June Dividends – Brexit and the Low Pound (£) 2


June has been a great month for dividends. I have received payouts from my ownership of defence, drugs, gold and oil stocks. In total I have received £227.24 in pure passive income. It feels great not to have to work for money. Instead, by investing money into the stock market, I am leveraging the power of big corporations and making the money work for me.

The stocks that paid me dividends this month are:

  • Shell (RDSB) : £84.42
  • Cobham (COB) : £70.16. Whilst this dividend was paid in May, I have included it here for this month.
  • BP : £37.21
  • GFS (GFS): £33.75
  • Goldcorp (TSE:G) : £1.70. Hey, they all count! Besides, with the 15% Canadian dividend withholding tax rate, I would rather see a very low pay-out ratio from the company and instead make my money from the capital gain element. I have held Goldcorp for about a year now and the gain so far has been 38%. I fully expect this stock to keep rising as I feel that the value of gold is still undervalued today in what seems to be a very risky global macro environment.

Once again, like in March, the low Pound (GBP) against the Dollar (USD) has led to me getting a higher dividend than expected. The oil and gold stocks have been particularly helpful in this regard due to the commodities and the dividends being priced in dollars. In total, I received 2.7% more in dividends than expected! Bring on the low Pound – just kidding, there are some really good attractively valued American stocks that I want to get my hands on and a higher GBP value would be beneficial in that respect.

The biggest story of June has been Brexit. The markets have been volatile in the wake of the out vote. With the Bank of England ready to inject money into the market, the FTSE100 has raced ahead and has reached new highs for the year. So much for the opportunity to buy low stocks. In the wake of Brexit, I was waiting for some stocks like Unilever, Reckit Bensiker, RelX, National Grid and Imperial Tobacco to get cheaper but instead there share values have just raced ahead. Some shares I own like RDSB and BP have increased at such a rapid pace over the past week that they now appear to be overvalued. It seems that investors don’t think the threat caused by Brexit is big enough to warrant moving funds from equities to bonds.




Cobham Rights Issue – Is cobham still a great company to invest in?

A big talking point of my portfolio was the rights issue held by Cobham in order to raise funds to pay off debt. But whilst Cobham raised £500m via a rights issue, it still paid a dividend which seems strange. So on the one hand its asking investors to stump up cash whilst on the other hand its paying that same cash back to shareholders net of bankers fees. This is totally bizarre!

So why did Cobham continue to pay dividends in the wake of the rights issue? The answer to this becomes clear when looking at the company’s share register. many of the company’s biggest shareholders are income funds.So while it may make no economic sense to plough on with a dividend, the fact is that, were the business to do the rational thing and cut its own pay-out, then those funds would probably have to cut theirs.

So it looks like large income funds are dictating policy of companies these days. And by no means is Cobham a one off situation in this respect – National Grid and Rexam, to name but two, have done something similar in recent years

On the whole, my concerns about Cobham are ‘one-off’ in nature – the debt, the acquisitions and the covenants – rather than having to do with any broad-based slowdown in the businesses economic engine. It looks like the market is starting to conform with this view as the share price has risen in the past few weeks. The company has announced a number of huge contracts in recent weeks suggesting that the business is still string and resilient in this market environment. Another reason for the the share price rise is that as the majority if the company’s business is conducted in the USA, the low GBP (£) against the USD (£) will boost reported sales and profits in this respect.




Reinvesting my Dividends in Telefonica (LON: TDE)

As a dividend growth investor, I like to re-invest the dividends I receive in order to compound my wealth. Sure, I can use the dividends to fund a part of my lifestyle now but the opportunity cost would be too large. Re-investing dividends is by far the best option if building wealth is the goal.

One stock that has recently caught my attention is Telefonica S.A (TEF).Telefonica is one of the largest telecom companies in the world, with an empire sprawling across 21 countries in Europe, Latin America and even China via its partnership with Chinese carrier China Unicom (CHU). Telefonica’s businesses cover everything from mobile phone and internet service to paid TV.

But Telefonica has had a torrid time over the past 3-4 years. It has had to deal with a number of macro headwind including the European debt crisis, major political and economic upheaval in Latin America, and the economic depression that has plagued Brazil, one of Telefonica’s biggest markets, over the past year.

This has led to investors leaving the stock for dead. Investor confidence is so low that it has forced the stock price to become cheap. Telefonica currently trades for just 0.8 times sales while yielding close to 8%. Sure, the telecoms industry is a saturated market at this point, and competition is fierce but there is no justifiable reason for Telefonica to trade at a discount close to 30% in comparison to other major global telecom companies. The perfect storm that sapped Telefonica — a strong dollar, emerging market chaos, political woes in Europe and the Brazilian depression — won’t last forever. And while we’re waiting, we’re getting paid quite handsomely.

I have so far bought 12 shares in Telefonica for about £77. My brokerage company is currently offering free trades in EuroStoxx50 companies and that I am able to buy shares in small amounts as often as I like without incurring any dealing costs. This has allowed me to average out the price I have paid per share in the current volatile market, especially considering the fact that the Pound has been zig-zagging against the Euro.

Even with the 20% dividend withholding tax applied to spanish stocks and the anticipation of a dividend cut by the company, the price the Telefonica shares currently sells at is a very attractive one. I am anticipating that I will be buying more share is TEF over the coming days and make my dividend snowball just grow that big bigger.

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  • http://divhut.com Keith Park

    Looks like a solid month for dividend income in June. I have to say you have one of the smallest lists paying you as June seems to have a lot more companies making their distributions. Still, you have some great payers sending money your way. Looks like the Pound will remain low against the U.S.D. for some time going forward. I wonder if some will make adjustments to the new reality.

    • http://moneygrower.co.uk moneygroweruk

      That’s correct Keith. The reason for my concentrated was that I made big purchases in both BP and Shell during the Jan/Feb lows earlier this year. Shell especially was trading at ridiculous levels and was a screaming buy. Looks like it has turned out well for me so far as I am getting a chunky yield from these two and have a very healthy capital gain 30%-40%+. Having said this, both stocks now seem to be trading at the opposite point of the spectrum and the valuations do not support the current overvalued price in my opinion.