The last month has been an extremely busy one for me. Hence the slowdown of articles and the delay in me publishing my monthly stock market purchases for the month.
Yes even though I was busy, I still managed to buy shares using my monthly stock market purchase programme. I guess this is another inadvertent benefit for regularly buying shares on a certain day each month. I am forced to do so even if life comes in the way. It gives discipline to my investment journey. It assists in keeping the motivation alive. It ensures I am constantly looking at the bigger picture. It helps on keeping me on the straight and narrow towards financial freedom.
The three stocks that I bought during the month of September have one thing in common – they derive the majority of their earnings in Britain.
We all know how locally focussed stocks have been it. And unless you have been living under a rock, we all know why; Brexit.
There is a huge fear that the UK economy will contract and the pound slide in the event of Brexit. And rightly so the market has priced UK stocks in anticipation of this.
In plain english there are two basic things that will affect t domestically focused businesses/ stocks:
- UK economy shrinks – less disposable income in the hands of the consumer will mean a slowdown in personal expenditures. This in turn will hit companies in the form of lower sales. Lower sales leads to lower profits.
- Higher input costs – as the pound reduces in value, it now becomes more expensive to import goods. Say a companies raw import material costs are $100,000. In years gone by, that would would have only amounted to £60,000. Today, that same $100,000 will cost around £75,000 pounds. Thus a companies expenses increase. To deal with this, they can do two things a) reduce profit margins to keep prices the same or b) increase prices but this would be difficult as coupled with the shrinking economy, the hard pressed consumer would just switch to a lower cost product in most instances . In both the instances profits are likely to reduce. The only companies that will be okish are those with pricing power. Furthermore, if tariffs are brought in, input costs will rise even more.
Off course there are other issues which will affect businesses such as regulatory and legal changes/uncertainties and the costs to implement them, supply chain issues, staffing issues etc but I wanted to keep it simple for the sake of easy understanding.
And before I go further I would like to point out that they could be numerous benefits of Brexit as well. But I just don’t trust any politician – from any part of the house – to get us out of this mess or to implement policies that will actually benefit Brexit Britain. I have a feeling the market thinks the same way and that is why they are pricing British stocks as such.
But some stocks have fallen so far in my view that they appear to be pricing in a worst case scenario.
And this exactly what I love; fear! It gives me the opportunity to buy ownership stakes in companies at bargain basement prices.
And this is exactly what I did. The three purchases I made in September 2019 are as follows:
- ABF – Bought 7 shares at £22.10 each.
- AG Barr – Bought 32 shares at £5.58 each
- BT- Bought 94 shares at £1.65 each.
Before I go further, let me just say that in addition to being heavily UK focussed, shares in AG Barr fell because of a poor trading update. The company warned that six month revenues to July would fall 10% and profits 20% over the year to January 2020 as a result of bad weather, unfavourable comparisons with last year and more malign issues surrounding its juice brand Rubicon and its energy drink Rockstar.
Despite this I think that AG Barr is a high quality company that boasts great brands, has unique market positions, has an exception average return on equity figure of 10% and has a wonderful committed long-term management.
In fact, I rate the company so highly that it is only one of a handful of stocks that appear on my buy and hold list.
I personally feel that when exceptional companies are going through a rough patch and their share prices fall, one should take advantage. I for one will continue to average into my position if the share price remains at this or lower levels.
Looking at the overall picture, these three purchases have added £22.5 in dividends to my portfolio.
Taking the portfolio as a whole, it is expected to generate £3591 in pure passive dividend income annually.
What a great position to be in. To see this money rolling in without me having to lift a finger going forward is truly amazing.
That is what consistency and discipline does. It ensures things that start off small multiply over time. And that is exactly what has happened to my annual dividend income.
Until next time. Happy investing.