High yield, low payout stocks perform best

In their paper High Yield, Low Payout from 2006, authors Patel, Yao and Barefoot concluded that high yield, low payout stocks performed significantly better than the S&P500, and was the best strategy overall.

Their backtest methodology was:

Specifically, we took a two-stage process of first creating three dividend yield baskets by yield, then within each of these three baskets, categorizing stocks by payout ratio: low, medium, and high. Equal-weighted portfolios of these baskets were created based on dividend yields and payout ratio as of each quarter end. We repeat the process each quarter. Our back test for this analysis is from January 1990 to June 2006. We use S&P indexes as our universe.

The HYLP (high yield, low payout) stocks returned, on average, about 19.2% pa, compared to the S&P of 11.2% pa, for the period 1995 to 2006. HYLP were consistently in the top half of the baskets for the period 2001-2006. The basket of stocks not paying a dividend also beat the S&P 500, although its relative positioning was spottier.

Their methodology might be a great starting point for building a value-based portfolio.

PIC.L - PACE - Update

Highlights from RNS prelim results for y/e 31 Dec 3010:
Numbers:

• revenues up 17%, organic up 10%
• return on sales increased from 6.7% in 2009 to 7.8%
• operating profit before exceptionals up 32%
• adjusted basic EPS up 24%

Operating highlights:

• completed three strategically importatn acquisitions
• broadened product portfolio
• continued to gain market share across all markets

Outlook:
"The Board expects 2011 revenue growth of a similar level to that achieved in 2010. ... The Board expects further return on sales progress as Pace develops its new business opportunities and further leverages its established and highly efficient operating model."
http://www.investegate.co.uk/Article.aspx?id=201103080700094...

So, more growth in sales, and improved margins. What's not to like? The stock market "rewarded" this excellent performance by the share price dropping about 12% in price. Its adjusted diluted EPS is 22.7p, and on a share price of 194p, it is trading on a PE of 8.5.

Follow-up:

Pace Plc , the world's biggest maker of set-top boxes, said a U.S. customer was delaying a big order to 2012, reducing its 2011 sales growth and wiping some 100 million pounds off its stock market value. ... "One customer on a specific project decided to accelerate a new piece of technology, which meant the revenue from that client has shifted from 2011 to 2012," Chief Executive Neil Gaydon told reporters.

Woodford's exposure to private equity at all time high

Citywire has an article where they comment about Neil Woodford:

he is finding more value in private firms than at any point in his career. ... "We haven’t had this much exposure to unquoted companies since I joined Invesco Perpetual"

In a recent post, I mentioned that some private equity investment trusts were trading at discounts to NAV in their 30's. I expressed particular interest in CYS.L (Chrysalis VCT), a VCT where there were director purchases, share buybacks, a discount to NAV of nearly 40%, and a yield of 6%. The shares have fallen in the meantime from 50p where I first bought, to 48.5p, although the shares have gone ex-dividend during that time. The dividend amounts to 1.5p. The reported NAV seems to be steadily creeping upwards, too; on 25 Feb 2011 management reported that NAV stood at 83.20p as at 31 Jan 2011. The shares stand at approximately 40% discount to NAV.

Shares to consider

Here is a list of companies that recently crossed my path, for which I thought I'd do a quick write-up. I don't necessarily have any strong convictions about them, but thought they might be interesting.


CTN - Clearstream Technologies
Sector: Health Care Equipment and Services
It designs and manufactures medical devices.
Market cap: £20m (yeah, it's a tiddler)
Share price: 45p
PE 21.2, but forecasts are +174% for 2011m and +110% for 2012.
Z-Score : 3.1
Trading statement on 10-Feb-2011: The Board is pleased to report that ClearStream has enjoyed a good start to the year and that at the half year point results are anticipated to be comfortably in line with market expectations for the full year to 31 August 2011.

There's been major momentum on this share over the last 6 months.


EDIN - Edinburgh Investment Trust
Sector: Investment Trust
IT managed by Neil Woodford of Invesco Perpetual in his typical defensive "equity income" style.
Yield: 4.7%
Discount to NAV: 1.9%
I understand that Equity Income funds usually trade at fairly narrow discounts to NAV, so one should probably not be put off by this. The gearing is 123%.

HLMA - Halma
Sector: Electonic and Electical Equipment
Manufactures anti-theft devices, sensors and relays
Market cap: £1.3bn
Share price:  343.8p
PE 17.2
Forecast growth 2011: +20%
Forecast growth 2012: +9%
Z-Score: 6.9
Median ROE over last decade: 21%

RB. - Reckitt Benckiser
Sector: Household Goods
Owns a laundry list of brands, including Air Wick, Calgon, Cellit Bang, Clearasil, Dettol, etc. etc.
Market cap: £30.0bn
Share price: 3166p
PE: 13.9
Yield: 3.6%
Forecast growth 2011: +1%
Forecast growth 2012: +6%
Z-Score: 4.5
Median ROE over last decade: 35%

RTN - Restaurant Group
Sector: Travel and Lesisure
Operates restaurants. It runs concession stands in airports, and the brands Frankie & Benny's, Chiquito, and Garfunkel's.
Market cap: £575m
Share price: 288.5p
PE: 15.0
Yield: 2.9%
Forecast growth 2011: +10%
Forecast growth 2012: +9%
Z-Score: 3.9
Median ROE over decade: 28%

DPLM.L - director purchases

There was another director purchase a couple of days ago: Iain Henderson, a director, bought 25k @ 276p = £69k

Some recent notes by me:

*** 05-Mar-2011 SP 275.5p, MKT 312m, PE 14.6, YLD 3.3%, BSR 0.47, Z 5.8, 2011F +15%, 2012F +9%


*** 12-Jan-2011 IMS: Against a weak comparative, Group revenues in the quarter ended 31 December 2010 are 25% ahead of the comparable period in FY2010. ... Margins also strengthened, largely driven by operational leverage. ... Outlook: The continuing strength in revenues and operating margins, together with contributions from recent acquisitions, provides confidence that the Group should achieve good progress in 2011.
http://bit.ly/faM0W1
 


*** 12-Dec-2010 Acquires Carsen Medical Inc ("CMI"). Its revenues were £8.3m and PBT £0.7m. Consideration: £14.2m cash, and a further max of £1.9m deferred, contingent of operating profit. "This acquisition provides an excellent opportunity to build a broader and more substantial business erving the growing GI Endoscopy market across Canada".

The Bull Market Turns Two

In this article on TMF, a poster added the comment:

It is usually common to see the non-cyclicals play catchup as a bull market matures. This hasn't happened yet, but the first interest rate rises often trigger a re-rating upwards of non-cyclials. We may be just a few months away from the start of a slow-but-steady rate-hiking. When non-cyclicals start to outpace the cyclials over a one-year period, then we may be close to the end of the bull. The last cyclical bull lasted from 2002/3 to 2006/7; four years or so. This bull may well last a similar amount of time, so should run well into 2012. The last stockmarket crash generated so much fear that we're unlikely to see such a panic again for many years. The "wall of worry" - which bull markets are said to climb - is still quite strong.

PIC.L - Worldwide IPTV Subscriber Base to Double by 2015

According to this article:

 IPTV subscriber base in 2015 will exceed 70 million. Currently, the market size stands near 36.5 million. ... IPTV is also expected to play very prominently in the Hospitality market.  Set-top box shipments are expected to experience a 75% growth rate from 2010 to 2015, as hoteliers have begun to realize the flexibility and scalability of the platform. ... IPTV is the platform of the future