#87 First Ever HYP Stock Purchase

Having updated my stock screen to v2 to allow me to initially focus on larger companies (£1bn> Market Cap) there were 17 companies which met all of my criteria.

Given my HYP - 'high yield portfolio' is a three letter acronym I've just learnt:) - is currently completely empty and fresh there are no industry sector considerations at all so I've just ordered the 17 who passed the initial screen by yield and am going to look into the top three.

No.1 Yield 7.5%

LON:SSE

SSE PLC

Share price £12.50, SSE have increased their dividend for 17 straight years. They didn't appear in my v1 screen because their Div Cover is 1.3 (I was searching for 1.5>) and their Payout Ration is 70 (I was looking for <60).

Given that the yield is very enticing, their PE ratio is 9.28 - half of the 18 I've set as the minimum - this is looking very enticing. My concerns over the lower div cover and higher payout ratio are certainly lessened by the 17 years of div growth.

Being one of the largest caps on the FTSE100 and in a defensive position it seems this stock is a staple for most HYPs.

The negatives for this stock appear to be around potential political interference with concerns about the impact of a price cap on variable energy deals. The div growth hasn't exactly been giant either rising just over 2% per year.

Summary, when I set out to begin investing in a HYP, I imagined it would focus on companies such as this. Big, settled companies churning out a regular profit with a long history of raising dividends. I understand the concerns about the political interference but given I'm looking to be in this for the long whole I am generally looking to avoid making decisions which frankly I know nothing about and can't be quantified by myself currently. In short, I'm happy to have this company as my opening stock added to my newly formed portfolio.

No.2 Yield 7.2%

LON:CRST

Crest Nicholson Holdings PLC

Share price £4.86. The Div Cover (2.2), Payout Ratio (54%) and PE Ratio (7.55) are all strong plus the EPS has 5 years of strong growth.

The negative, that currently holds me off, is the fact that from 2006 to 2012 there were zero dividends. I'm looking for companies which have increased dividends but would consider one where for certain reasons the div was cut or held at previous value. Without investigating any further I'd assume that the reason for this was due to the economic crisis and it shows that when things take a downturn the div is one of the things that are cut. I may be wrong and will investigate this further in future but for now I'll rule it out in favour of SSE.

No.3 Yield 6.7%

LON:LGEN

Legal & General Group Plc

Share price £2.61

8 years CADI (continuous annual dividend increases), good PE Ratio (10.06), Div Cover (1.5) and Payout Ratio (67%).

The interesting comparison here with the above CRST is that in 2008 and 2009 there was obviously some issue which resulted in the dividend being affected. Again one would presume related to the crisis. However, what I like here is that the Div was only cut and continued to be paid, rather than completely turned off.

Conclusion.

I am happy to add SSE as the first stock in my HYP, after purchase costs and stamp duty the expected yield achieved was 7.3%.

This adds £14.19 in expected annual dividends to my HYP.

As writing this I've remembered that a year or two ago I purchased Coca Cola HBC (CCH), which is currently expecting to pay an annual yield against cost price of 2.5% and add a further £1.21 to my expected annual dividend.

So, my HYP expected annual dividend is currently £15.40.

Looking forward to building on this!

#86 Stock Screen v2

So, I was all set to purchase my first stock to go into my dividend growth fund when I realised that I hadn't placed a limit on the size of the company.

My desire is to build a portfolio of 15-20 high yielding stocks but as I'm looking to reduce risk my current position is size (market cap) is important.

Here's my stock screen v2.

• Yield 4%>
• Market Cap £1bn >
• Div cover 1.2> 
• I've reduced this from 1.5 as the generally accepted level varies upon industry. This will then require further review per stock against industry comparisons.
• Years increased Div 5>
• I've reduced this from 10 to 5. Only because it seemed a limiting factor. I will still favour longer periods but this is now the minimum to enter the short-list.
• Payout Ratio <80%
• Upped the maximum threshold from 60% to 80%. Again as per Div Cover this varies by industry. so will warrant further examination. I don't feel comfortable with 80+ no matter the industry though currently.
• PE Ratio <18
• Have upped this from 15 to 18. Currently it's the lowest priority of the factors.

Applying this screen to my list has returned about a dozen stocks. I'll whittle this down to a short list of 3 and look to purchase one on the 1st of March. (Aim is to purchase a new stock on the 1st of each month until I've got a portfolio of 15> to spread the risk.

#85 First Dividend Stock Watch List & Purchase

So having settled on v1 of my stock screen I've created a google doc containing

1. all the FTSE100 incumbents 
2. plus the Dividend Champions (25+ years of unbroken increasing dividends) 
3. and Contenders (10-24 years of continual dividend growth) from DividendChampionsUK 

Here's the 3 companies which as of - 21st Feb 2018 - meet all 5 of my criteria.

At this stage it seems the norm to include a disclaimer that if you hadn't noticed yourself I am not a professional and this is not advice you should follow.

LON:BMY

Bloomsbury Publishing Plc

Share price £1.68

In the Media sector it's a publisher of "works of originality and excellence" apparently, basically a book publisher famously of Harry Potter it seems. It looks like they are attempting to find growth in the academic publishing arena. 

The smallest market cap (£127million) of the 3 contenders that I'm reviewing.

The smallest yield of the three @ 4.2% but the longest unbroken period of increasing dividend payments (18 years).  The div cover (2) and payout ratio (59) give no reason on there own to doubt this continues.

It does have the lowest (0.12) earnings per share (EPS) and the highest (14.56) price to earnings (PE ratio)

The dividend has increased by an average of 6.25% per annum over 10 years and 5.2% over the previous 5. 

At the current share price I would need to buy 24 shares at a cost of £40.03 to purchase 1 new share each year with the current dividend.

LON:EDIN

Edinburgh Investment Trust

Share price £6.42

An investment trust aimed at "investing in the UKs largest companies". Obviously in the Investment Trust sector. The largest market cap (£1.3bn) of the three today and the only member of the FTSE, its in the FTSE250 the other two are in neither. 

4.4% yield is in the middle of the three, has the highest div cover (3) and the lowest payout ratio (50). 

13 years of non broken increased dividend payments. The average div annual increase of 10 years is 2.98% and over 5 years is 3.18.

To purchase 1 new share with the annual dividend I'd need to own 23 shares at a cost of £147.37.

LON:PAY

Paypoint plc

Share price £8.24

The final contender for my first dividend stock review is Paypoint (PAY). Their main business a "payments platform spanning digital, voice, cards and cash" as well as ATM machines. They are in the Support Sector.

Market cap of £558million.

The highest yield of the three by some distance (6.2%). The div cover is 1.5, the minimum for my screen v1, but they have increased dividends for the last 13 years, have the lowest P/E ratio (9.42) and a payout ratio of 59.

Over the last 10 years they have increased dividends by on average 11.88%. Significantly higher than the previous two companies I have reviewed. Over 5 years this drops to 9.52% but still much higher.

To purchase 1 new share with the annual dividend I'd need to own 16 shares at a cost of £133.13.

Conclusion

Well that was fun. I loved diving in an learning about these random companies that I would never had come across at all normally. Being so new to this world I find it amazing how much data and information is publicly and freely available on all of these business.

So where am I going to put my money?

Part of me thinks this should be straight forward. I have a stock screen, that throws up companies that currently match all 5 of my criteria then I should just pick the highest yield. Which in this case is PAY and also has the highest average annual dividend % growth over both 5 and 10 years and is also the best value judging by the PE ratio.

What has put a spanner in the works is that I actually hadn't realised that PAY, and also BMY, are not actually in the FTSE350. My assumption was that I would be investing in large cap global enterprises predominantly on the FTSE100.

I'm also slightly perturbed that my screen returned so few companies. It's good to focus on quality but I'm going to need to widen the net slightly I believe.

So, next step is to create v2 of my stock screen and re-evaluate.

#84 Stock Screener

The first step on my road to dividend investing is to decide on how I want to screen for stocks. What fields and criteria will I use to filter for the companies that I want to invest in.

As I'm new to this I'm expecting to learn and adapt over time, but here's my starter for 10 which I'll use when I purchase my first 'Dividend Investing' share.

1. Yield. 4%>
• A fairly self explanatory criteria. I've settled (randomly picked) 4%> as my initial target. Primarily because it's slightly higher than current inflation. 
• In the future I can see this having to adapt to different industries, or increase/decrease depending on other factors. But for now I thought I'd just keep it nice and simple.
2. Dividend cover. 1.5>
• "the ratio of a companies net profits to the total sum allotted to dividends"
• From my reading I feel this could be an important indicator that a company can continue to pay a dividend even in a downturn in business generally. Here I'm settled on 1.5> which is slightly higher than a lot of the recommendations I've read online, but I figure if you start high as my understanding and tolerance moves forward this could be adapted. 
3. Years increased dividend. 10>
• I'm looking for companies which have not only paid dividends but that have consistently and over a decent period of years increased those dividends. 
• I picked 10 years as that's just before the 2008 downturn, so I figure if a company continued through that period then.... should be ok right?!
4. Price per earnings ratio. <15
• Something I hadn't heard off before I started looking at potential criteria. The premise being that this ratio shows the price an investor is paying for each £1 of a companies profit and often used as a tool to identify potentially undervalued companies. 
• I looked at the historical average of the FTSE100 and took the 15 from there.
5. Payout ratio. <60%
• Again something I wasn't aware off but makes alot of sense. This is the proportion of profit that a company is paying out in dividends. My assumption being that the lower the % the more headroom there is to increase dividends in the future.
• I settled on <60% to start with but  in time this one I'll look to the general market and industries as this seems like it could have more room to fluctuate. Ie certain companies may have higher ratios but this is planned and repeatable.

Then the final thing I considered for my stock screener was what the inter relationships could be within these 5 criteria which could allow circumstances whereby a stock to adhere to them all. I settled on these 3 initially but, again, I'm looking to learn here going forward.

• If 'years increased dividend' is very high could that negate the importance of the 'dividend cover'? The company has already proved itself and the premise behind the cover was to give an indication that the dividends continue.
• If a company ticks all boxes expect for the PE ratio, does that matter? Ie if the PE ratio is used to identify if a stock is overvalued but the yield is still good enough even then, does it matter the value as long as it stacks up in the long term? 
• and finally, if the 'dividend cover' and 'years increased dividend' are suitable does the Payout Ratio matter? This is one I'll be looking into as it's likely the stock within it's specific environment is able to continue to pay and grow dividends even though this is using up the majority of it's profits. I expect there will be mature companies which will demonstrate this.

Do I expect to get rich quick? No. Do I expect to learn alot and make some money whilst doing so? Yes. So, let the fun commence.

#83 Starting to be a dividend investor

I have read and am a firm believer in global index funds and trackers. I invest £100 per month into this and will continue to do so.

I believe we can afford to invest £300 per month. I see the Global Fund as the bread and butter for my wealth accumulation, it's got a decent head start. I'll then try out using £100 per month to begin a dividend invested portfolio. I think partly because I find it interesting and have already learnt quite a lot just from reading and following blogs.

I will build up my cash reserves with the remaining £100+ and any extra I am able to scrounge together.

This isn't going to make a giant wealth building snowball any time soon but it's a sensible start on the journey and the figures can be altered and updated as and when in the future.

So, for my dividend investing journey, where do I go from here? Well here's my plan.

1. Stock screener. I want to have a series of attributes / data points for me to identify potential business. There's a lot of info out there, I favour something nice and simple like the Dividend Diplomats use over in the States. I see this as a starting point to identify potential businesses and likely as I learn this'll adapt and change over time.
2. Updating stock watch in Google Docs. I want to have an excel in Google Docs which populates all the fields I'm looking to screen stocks for. I've found that =GOOGLEFINANCE does a pretty good job of accounting for most fields. I'm then using Dividend Max for annual dividend info and a few other criteria.
3. Invest. I really want to learn on-the-job as it were so unlike the BTL approach I plan to get stuck in at the earliest opportunity - 02 March - and begin learning.

I'm pretty excited about this going forward and have largely got over the BTL disappointment for now -  I feel for me it was the right decision at the right time for the right reasons. 

Maybe I'm just excited as I like a spreadsheet though, who knows :) 

#82 More looking into BTL... taking a step back

So, having reviewed my investment route options and deciding that buy-to-let was my preferred, I dug into the detail further and started to really look at a) the finances and b) what else is involved.

As I've learnt more about this particular investment type has led me to the conclusion that I was jumping in the deep end because I have always had this rosy view of BTL - I was brought up on "property never loses" etc etc. However, the more I have uncovered - even though I still find it appealing it's made me think that this may need to go on hold for a while.

What has changed my mind over the last few weeks given I was so for it as recently as my last post at the start of this month!

1. Government policy. I approached this initially as 'the change has been made re: taxation on private BTL, is it still feasable?'. Over the last couple of weeks it's dawned on me that actually there is a pretty significant risk that Governmental policy continues to go against private BTL. Yes, I don't know alot about these things :) but the prevailing mood does clearly seem to be that helping the young get on the property ladder is more important than many other issues. So it may be that there are no further negative changes, but for me it was something nagging on me
2. I kept coming back to the leveraged borrowing I was going to require. During the past couple of years I've become anti-debt and anit-borrowing. Even though this would be an investment in theory it was still perhaps a step slightly too far currently. 
3. Now this is probably scaremongering. But, following on from reason #2, I happened to be reading alot about how it can take up to 6-10 months to have tenants evicted who aren't paying their rent. In the meantime the landlord shoulders the cost. I don;t even know if those costs are recouped? My specific concern here was that due to our financial situation we'd be looking to buy at the bottom end of the market, which just means we're more likely to have to deal with someone who could potentially be a nightmare.

I still see myself getting into this market in the future - in the same way as I see myself being a contractor in time - just that I think at the moment there are perhaps more suitable things to pursue.

This is disappointing to realise and admit, but I think it's important to take a step back and think about why you are doing something before just jumping in. In this case, I have to eat some humble pie think we're not ready yet but by doing that avoid potential pain in the future.

So where does that leave us?

Going back to my planting a seed thoughts... the #2 approach which I was interested in - but favoured BTL - was dividend investing.

My concerns about dividend are still relevant - so I've been looking into this further. The big plus point is that the entry cost barrier is so low that I can start and begin learning immediately rather than only research and then sace for years.

So... I will start looking into dividend investing from here and park the BTL dream until either I'm happy with the risks or have sufficient capital to significantly minimize those risks.

#81 Buy to let annual finance breakdown

I mentioned this to Weenie in the comments on a previous post but it really made realise how re-invigorated I am now I've got the outlines of a plan to move into buy-to-let. Yes we may be a couple of years away realistically but having an aim, a plan and a realistic chance of achieving it are massive motivators. I had this at the beginning of this blog when I was £25k in debt and used that as the motivation to turn things around and get on out of that debt and start creating wealth. However, as I've got within touching distance of being debt free I really lost my way and needed to re-focus and get back that drive and determination.

So, to make sure I'm not being overly optimistic just because I want to feel like I can achieve the BTL plan earlier I've been running 3 sets of numbers recently.

1. How much does it cost to buy a BTL property. I'm pretty happy with the figures behind this as we've bought 3 (as main residences which we've then sold) in the past and have experience. The only big variable here is the cost of the actual property and therefore the deposit needed to save up. I'm basing my sums on a purchase price of £125k a 75% LTV and therfore a deposit needed of £32k.

2. How quickly can we expect to save this up.

and 3. How would the costs of BTL vs the income stack up for me.

So regarding no.3.

From scouring the internet and my own experience of owning a house here's the calculations I've been working off...

• Purchase price of £125k. 
• Mortgage of £93k @ 3.6% for 25 years. 
• Monthly rent of £650.

	£	Notes
Income
Annual Rental	$7,150.00	Assume 1 month per annum is vacant.
Out-goings
Mortgage interest only	-$3,348.00
Repairs	-$376.00	average costs from online
Cleaning	$0.00	Do cleaning myself.
Buildings Insurance	-$150.00	average costs from online
Letting agency manage the property	-$975.00	12.5% of rent x 12 months
Letting agency finder fees property	-$230.00	average costs from online
Letting agency market the property	-$177.00	average costs from online
Refurb and redec	-$392.00	average costs from online
Service charge	-$150.00	average costs from online
Tax on turnover	$256.88	19% of (Annual rent minus interest and associated costs)
Total Balance per annum	$1,095.12

Before costs are taken into account it's a yield (monthly rent*12 / purchase price) = 6.24%

It'll be interesting to see once I start talking to more people what additional costs should be added in here or whether the costs are too high / low.

From what I know are present though I think this is probably about right. I could easily see a scenario where the repairs, refurb and service costs were significantly lower. You'd also like to hope that I wouldn't be paying the Letting Agent finders fee and marketing fee every year - given that the average UK tenancy is about 2 years now.

I'll also have to give alot of thought to the letting Agency management fee also. It's a very sizable amount  - which the removal of would almost double the annual expected. However, especially with this going to be my first time it'll probably be pretty valuable to have them on board helping me through the process. One to consider going forward.

All that being said it seems pretty decent to me. Just over £1k in expected profit on the rental.

So I've continued to run a few more scenarios and see how they affect the annual return.

1. Increase vacancy from 1 month to 2.
• Annual profit drops to £568
2. Reduce rent by 10%
• Annual profit drops to £515
3. Increase mortgage rate from 3.6% to 4%
• Annual profit drop to £793
4. Increase mortgage rate from 3.6% to 5%
• Annual profit drops to £45
5. Increase mortgage rate from 3.6% to 6%
1. Annual profit becomes a loss of -£712

And to dispel all the negativity

1. assume zero vacancy. Zero costs for repairs, refurb, Agency finding fee, Agency marketing fees.
1. Annual profit increases to £2,500 

So, I think I'm getting a better handle on the costs, from trawling online and hope to have captured most - though obviously there are two major risks which a fund would need to be set-up to cater in the event off... not finding a tenant and something going seriously wrong with the property.

Conclusion is that there is nothing I've found here to stop me wanting to push towards this as my no.1 goal.

Next things to look at are... how long will it take us to save up enough and also interestingly if it's going to take a couple of years (it is almost certainly) then what do I do with the money in the meantime - given I'm expecting to require the money in the next couple of years it would seem too short a period for the stock market which is typically aimed at a longer planning financial horizon.

#80 January Finances

Shorter update this month as with the car loan we've taken out - but not actually used - to purchase a car with the finances look a bit odd.

In short we again had a pretty poor month spending £486.32 more than we earnt. This was due to a few unexpected outgoings - our washing machine broke (£300), nursery costs (£100), failed trip to buy a car (£200).

The first half of the year is an expensive one for us with 4 family birthdays and a few other occasions so we're just going to have to try hard to keep the costs down.

Once the car is sorted and finances are static I'll be re-evaluating what I focus on each month, but likely I will simplify things to

1. how much did we save/overspend
2. where does that put us on our trajectory to being able to afford a BTL property.