#113 Portfolio Addition

With the addition of NXT last time round my portfolio has increased to 12 companies.

ABF - BATS - BNZL - BWY - CCH - DGE - JMAT - LGEN - MNDI - NXT - SSE - ULVR

After some shortlist reviewing today I am looking at Moneysupermarket.com (MONY).

Well known comparison and insurance site. Within a sector (Media) that I currently do not have exposure too.

With a current share price of 315p, currently sitting squarely in the middle of the 52 week high (419) and the 52 week low (210).

Market Cap of £1.7bn puts it in the top quarter of the FTSE250.






Dividends

Current potential yield is 3.72%
Continuous dividend increases for the last 10 years. Averaging 8% yoy growth over the last five years.
Div cover of 1.55 currently.

Financials

1. Are Earnings Per Share (EPS) consistently growing? YOY EPS growth 5+ year
1. Yes they've grown YOY for the last ten years. 👍
2. Are they paying out too much on dividends? Payout Ratio <60%
1. The average payout ratio for the last 5 years is 69%. This is trending down though.
3. Is the ratio of share price to earnings sufficiently low enough? PE ratio <18
1. 16.81 👍
4. Is the Gross and Net Operating profit high enough? Gross 20%> Net 5%>
1. 👍Gross average is above 70%, Net above 30%
5. Debt levels? Current Ratio >1 & Debt:Equity <1
1. 1.32 and 0.15 respectively 👍

My only concern here is the payout ratio is above 60%, but it is trending down quite consistently and in 2019 was only 63%

What I've been looking for is a company that is consistently growing YOY and providing a good return via dividends. MONY tick all of those boxes.
MONY EPS over the last 10 years vs the average of my portfolio...

So far I am convinced. The obvious concern is has the growth already happened.

The last check is vs the sector because 'Media' encompasses quite a few other candidates. From the FTSE100 we have

AUTO - too low yield for further analysis
INF - earnings performance isn't as strong
ITV - earnings performance isn't as strong
PSON - earnings performance isn't as strong
REL - too low yield for further analysis
RMV - I would really like to be invested in but the current yield is too low for my strategy ~1.3%
WPP - potentially but 10% yield raises flag

On that basis I am going to go with my instinct and add £200~ of MONY to my dividend portfolio, to take me up to 13 companies....

70 MONY shares purchased for £228.61 an average of £3.27 per share.
This equates to an expected yield per share of 3.59%
This increases the total forecast annual dividend of my portfolio to £90.17
MONY now makes up 9% of my portfolio weighted by holding value

#112 Portfolio Addition

My long term strategy remains to invest in global index funds via my SIPP and ISA account.

In parallel, and mainly because I find it fun and therefore motivating I will continue investing additional funds into my Dividend producing portfolio.

The portfolio currently consists of 11 companies from the FTSE 350.

ABF - BATS - BNZL - BWY - CCH - DGE - JMAT - LGEN - MNDI - SSE - ULVR

I currently have a shortlist of 14 potential companies to add. I am aiming for a minimum of 15 companies within the portfolio before I consider increasing my investments in any of them.

The shortlist nominees are:

BAG - BRBY - CPG - CRDA - CWK - DCC - DPLM - HLMA - NXT - PRU - RB. - RMV - SMIN - SPX

However, based on current prices 6 are excluded because the yield is below 2.5%.

Excluded (6): CRDA - CWK - DPLM - HLMA - RMV - SPX

Remaining(8): BAG - BRBY - CPG - DCC - NXT - PRU - RB. - SMIN

Given I still have a relatively small portfolio I am also excluding companies which are within sectors where I currently own another company. I expect that in the future some of these may well be considered but for now they will be removed.

Excluded (4): CPG - DCC - PRU - RB.

Remaining (4): BAG - BRBY - NXT - SMIN

~~~~~~~~~~~~~~~~~~~~~~~

I reviewed SMIN in my previous #109 post and concluded that they were a possible but that the EPS lacked growth which was a cause for concern.

Let's see how BAG - BRBY and NXT weigh up.

Info:

BAG - the makers and providers of Scotlands famous Irn-Bru. £570m FTSE250
BRBY - luxury, fashion designer, manufacturer and retailer. £5.8bn Market cap. FTSE100
NXT - clothing retailer. Market Cap of £6.3bn. FTSE100 incumbent.

Dividends:

BAG - yield 3.3%, have 17 years of increasing dividends and a div cover of 1.92.
BRBY - yield 3.35, have 10 years of increasing dividends and a div cover of 1.95.
NXT - yield 3.55, have 1 year of increasing dividends and a div cover of 2.68. They were held previously but had many specials delcared which makes them slightly harder to compare.

Financials:

All three have either 3 (BRBY) or 4 (BAG & NXT) years EPS growth out of the last 5.
NXT has the lowest Payout Ratio (35%), followed by BAG (45%) and BRBY (55%)
All three have strong Operating margins.
NXT PE Ratio (9.17)  is almost half that of BRBY (15.02) and BAG (16.08)
re: Debt, NXT are the only one with a warning light, their Debt:Equity is 1.63 where I am usually looking for <1.

Conclusion:

I've just noticed that I missed that BRBY operate in the Personal Goods sector and thus I should really remove them... they looked a good option, so one for the future.

That leaves BAG, NXT and SMIN.

Given my concerns about SMIN EPS growth I mapped the previous 10 years for each potential and added the average of the 11 companies within my portfolio already.

It re-enforces that I will stay away from SMIN for the time being.

On this extended horizon it also paints NXT in a very positive light. If I was to use a 5 year horizon it would not look as strong growth.




I will however, on this time, side with NXT as my portfolio addition. They are a strong, consistent dividend payer, tick almost all of my screen requirements and on-top of that are a brand that I know and like very much - as does the wife.


Purchase Details

• 5 NXT shares were purchased for a cost price including fees of £243.48, ave cost per share of £48.70.
• NXT now form 10% of my portfolio by value.
• This adds an expected £8.25 in expected annual income, taking the total forecast annual income to £86.61. This has dropped recently due to the dividend cuts to BNZL, BWY and MNDI.

#111 First Annual FI Review - April 2020

Whilst not targeting RE it's nice to track when we might be FI.

As is said "What gets measured, gets improved "

In 2018 I built a 'model' based on the below assumptions.

Workplace Pension value £31,800
Contributions of £10,800 per annum, with contributions growing 2% per annum

SIPP value £0
Contributions of £1200 per annum, with contributions growing 5% per annum

Other Equities (ISA etc) value £1,500
Contributions of £2,400 per annum, with contributions growing 2% per annum

Assumed annual growth for all of these is 5%

How have we progressed vs the forecast?

	Value
	Forecast	Actual
	Apr-20	Apr-20	+/-
Workplace Pension	£45,000.00	£44,000.00	-£1,000.00
SIPP	£2,620.80	£1,900.00	-£720.80
Other Equities (Eg ISA)	£6,657.49	£4,100.00	-£2,557.49
*New* Cash	£0.00	£10,000.00	£10,000.00
Total	£54,278.29	£60,000.00	£5,721.71

My contributions into Workplace Pension, SIPP and Other Equities have not been as high as expected plus with the recent market turmoil the values have dropped.

With the addition of the Cash buffer though it's nice to see that I'm ahead of where I had forecast, even taking the turmoil into account.

How much do we need to be FI?

Our annual spend in 2019 minus Tax/NI and Mortgage was £36k

If we use the 4% draw-down rule that means we'll need a minimum 'pot' of £913k~

Other Changes...

I had previously forecast an annual growth rate of 3%. I think this was being too conservative. Generally, it seems the historical annual growth for the major indexes is anywhere between 7%  and 12%, and 10% in between.

However, I also did not take into account inflation which will erode the spending power of that pot.

The average annual inflation amount is roughly 2%. 2% is also the Bank of England's target.

Given that I need to understand how this can be modelled more accurately I'll simply use a lower level of expected growth to account for the erosion by inflation. Using the lower of the growth estimates minus inflation average = 5%, which I what I am now using for the model.

What does all this mean?

Updating with actuals plus increasing the expected growth to 5% has suggests we'll be FI in 2045, when I am 59.

As I said at the start "what gets measured, gets improved". So keeping an eye on this and using it for my annual targets and goals should stand me in good stead. My intention isn't to keep on top of this too regularly, an annual review and inclusion in annual goal setting should be enough.

I have also not included any mention of the state pension. I worry about the pension situation that looms in this country and am not relying on that in any shape or form.

The second significant assumption I should remind myself of, is that this assumes we are mortgage free. For today I'll leave that assumption as it is, but possibly one to review in the future.

#110 March Money Update

March Income vs Spending

	Mar '20
Gross Income	£21,960.67
Total Tax and NI	£8,271.00
Total Variable Spending	£2,360.85
Total Fixed Spending	£1,587.64
Total Short Debt Repayment	£0.00
Net Income pre Fixed Savings	£9,741.18
Savings Rate (%) pre Fixed Savings	44%
Fixed Savings / Investments	£1,102
Net Monthly Cash	£8,640
Cash Savings Rate (%) Post Fixed Savings	39%

Commentary:

Bonus month. 

I've spoken about what we will do with the excess cash previously, so won't dwell on that. But I will take another second to appreciate a) the income and b) the fact that we are short-term debt free and thus we can invest in wealth building rather than seeing this money go straight out.

Still £8,271 on tax is steep! I once listened to a podcast where a 'taxman' was explaining a hypothesis that if we all looked at tax as charity donations then it would give us a positive feeling upon reflection rather than a negative. I am therefore choosing to think of all the good work this tax will do, and think of it as a charitable donation to our society.

Obviously because of the bonus our savings rate, both pre and post our monthly fixed investments, was significantly higher than previously.

Variable spending was actually our lowest for six months. The second - and final for the year - month without council tax meant that our fixed spending was slightly lower than average too.

The result of not having to pay back any short-term loan as we have done in previous years is shown well in this graph... in 2017, 2018 and 2019 we made significant payments and in 2020 we didn't

March Wealth Update

• £351.62 paid into workplace pension
• £100 paid into SIPP
• £500 paid into workplace sharesaves (current Share Price £72.88)
• £100 into 2021 maturity (£100 for holiday) 
• Option Price £57.87
• £200 into 2022 maturity (£100 for holiday, £100 for savings)
• Option Price £54.68
• £200 into 2023 maturity (£100 for holiday, £100 for savings)
• Option Price £59.56
• £150 paid into kids JISAs for the first time - global index funds

Bonus money

• £5k added to emergency cash pile
• £1,400 into my Dividend portfolio - not all of this has been invested yet
• £1,200 into my Global Index ISA - not all of this has been invested yet

I also found out I have been awarded some additional shares as part of a retain and incentive plan. This results in receiving, as long as I remain at the company;

• 76 shares in October 2021
• 76 shares in October 2022

These seem like a long way off, and a lot can happen in between then, both personally, my role and the share price. So I'm going to forget about these now until closer to the date. It is very rewarding to have been provided with my first incentive shares though.

Milestones

• Short-term debt free for 8 months
• Equities investments (outside of pension) now above £4k
• Emergency cash amount is now £10k
• Including house equity our Net Worth has increased above £220k

Should always enjoy this view as it took a lot of hard work and discipline to get to where we are now.

 Even though pension contracted a fair bit with the global crisis good to see this still moving forward

One of my old favourite graphs. Excluding Holiday Savings means we exclude money which is committed to being spent. So this is the money we have invested  or put aside that I expect to keep, 

 Always good to see the YOY growth of all money. Amazing to think that it's not actually been that long - about 4 years since I started tracking.

Very happy to see the first payments for the kids included here. 

They all have cash savings which are not expected to be added to an further. Now I'm investing £50 each into global index fund.

The oldest is about to turn 8 so that's at the very least a decade of compound growth and TIME in the market for my little angel.