October Stock Market Purchase – Elections and Uncertainties


“I repeat exactly what I said six months ago. Uncertain. I cannot believe the goings on in Parliament; in my personal opinion the place is an utter disgrace. Attempting to postpone Brexit indefinitely is maintaining the uncertainty for business and investment.

 

A General Election and clear out is urgently needed. Add in trade wars and the world looks uncertain too. Against that backdrop, you have to ask how much is baked in to share prices already. That’s the key conundrum and I don’t have the answer. I will, however, stick to my last and deploy your capital into situations that I believe offer excellent investment value if prepared to look through the current travails.”

 

Keith Ashworth-Lord

I agree with the words of Keith Ashworth-Lord (above) 100%. This is how I have feeling for some time now. The UK is in limbo. Action needs to be taken. Something needs to give.

 

This is why the first winter General Election since 1923 years has been lauded by many pundits. Hopefully it will end the current stalemate in parliament. But don’t hold your breath. They are many commentators who proclaim we are headed for another hung parliament. The country is just too divided at the moment.

 

Hopefully we don’t end up like Spain which has had 4 elections in the last 4 years. But it is increasingly looking that way.

 

As for the stock market, the current view is to think global rather than local. There is just too much uncertainty in the UK right now. And many analysts think stock market prices reflect that. Yet they are still a few domestically focussed gems to be found such as Ag Barr and Associated British Foods which I bought during the month.

 

It is better to look global at this stage and diversify your geographic risk. This seems to be the consensus view. But even this carries risks. If say the result of the election is that labour do not get a majority and also we have a very soft or no brexit at all, the pound would be expected to shoot up. If the Pound increases in value by 10%, then overseas earnings translated back into pounds reduce by 10%. So high overseas earners will see profits shrink by 10%. You would expect to see share prices in globally diversified companies move downwards should the pound move higher.

 

(On the other hand if the pound was to move sharply downwards as a result of say a labour government or hard brexit, you would expect shares in companies which derive the majority of their income overseas to move higher.)

 

As an investor it is a troubling spot to be in at the moment. You need to decide which of the outcomes is more likely and place your “bets” accordingly.

 

Barring that, invest in high quality companies that can weather any microeconomic storm. Invest in companies that are resilient and will keep paying you increasing dividends year after year regardless of what political or economic storm is happening around them.

 

That is the line I took over the course of October and thus bought the following shares using my monthly stock purchase programme:

  • ABF – Bought 10 shares at £21.15 each. Dividend Income = 4
  • BAG – Bought 31 shares at £5.43 each. Dividend Income = 5
  • BAT – Bought 19 shares at £27.95 each. Dividend Income = 39
  • IMB – Bought 20 shares at £18.32 each. Dividend Income = 39

 

These purchases have added £87 in dividend income to my portfolio. In total, I expect to collect £3,678 in annual dividends from companies I hold shares in.

 

As I said earlier, I want to invest in companies that pay me increasing dividends year after year regardless of what political or economic storm is happening around them. Imperial Brands is a great example of this. Even though the tobacco industry is going through a tectonic shift and there is grey clouds on the macroeconomic horizon, the company just keeps doing its thing. In its latest results published a week ago, the company announced that it is raising its dividend by 10%. So I will not just get £39 in annual dividend income from my purchase of Imperial Brands mentioned above, I will get a figure higher than this due to the recently announced dividend raise.

 

( I haven’t added this Imperial dividend raise to my annual dividend income figure above as I will do a separate post in December detailing the dividend growth I have received this year from my companies – just as I did last year )

 

This is exactly the kind of companies I want in my portfolio. Companies that keep raising their dividend year after year without any effort on my part. If all the companies in my portfolio had to raise dividend by 10%, I would not get the £3,678 figure of annual dividend income mentioned above, but instead I will get £4,045. This is an extra £367 into my bank account without any effort on my part. This is a sweet sweet deal if you ask me. This is the power of dividend growth.

 

So for any would be investors out there, don’t just look at the dividends you can receive today. Pay attention to the dividend growth records of companies you want to invest in. That way you can sit back, relax and watch a higher and higher stream of income thrown your way year after year.