Investing in late autumn stirs my animal spirits. It shouldn’t, because stocks are stocks and businesses are businesses all year round. But it does. And I always feel an underlying sense of excitement in the last two months running up to Christmas and the end of the year.
Perhaps it’s because the colder months of the year lend themselves to work. The autumn is a good time to hunker down and get things done. And one of the things high on my list of tasks is to find some decent, enduring stock investments.
Searching for compounders
To me, one of the most important considerations for a long-term investment is the process of compounding. Therefore, I want the businesses underlying my stocks to be capable of growing in future years. In that way, those enterprises will be compounding their earnings and assets while I’m holding their shares.
And that could translate into gains for me as a shareholder. Perhaps I’d receive a growing stream of dividends, or the share price could rise, or both. However, a positive investment outcome isn’t certain, even if an underlying business is doing well. And that’s particularly true if I pay too much for an overvalued business.
However, one method of aiming to identify a company worth further research is by examining the dividend record. For example, Burberry (LSE: BRBY) owns a global luxury brand and sells clothing, leather goods, accessories, fragrance and other beauty products. And the dividend has been generally rising for years. In 2016, the company paid a dividend of 37P per share. And in the trading year to March 2023, City analysts predict the shareholder payment will be near 53p per share.
An upbeat outlook statement
In July with the first-quarter trading update, chief executive Marco Gobbetti delivered an upbeat assessment of the company’s prospects. He said Burberry is “firmly set on a path of growth and acceleration”. After a solid rebound in earnings in the current trading year to March 2022, the company expects a further jump in earnings the following year around 16%.
And with the share price near 1,921p, the forward-looking earnings multiple is just below 20 when set against those expectations. And the anticipated dividend yield is around 2.7%. But that’s far from being a bargain-basement valuation. However, Burberry scores well against quality indicators. For example, the operating margin is running just above 22% and the return on capital is nearly 19%.
I also like the modest debt load and steady history of trading and financial figures. All those factors help me to feel that Burberry has earned its rating. And my hope is the business could develop to become a compounding machine in my portfolio as it rolls out its international expansion programme.
Of course, I could be wrong and unforeseen setbacks in the business could cause Burberry to miss its earnings estimates. If that happens, I could easily lose money on an investment in the shares despite my opinion about the good quality of the enterprise. Nevertheless, I’m tempted to carry out further research with a view to buying some of the shares for November and beyond.
