Stephen Bland adds DSG International, which owns Currys, to his fourth high yield portfolio.
As usual the first article of the month features the next selection for my current High Yield Portfolio by instalments and I'm going for the Dixons and Currys electrical goods retailer, DSG International
The reason is simple. It is the next diversified share on the descending yield list of the FTSE100 index. The company announced some figures the market didn't like too much recently which has triggered a fall in the share price in recent weeks. As a result DSG has jumped up the yield list to lie third, conveniently dropping it into my lap without having to look any further down.
The share meets the normal criteria demanded of HYP selections. It diversifies the portfolio into a new sector of retailing. Dividends have been increasing for a number of years and are forecast to continue doing so for the near future. Debt is modest and the company usually produces a strong positive cash flow result. That's about all I need for a share like this to include it an HYP.
As usual I refuse to consider the more distant future which saves me from a lot of guesswork and agonising that would not in my opinion assist in selection anyway. This is what I term "strategic ignorance at work." It would actually be easy to agonise over DSGI if I so wanted. Will they be hit by the likes of Tesco
moving into the sort of goods they sell? Will internet-only retailers of these goods be able to nick sales by being cheaper? Dunno, dunno and donwannano.
Turning to the actual numbers, the buying price of the shares including costs for the portfolio is 171.5p. Latest annual dividends paid total 8.55p, being the interim for the year to 30/04/07 plus the final for the previous year giving me a historical yield of 4.98%.
Consensus forecast payout for the full year to 30/04/07 is 8.78p and for 30/04/08 9.14p making forecast yields of 5.12% and 5.32%. For what it's worth there is a forecast for 09 of 9.71p giving a yield of 5.66%, but that's possibly getting a bit too much into strategic ignorance territory for my liking.
These yields compare with a current historical FTSE100 yield of about 3% and about 2.8% on the All-Share, so you can see that DSGI is way above these levels, clearly a high yielder. In fact only Lloyds and United Utilities are showing higher yields at present in the 100, of those shares with a dividend record.
Turning to another matter, F&C Asset Management
revealed recently that it intends to cut its dividend, but without at that stage stating the amount, which caused the price to fall quite a bit. This share is held by both HYP4 and HYP3 in which I allow trading.
Since HYPs are principally about income, I will most likely trade a share when its yield has fallen very low due either to the price having risen very strongly or a dividend cut. There also needs to be a suitable replacement that appears to maintain portfolio integrity.
In this case I'm going to wait for the actual figures from FCAM before I make a decision. It may be that thanks to the price fall, the yield remains good enough to continue holding the share, but I don't want to take any action until I have the details on this.
Stephen holds all the shares in the above table.