

With regard to valuation... Diploma is a quality company and never looks cheap. I missed the last placing in 2020 and thought it looked expensive then - price of that placing was £17.11. Last time I bought in the market the share price was £14.30 which is the most I'd paid previously and I winced at the rating then too!

Oddly enough, I think my last top up in 2018 was about £14 or just under (first purchase in 2012 was under £5). It looked reasonable value in 2012 but I was more wary in 2018 - without cause, as it turned out!

I don't think Diploma forecasts have been updated as yet, but I do have 'consensus estimates' available for dividend per share for my various holdings. Based on those estimates (we'll see how accurate these guesses were in hindsight!) I am looking for the following percentage increases each year:



On the basis of the unweighed average, dividend per share growth should rise from 6% in 2023 to 7% in 2024 and 9% in 2025. That will not necessarily be the same as the portfolio because investment trusts are not included. I suspect better, but still modest, dividend growth will continue from Murray International and, hopefully, stronger growth from BlackRock Smaller Companies.

Best wishes


Mark.

[simoan]

Victrex's five year return is pretty poor but does reflect it was flying rather high in 2018. My dilemma is whether to stick with it until when (or if) the mega programmes start paying off, or switch into Bioventix.

Hi Mark,

Not sure what you decided to do with your Victrex holding but a nice set of interims from Bioventix this morning with an inflation busting 20% increase in the half-year dividend: https://www.investegate.co.uk/bioventix ... 00042282U/

Surprisingly bullish sounding commentary from a company that's normally very sober and restrained in its outlook.
All the best, Si

[ADrunkenMarcus]

Victrex's five year return is pretty poor but does reflect it was flying rather high in 2018. My dilemma is whether to stick with it until when (or if) the mega programmes start paying off, or switch into Bioventix.

Hi Mark,

Not sure what you decided to do with your Victrex holding but a nice set of interims from Bioventix this morning with an inflation busting 20% increase in the half-year dividend: https://www.investegate.co.uk/bioventix ... 00042282U/

Thanks Si. I knew results were due soon but had missed that.

I had been putting it off until Bioventix announced their interims and the dividend for April, to gauge the rate of increase and how they were doing generally. A 20% increase is more than forecast. I can switch from Victrex into Bioventix and there will be no penalty in terms of the current dividend, plus there is potential for greater growth in future and also specials.

The case for Victrex is really not how it is today but how the mega programmes might pay off in the future (if they do). For Bioventix, it seems more apparent in the near term and on the key metrics - ROCE, CROIC and operating margin - it is a much higher quality business on those measures and with superior growth. Bioventix is a much smaller outfit, to say the least, and there is 'key person' risk: however I think to a degree much of their revenue would keep coming in regardless! There is something about R&D/taxation which needs exploring as to the likely effects.

Victrex has paid out some generous special dividends since I bought in 2015 but the ordinary dividend has not really been growing that strongly. Not surprising given that profits have not been growing that well and that margins have been under pressure. I have other holdings such as Diploma, Spirax, Domino's Pizza, AstraZeneca and Diageo which have grown their ordinary dividend per share in high single digit or low double digit rates over sustained periods of time. My nirvana for an individual share would be one which grows the dividend at 10% or more (hard to find, but there are such companies about - as Valuemargin could have attested).

So I'm giving serious thought to switching it. I don't like to over-trade, but OTOH my ONLY transaction so far this year was to switch PayPal into topping up Evolution so I do not think I'm overdoing it!

Best wishes


Mark.

[simoan]

Hi Mark,

Not sure what you decided to do with your Victrex holding but a nice set of interims from Bioventix this morning with an inflation busting 20% increase in the half-year dividend: https://www.investegate.co.uk/bioventix ... 00042282U/

Thanks Si. I knew results were due soon but had missed that.

I had been putting it off until Bioventix announced their interims and the dividend for April, to gauge the rate of increase and how they were doing generally. A 20% increase is more than forecast. I can switch from Victrex into Bioventix and there will be no penalty in terms of the current dividend, plus there is potential for greater growth in future and also specials.

Easy to miss! The trouble with Bioventix is that they rarely announce the date for results announcements, although the interims have historically been released last week of March.

The case for Victrex is really not how it is today but how the mega programmes might pay off in the future (if they do). For Bioventix, it seems more apparent in the near term and on the key metrics - ROCE, CROIC and operating margin - it is a much higher quality business on those measures and with superior growth. Bioventix is a much smaller outfit, to say the least, and there is 'key person' risk: however I think to a degree much of their revenue would keep coming in regardless! There is something about R&D/taxation which needs exploring as to the likely effects.

Victrex has paid out some generous special dividends since I bought in 2015 but the ordinary dividend has not really been growing that strongly. Not surprising given that profits have not been growing that well and that margins have been under pressure. I have other holdings such as Diploma, Spirax, Domino's Pizza, AstraZeneca and Diageo which have grown their ordinary dividend per share in high single digit or low double digit rates over sustained periods of time. My nirvana for an individual share would be one which grows the dividend at 10% or more (hard to find, but there are such companies about - as Valuemargin could have attested).

So I'm giving serious thought to switching it. I don't like to over-trade, but OTOH my ONLY transaction so far this year was to switch PayPal into topping up Evolution so I do not think I'm overdoing it!

Best wishes
Mark.

FWIW I used to own Victrex but became disillusioned and sold following the Q1 trading update in Feb 2019. I really wasn't convinced by the management team, and with the main product becoming commoditised, growth was really dependent on the mega programs. However they just seemed a bit too much like jam tomorrow to me at the time. Hopefully, the investment in these programs will soon pay off. I still watch the company but nothing I have seen in the past 4 years has made me feel like re-investing. Of course, it's still a high quality company with excellent margins and returns on capital but with EPS growth expected to grow by only 1-2% this year it's difficult to get too excited about it. However, with net cash and a solid 3.7% dividend yield there are far worse companies to hold. I just wouldn't expect much in terms of dividend growth this year. It will be interesting to see what the HY results bring in early May.

Re: Paypal. Funny that you sold along with just about everyone else, Terry Smith included. I'm a buyer sub $70 Of course, it doesn't pay a dividend...

All the best, Si

[ADrunkenMarcus]

FWIW I used to own Victrex but became disillusioned and sold following the Q1 trading update in Feb 2019. I really wasn't convinced by the management team, and with the main product becoming commoditised, growth was really dependent on the mega programs. However they just seemed a bit too much like jam tomorrow to me at the time. Hopefully, the investment in these programs will soon pay off. I still watch the company but nothing I have seen in the past 4 years has made me feel like re-investing. Of course, it's still a high quality company with excellent margins and returns on capital but with EPS growth expected to grow by only 1-2% this year it's difficult to get too excited about it. However, with net cash and a solid 3.7% dividend yield there are far worse companies to hold. I just wouldn't expect much in terms of dividend growth this year. It will be interesting to see what the HY results bring in early May.

Re: Paypal. Funny that you sold along with just about everyone else, Terry Smith included. I'm a buyer sub $70 Of course, it doesn't pay a dividend...Si

You know, I bought Victrex back in October 2015 and topped up at much cheaper prices early in 2016. Late in 2018, I recall it had more than doubled in capital terms and then we saw a bumper special dividend for 2018 announced in February 2019. In hindsight, selling then would have been a good idea! Nonetheless I did make a profit so it was not a disaster by any means.

FWIW, I made the switch from Victrex into Bioventix. So Victrex will probably double this year...

Re.: PayPal, it was just me doing what we private investors tend to do: buy high, sell low.

Best wishes


Mark.

[ADrunkenMarcus]

Good news this afternoon from Blackrock Smaller Companies, with the final dividend per share increased from 22p to 25.5p per share (up 15.9%) and a double digit gain for the annual dividend. It seems an odd time to release their annual results and they were somewhat later this year, releasing them in May instead of late April. A good example of an investment trust which has demonstrated strong dividend growth over time (12% CAGR since 2003) and what I am looking for.

I'll likely have my annual review for 2022-23 ready by end May 2023.

Best wishes


Mark.

[monabri]

Good news this afternoon from Blackrock Smaller Companies, with the final dividend per share increased from 22p to 25.5p per share (up 15.9%) and a double digit gain for the annual dividend. It seems an odd time to release their annual results and they were somewhat later this year, releasing them in May instead of late April. A good example of an investment trust which has demonstrated strong dividend growth over time (12% CAGR since 2003) and what I am looking for.

I'll likely have my annual review for 2022-23 ready by end May 2023.

Best wishes


Mark.

Nice , thanks for that. Not a big holding of BRSC on my part but it all adds up!


https://www.blackrock.com/uk/solutions/ ... 9E68A58D0B

[ADrunkenMarcus]

My review for 2022-23 (1 May 2022 to 30 April 2023).

TRADES

As noted above, PayPal was sold and Evolution topped up; Victrex was sold and a replacement holding initiated in Bioventix. I did feel bad for tinkering but both PayPal and Victrex are down substantially on my recent sale prices!


CURRENT HOLDINGS (% of PORTFOLIO)



TOTAL RETURN – INDEX


Performance was more pleasing this year. The portfolio beat all indexes except for the FTSE 100 and, pleasingly, did much to close the gap which had opened up with the FTSE All World ($). However, the total return of 7.9 percent compares with inflation of 8.7 percent and so it did not quite keep pace with rising prices. It largely maintained the real value of capital, but not entirely. (Since inception at 30 April 2016, the portfolio has achieved an annual real total return of 5.4 percent CAGR.)


TOTAL RETURN – INDIVIDUAL HOLDINGS

Evolution led the way, followed by DP Poland, Unilever and Kone. Unilever and Kone have both been challenged in terms of operating margin performance and their share price performance belies the business’s results.




INCOME:

The ordinary dividend income per unit came to 3.18 pence with no special dividends. The ordinary dividend per unit grew 3.7 per cent year on year, lagging inflation of 8.7 per cent. I wrote previously about the dilution of the dividend per unit by the increased size of the portfolio and that new capital going into very low dividend yielders.

To date, the portfolio has returned 22.69 per cent of the capital invested in dividends (ordinary and specials).

Dividend changes per share were as follows (uses tax year data, actual dividends received in Sterling):



AstraZeneca has returned to dividend growth, aided by currency movements; Blackrock Smaller Companies is showing a return to form with dividend growth strengthening; Diploma did another huge increase; MasterCard performed well, aided by currency, and Renishaw and Spirax Sarco delivered double digit growth. No dividend cuts were reported: Domino’s Pizza decreased because of timing changes and Kone decreased because there was no special dividend as per last year. Rotork, too, decreased because of timing changes but actually showed ordinary dividend growth.

Again, the stronger growers typically have a lower current dividend yield and make up for a relatively small proportion of the portfolio dividends, so this strong growth is not reflected very well at a portfolio level (i.e. Diploma and MasterCard). Murray International and Unilever account for about 50 per cent of dividend income combined together. I expect sluggish or no dividend growth from either in 2023, so this will constrain dividend growth at a portfolio level.

To date, about 58 per cent of returns came from capital appreciation and 42 per cent from dividends. I would prefer a longer term balance of closer to two-thirds coming from capital and one third from dividends.

RUNNING COSTS

The running costs, based on the portfolio’s capital value at the end of the period, were: annual cost (inc dealing) 0.20% and annual cost (ex dealing) 0.17%. Both are down on the year before and at a new low as the portfolio scales up, which is welcome.

As I said last year: ‘What will the next year bring? Who knows.’

Best wishes


Mark.

[ADrunkenMarcus]

Despite criticising myself to a degree for 'tinkering', I have to say that (short term, at least - not a reliable guide to the long term outcome) I am rather pleased I sold Victrex. The update this morning was not good and it is now down 17-18 percent on what I sold it for, as well as 26 percent on the share price late in 2015 (my first purchased tranche). OTOH, maybe someone will bid for it and my action will look foolish. However, its ordinary dividend (and profits) have not really been growing and thus that is a problem for someone wanting dividend growth!

Best wishes


Mark.