Rentokil's High Yield Credentials

Stephen Bland picks Rentokil Initial as the ninth share for his latest High Yield Portfolio.

It's my time of the month again when I ovulate a new share into the third High Yield Portfolio, this being the ninth share in the list.

Regular readers will be aware that HYP3, unlike my two previous portfolios which were purchased by one lump sum, is being built up monthly. I expect it to be completed during 2006 to make a total of perhaps 15 shares.

My ninth choice is Rentokil Initial (LSE: RTO) . Here is the list of all the shares to date in HYP3. £5,000 was invested in each and all expenses are included in the cost price.

Rentokil operates a diverse range of business support services. I can't be bothered to find out exactly what, this is the HYP after all. It's big, it pays increasing divis, it's a new sector, what more do you want? Similarly, and as usual, I make not the slightest attempt to predict where long term the company, its sector, the British economy or the whole world is going. The less I know the more I know as far as this approach to shares is concerned. If I thought I knew more, I'd know less.

Rentokil is in the FTSE100 but only just, propping it up at around bottom place at present. I wouldn't be surprised if it dropped out though contrary to what some beginners might believe, that would not have any adverse effect on the shares. It may be holding up the index but Rentokil is currently the sixth highest yielder there. It therefore becomes a natural choice for this HYP because in addition to its high yield ranking, it offers the diversification which I consider essential for the risk amelioration qualities of the strategy.

The company has paid an increasing dividend for some years, with the payout forecast for the year to 31/12/06 being 7.39p. This gives a forward yield of 4.5% on my cost price. For what it's worth, the 2007 dividend forecast is 7.69p. There are one or two downsides on the fundies. Unusually for a major company or any share really, it has negative net assets. This means that its liabilities exceed its assets, not exactly a plus point for those with a value turn of mind though this situation appears to have prevailed for many years. Hell, I'm starting to overanalyse now, must stop it. That damned accountancy training has a lot to answer for I can tell you.

Turning to the whole HYP3, the portfolio is up on cost but this does not include the dividends that would have been received to date. I will be showing the full regular reviews for HYP3, similar to those I write for HYPs 1 and 2, once it has been completed.

The fairly large range of share price movements so far is quite typical of diversified portfolios with best performer F&C up 22% against the worst, Rank, down 13%. This pattern always manifests itself even after quite short time periods like here. In my HYP1, now over five years old, the largest holding is now worth something like eight times the smallest.

For further information on HYPs in general, the performance of my older portfolios, the advantageous tax treatment of dividends compared with other forms of income etc. readers may wish to refer to my earlier HYP articles.

Of the shares featured here Stephen owns Alliance & Leicester, BT, Lloyds, United Utilities.