Sector rotation. That is how I would describe the stock market over the course of November. With the election of Trump as president and the threat of inflation around the corner, investors have sold off defensive bond proxy stocks in favour of those with higher growth potential.
Sticking with my monthly stock purchase goal (LINK), I bought shares in 6 companies over November. Here is the list of stocks I bought,
United Utilities (UU) – The utilities sector was the hardest hit last month as prices of shares went down together with bonds. This provided a great opportunity to get into UU at 914p a share. In total, I bought 20 shares with the expectation of getting £8 in dividend a year.
Centrica (CNA)- I added to my CNA position (LINK) this month. Like UU, CNA got penalised for being a defensive high yielder thus making it cheaper than it already was. In total, I now own 295 shares in Centrica with an annual yield of 5.63%. Not bad.
Sainsbury (SBRY) – For the past 2 years, supermarket wares have been treated like trash. And there is good reason for this. From accounting scandals to losing sales to smaller discounters, investors have been right to stay away from this sector. But I felt the dynamics changed earlier this year when I bought Tesco (LINK) and it looks like I have been right so far.
From an investment point of view, Sainsbury is currently in a better proposition than other companies in its sector. Out of all the major supermarkets, it has the best financials. As compared to Tesco, Morrisons and Ocado, Sainsbury has the highest Return On Capital Employed and Interest Cover. From a vacation perspective, it has the lowest P/E, lowest price to Net Asset Value and the highest Dividend Yield.
I bought the shares at 237p a share.
Unilever (ULVR)- If I had to chose only 5 companies that I could hold over the next 50 years, Unilver would definitely be on the list. With EBIT margins of 15%, ROCE of over 20% and FCF of 9%, whats not like. The only problem with the stock right now is that it is highly valued with a P/E above 20. With sector rotation and bond proxies getting out of favour, I can see Unilever getting even cheaper in the months to come but just in case that doesn’t happen I bought 5 shares for £165.62
PZ Cussons (PZC) – The company has raised its dividend in each of the last 28 years. It sells low ticket items that people have to buy everyday. I love these types of businesses (LINK US STOCKS). Like Unilever, I can see PZC getting cheaper. As the dollar strengthening and emerging market equities get out of favour. PZC will sell off due to its high exposure to Nigeria. I bought 49 shares for a total of £162.25.
Smith and Nephew (SN) – This medical technology company has a bright future and is set to ride the trend of ageing populations. My purchase of 17 shares at 1135p a share adds £4 in annual dividend income to my portfolio.
Looking across all purchases, I have added £35 in dividend income to my portfolio. As always, I intend to hold the stocks purchases for the long term. I want these businesses to keep showering me with dividend year after year and let compounding works its magic.
Golden Rules on Investing for the Long Term
- Always save (If you think it’s difficult living on £30,000 per year, remember there’s a person on your street living on £25,000).
- Invest savings in quality companies (LINK). It is essential to build your foundation using quality blue chips.Time works for strong companies. Valuation matters, but you don’t have to be extreme about it.
- Diversification matters. Studies indicate that 15 companies provide most of the benefits from diversification whilst some experienced investors have discussed the merits of holding between 25 and 50 companies.
- Hold assets for the long haul; allow compounding to occur.
- Dividends are real cash; a long history of dividends provides some evidence of the strength of the underlying business model.
- There are no free lunches. You earn equity like returns by dealing with the associated volatility.
- No one has all the answers, including me or this article. Make your own decisions by triangulating after reading extensively.