Ahhh Brexit. The dreaded B word. It appears like things are finally starting to progress. To where exactly? Nobody knows. As an investor, your portfolio needs to be positioned to insulate yourself from political and economic uncertainty. By this I mean investing in high quality companies that are swimming in free cash flow and are are well diversified by sector and geography. Yes, the majority of the companies I own are listed on the London Stock Exchange, but by scrutinising their accounts you will see that they produce the vast majority of their revenues outside these shores. On the aggregate, the UK does not account for much of the profits generated by my portfolio firms. The brexit gremlins do not keep me up at night. I sleep like a baby knowing I own a diversified mix of high quality companies.
March saw the financial markets slowly price out the likelihood of a ‘no deal’ Brexit scenario. This has led to a rally in both the pound and shares of UK small and medium cap companies; particularly those with domestic UK exposure.
The big multinationals have also continued their upward momentum as experienced in January and February of this year. This makes slim pickings for this months stock market purchase programme. Yet I still found two stocks that were worth buying in March.
I have been buying XPP and ABF over the past few months. They are both quality companies that are going through a patchy period as of late. XPP is currently grappling with the slowdown in the semiconductor industry. ABF, being a UK revenue dominated company, is caught up in the fee surrounding Brexit. Whilst the share prices of these two companies has slumped over the past year, recent trading updates and results have assured me that the underlying businesses are doing well. Certainly at current prices, they are undervalued in my opinion relative to the cash flow they produce.
During the March monthly stock purchase programme, I added to my holdings in :
- XPP – 6 shares at £22.10 a share. Dividend Income: £5.10
- ABF – 7 shares at £22.80 a share. Dividend Income: £2.57
The above two purchases have added £7.67 in dividend income to my portfolio.
March signals the last full month of a tax year. As I invest in an ISA which is linked to the tax year, now is a good opportunity to reflect on the growth of dividend income over the 2018/2019 ISA period.
Looking at my portfolio as a whole, I now expect to receive £3,278 in dividend income over the next 12 months. This is tremendous growth from this time last year where the amount stood at £2,095
My dividend income has grown by £1,183 the past year. This is close to adding £100 in dividend income each and every month. The level of dividend income added was helped by the market decline over the last year. As stock prices fall, I am able to buy high quality dividend shares whilst they are on sale. I am able to get more dividends for the same amount of spend if the stock rice was higher.
Take high quality industrial XPP as an example. At the beginning of the last ISA year, the stock price was about £34. For £10,000 I would be able to buy 294 shares which equates to £250 in dividend income.
That same XPP stock is currently going for about £22. For the same £10,000 I would be able to buy 454 shares which equates to £385 in dividend income.
You are now getting more dividends for the same amount of money invested. £135 more in dividends to be exact.
This is why I say investors in the accumulation phase of their life cycle should cherish falling stock prices – provided they is no detrimental change in the underlying economics of the business. A falling stock market should be seen as an opportunity, not a threat you should be running away from. I for one would be glad if the market’s valuation as whole dropped 10% + over the next year. It would mean that I would be able to deploy capital in high quality companies at attractive prices and get a boost in my journey to financial freedom.