Stephen Bland adds Compass Group to his fourth High Yield Portfolio.
The fifteenth share for my fourth High Yield Portfolio is Compass Group
(LSE: CPG)
.
Adding further diversification which is so essential to the strategy, Compass is a contract catering business. In fact the world's largest though that has no bearing on its selection here. The only sort of size in which I'm interested for HYP purposes is that a share is big enough to be in the FTSE 100, or very occasionally the upper caps of the 250, and its yield is sufficiently high.
It has the requirement of increasing dividends in recent years, progressing up each year from 7.10p in the year ended 30/09/02 to 10.10p for 30/09/06 and a consensus forecast of 10.74p for 30/09/07. Results for the latter year will be out on 28 November. For 30/09/08 which has already started, the forecast is for 11.34p.
At my buying price including costs of about 330p per share, the 08 yield forecast is therefore around 3.44%. A little above the FTSE100 average but not massively so. Inevitably as the later shares are chosen for the portfolio, the yield on these selections is lower than the earlier choices due to the need to seek diversification. That means you need to look further down the index ranked by decreasing yields.
A trading update issued on 27 September just before the year end was very encouraging though as with any company having substantial US dollar business, as do many HYP shares, the remarkable weakness of that currency in recent times don't help any.
It can be especially frustrating where dividends are calculated in dollars and increase over a period but when converted to sterling that income shows a different profile, a very relevant point for HYPers of course. Compass though accounts in sterling.
Compass brings HYP4 up to the same number of shares with which my other HYPs commenced, fifteen. That number is not written in stone though, there's nothing particularly significant about it from an investment viewpoint, so for a change this time I'll leave it open for a few weeks to see whether any other decent shares appear that may add something to the portfolio. If not I'll consider it completed and will let readers know.
Here's how HYP4 looks right now in its possibly completed state, including 1,513 Compass shares just added. Each share cost £5,000 including costs.
Thus the portfolio is down £6,211, equal to 8.3%. Not a pretty picture. The all important income though is doing well, with every one of these shares as far as I recall increasing their dividends over the previous year.
High yield approaches in general, not just this portfolio, have suffered in recent months but as I have stressed repeatedly, this will happen inevitably at times to the capital. Periods like this cannot be avoided. Many popular HY funds will have shown falls too. It's something with which HYPers have to live if they want to be in the strategy at all.
Some weak holders may give up at this stage. An example of Recent Events Syndrome which is a well known difficulty for many small investors who foolishly over-weight the effect of recent events above that of long term trends. And HYPs are nothing if not a very long term approach. There are no guarantees of course. There is the chance that HYPs may be poor long term too but that is a comment that could be applied to any long term equity strategy. If you want guarantees or can't live with the fluctuations in values, avoid shares altogether. Heat and kitchens.
Share investing is about likelihoods, not certainties. And nothing, absolutely nothing, about this recent short term weakness has shaken my belief that HYPs will do well long term, both on the primary income and the secondary capital side. But along the way, there will be bad patches.
Of the shares shown I hold BATS, BP., BT.A, DSGI, GSK, LAND, LLOY, PSON, RBS, UU.
