A Forced Sale

Today Alliance & Leicester, the mid cap mortgage bank announced they were in detailed takeover talks with Santander of Spain.

The shares duly shot up over 45% (though are still massivley down on the highs achieved in 2007). I had been happy to continue holding A&L as they had issued no cash calls like many of the other UK banks, and the dividend looked as though it would be held.

However, with an offer price agree at £3.18 (I think) I decided to sell at the higher market price of £3.28. Why? When looking at the bid in more detailed terms it became apparent the offer was for Santander shares (1 for every 3 A&L share held). I've already held Banco Santander shares following the takeover of Abbey National in 2004 and I sold them earlier this year - so I had no desire to hold a new batch that would incur Spanish witholding tax on my dividend income.

I realised a small loss, but at least I have cash in my ISA right now, rather than waiting for shares in October. That assumes the deal is waved through on competition grounds, which cannot be taken for granted.

I've already spent the cash - moving out of the UK over to the US to buy Pfizer - a strong dividend payer in the defensive drugs sector. I've also bought a tranche of shares inb HSBC Infrastructure Company, which are yielding over 5.5% and will provide a steady income stream from all these government PFI initiatives.

So the cash released from A&L burned a hole on my cash balance for all of ten mimutes!

The Dividend Seeker

The Pain of Dividend Cuts

I learnt a valuable lesson this week on the cyclicle nature of some businesses - and how they should not form a large part of any long term equity income portfolio.

After Taylor Wimpey's confirmation that they will not pay an interim dividend this year, Barratt Developments (another one of the householders in the portfolio) confirmed they will not be paying a final dividend this year and are keeping future dividend payments under review.

This does not mean they are cancelling the dividend per se - they still paid a 12.2p interim dividend, which by default will now be the total for the year. This will hit the income target for the portfolio not insignificently this year.

Long term the housebuilders will recover. The shares hold recovery potential and they have fallen too far to sell anyway. But that is not the point - they should not be in an income oriented portfolio such as mine in this scenario.

I will hold them for the eventual recovery - but this means more than ever the hunt is on to find companies less cyclical where both dividend growth and security of payment are key.

This may mean looking outside the UK, but the need for secuirty is paramount. As an aside, a dividend payment from Marks and Spencer is due in the account today - which will provide another small step to having the funds for another purchase - and whatever that turns out to be it won't be a housebuilder!

The Dividend Seeker

Marshalls

As discussed previously, building materials supplier Marshalls has caught my eye in the current market downturn.

They have historically been good, reliable dividend payers, but the company shares have declined rapidly in the last few weeks along with the market.

I decided to take advantage of my brokers no commission offer if I buy on a mobile phone before the end of the month, and bought a 'half-holding' of £500 worth. I bought at £1.3714 each and bought a total of 363 shares.

At this price, the shares yield a whopping 10.1%. This is not always a good sign as it can signal dividend cuts around the corner. But Marshalls board last week reaffirmed their commitment to at least maintaining the dividend. I have faith in them as it is a highly cash generative business. Also, at this price, the shares are trading at book value - so I've bought the shares on an incredibly cheap 8.3 PE at a price not seen since 1999.

I am happy to tuck this one away for the long term and is a welcome addition to my portfolio.

The Dividend Seeker

June Review

This is the first monthly review of the capital performance for my dividend income portfolio. It hasn't got off to a great start, which is hardly surprising as I launched it just as the UK market slipped into bear market territory.

The figures don't make for great reading, but I am not concerned about this at this stage. If I was, I shouldn't have invested in the first place!

The porftolio is down by -9.4% in the first month, a drop of over £6000. Housebuilders Persimmon, Barratt Developments and Taylor Wimpey have had major impacts. On the plus side, I received a £71 dividend from Taylor this week, but this may be the last for a while as they have cancelled their interim dividend this year and have said they will review their future dividend policy at year end. When I look for new stocks I have made a note to ensure I take economic cycles into account more!

A success has been shipbroker Clarkson which is in positive territory at £51 and GlaxoSmithKline at over £60 - showing the merits of defensive sectors during choppy times such as this.

Despite the Taylor Wimpey dividend setback, income is starting to pick up, with oiver £110 received this week. I am now over the threshold of £1000 cash to buy a new stock, and am still looking at GKN which has now slipped below the £2 mark for the first time in over four years. But as my broker is offering five free trades at the moment, and there are so many bargains out there I am tempted to split the cash 50/50 between GKN (which yields above 7% on current forecasts) and building materials supplier Marshalls. Marshalls shares are at levels not seen since 1999 and yield over 10%, so much of the bad news must be already factored in to the price. The board also confirmed it's intention to maintain the dividend this week at it's present levels due to it's strong cash levels.

I'll let you know what I finally decide.

The Dividend Seeker

Dividend ETF's

I mentioned briefly in my June Income post yesterday about the iShares UK Dividend Plus ETF tracker.

This was launched by Barclays in late 2005 and it holds the highest dividend yielding stocks from the FTSE 350. Dividends are paid quarterly and it's an excellent first holding for any equity income investor. The very low management charge of 0.2% is also highly appealing.

I hold some of these in my Income portfolio and in my Self Invested Personal Pension. They trade at NAV each day an they have been trading below £8 a share in the last week - compared to £13 a share a year ago.

BUT the dividends are rising - which is the reason for holding them in the first place. I am waiting for the June quarterly dividend to enter my ISA and SIPP cash balances. The dividend this year for the quarter is 20.04p compared to 17.31p in the same quarter last year. A healthy rise by anyone's standards I think!

So although the level of my capital investment has gone, the income received is going up. That's OK with me as I didn't buy the shares to make a quick buck. They are contributing to my goal of a sustainable and rising income.

For anyone looking for an easy way to kick start equity income investing these are worth a look. They do have a bias to financials as they are generating the greatest yields at the moment, so be prepared for more roller-coaster price movements - but with a healthy quarterly dividend boosting my coffers (they yielded 7.16% at Friday's close) I'm greatful to hold them. They are traded on the LSE with the ticker IUKD.

Disclosure: The Dividend Seeker holds iShares UK Dividend Plus shares.

June Income

As June draws to a close I post the first monthly dividend income summary. I will do this at the last weekend of each month, with the first weekend of each month reserved for a capital review.

The first month's dividends amounted to £194.19. Not bad, and not to be sniffed at. Many of the stocks I purchased to construct the portfolio during April and May had already gone ex dividend on their payments so I missed the boat on some of them.

The values received are as follows:

BP - £102
Prodesse Investment - £27.50
Provident Financial - £41.50
Royal Dutch Shell B - £22.25 (this was half of the future expected values as I bought the second £2000 worth of shares after the shares were already ex-dividend, so the September payout should be in the region of £44)


I expect payments to start ramping up from hereon in - for example next week alone I expect dividends in the region of £130 from Taylor Wimpey, Intermediate Capital Group and iShares UK Dividend Plus ETF. As previously stated, none of this income will be spent, it will all be held to reinvest in further share purchases to grow the capital level overall.

The ETF is worthy of more comment, which I hope to do tomorrow.

The Dividend Seeker

Dividends Count - Now More Than Ever

There is not much activity to report this week from my portfolio. No dividends received or no new purchases.

But this is not necessarily a bad thing. The capital value has fallen quite considerably with four out of five days showing a decline. But instead of panic selling and realising paper losses, this selection of stocks should continue to deliver the function they were purchased to do - to provide a strong and rising income stream to allow dividends to be reinvested.

This bear market is now showing a plethora of opportunities for income seeking investors such as myself. Even some companies that I would not normally consider safe are showing up possibilites of good dividends return on a yield basis even if a significant cut were applied.

The key remains to scout for companies with a long history of stable and rising payments coupled with good earnings cover. I just wish I had more capital available now to take advantage of the myriad available.

There are two big dividends due next week - Taylor Wimpey and Intermediate Capital Group. Taylor Wimpey's will be the last at such a level for some time I think as the dividend will almost certainly be cut next year along with most of the housebuilders, but will still provide a good yield return on my purchase price.

These dividends will take me above the £1000 mark in cash, and I can purchase GKN which I mentioned a couple of weeks ago.

Next week will be the four weekly review of capital performance. I'll post a summary here as soon as I've completed it. I suspect it won't be happy reading, but I am in this for years, not just a month.

The Dividend Seeker