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It's about a month since we last had a look at the companies on our watchlist, so it's about time we checked to see how they're going. I've also added a new company to the list, and there's a bit of news from the portfolio itself that we should look at.
But firstly, here's the current state of the watchlist:
|
Company |
Market Cap |
Price |
Forward P/E |
Forward Dividend |
|---|---|---|---|---|
|
WS Atkins |
£772m |
774p |
9.9 |
4.1% |
|
Ricardo |
£207m |
401p |
12.4 |
3.3% |
|
TUI Travel |
£3.2bn |
293p |
10.8 |
4.4% |
|
Unilever |
£31.2bn |
2,428p |
18.8 |
3.3% |
|
United Utilities |
£4.8bn |
711p |
17.6 |
4.9% |
|
Trinity Mirror |
£258m |
100p |
3.5 |
0.2% |
|
Daisy Group |
£246m |
91p |
6.8 |
1.7% |
|
GKN |
£3.9bn |
244p |
10.0 |
3.1% |
Unilever (ULVR 3.25%) is a company that I've always liked, as it's solid and dependable, and a decent defensive share during downturns -- it makes the kind of household essentials that people just don't cut back on. It's mainly a dividend share, though the price has put on around 20% since the start of June.
But that price rise is the reason I'm unlikely to add it to the portfolio, as it has taken the price-to-earnings (P/E) ratio -- based on 2012 estimates -- to 18.8, and that just makes it a bit too expensive for me. After that rise, I can see the price remaining fairly flat over the next year or two, so buying it now would be just for the dividend. And with 3.3% forecast, there are more attractive dividends out there. So for me, Unilever just isn't a buy right now, but we can keep watching it.
A better dividend
A dividend payer that I think is more attractive is United Utilities (UU 2.51%). Like the rest of the utilities companies, what we're looking at here is a pure cash-cow, dividend investment, suitable to be kept for decades. And that forecast yield of 4.9% does look tasty. However, having United Utilities in the watchlist is really a placeholder for utilities companies in general, and if we buy one we will need to consider the alternatives. SSE (SSE 1.57%), for example, offers a forecast 5.8% dividend yield for the year to March 2013, rising to over 6% for the next two years. It's on a lower P/E than United, too, of around 12.6 compared to 17.6. But at the same time, United has double-digit earnings growth forecast, versus SSE's 0% for this year, rising to 3% next.
Even though the prices have risen over the past year, I'm really starting to think that a utility company has to be a buy for a long-term portfolio like ours, and one of them may well take up one of our last two slots.
The newcomer
I've added GKN (GKN +0.00%) to the list after taking a look at the company's strong share price growth of late (and thinking I wish I'd seen the potential earlier). The price is up around 20% since a positive update in October, expectations for the full year to December 2012 are strong, and analysts currently have 10% earnings growth tentatively penciled in for each of the next two years.
Even after the recent price surge, the shares are still only on a P/E of 10, and there are thrice-covered dividends forecast with a yield of over 3%. The engineering sector is on a bit of a recovery as well, so on first inspection, GKN is looking like a buy. Could we have a utility and an engineer making up our last two purchases? It's possible.
And some news
I wasn't happy to wake up on Thursday to the news that portfolio member Rio Tinto (RIO 1.60%) had warned of a $14 billion (£8.8 billion) writedown relating to its aluminum business and its coal operations in Mozambique, and that chief executive Tom Albanese had been given the boot. With dread, I awaited the market's opening.
But what happened was surprising. The price opened more than 4% down, but immediately started to recover, and ended the day just 19.5 pence (0.5%) down on 3,439 pence. And on Friday the price rose further, ending the week 1% up on 3,502 pence. This investment world really is a strange one.
Rio Tinto remains a strong buy for me.
Finally, a big part of the Beginner's Portfolio is based on a strategy of buying strong dividend-paying shares, and Neil Woodford is an acknowledged expert on it. The free Motley Fool report "8 Shares Held by Britain's Super Investor" takes a look at some of his major holdings, and I strongly recommend learning from successful investors as part of the Beginners' process. Click here to get your free copy, while it's still available.
The free report "10 Steps to Making a Million in the Market" is also one I'd urge beginners to have a read of, because it's inspirational and it really does make a convincing case for the great potential of long-term investing in quality companies.
