Having just written a series of blogs on income investing, I feel like I'm part of a movement. A growing band of investors, fund managers and journalists touting income as a safe and profitable way to invest in the current market. But there's something about this story that makes my contrarian flesh creep. It's not just a band its a bandwagon.
Dividends are like crutches. If you can walk properly with out using them, it may be best to
Stockopedia concludes an article on the merits of dividends with an intriguing statement: investors love dividends, but nobody really knows why. I don't love dividends, but I can supply another reason why many investors do.
Until a couple of weeks ago, the first stage of my investment process was to screen the market for statistically cheap and financially strong companies. Over the years I've tinkered with the screens so they snare an increasingly wide range of companies and now I've abandoned traditional screening altogether for the Thrifty 30* portfolio.
I focus on recoveries and reliables because I think these situations are identifiable, and what happens next is fairly predictable. But there is a curious contradiction in backing companies that are doing well and companies that are doing badly.
If you scrape away the nasties, the pension fund, the debt and the operating leases, there's a perfectly viable business at the heart of Johnson Service on sale at a reasonable price. I reckon it earns a 12% return on capital, also promising investors an earnings yield of about 12%, perhaps more, at the current share price.
Quantitave Value Investing in Europe: What Works for Achieving Alpha
There is a growing literature on statistical methods to beat the market inspired by the original classics, Dremen's Contrarian Investment Strategies and Greenblatt's Little Book, but a new report uniquely focuses on Europe and adds momentum to the mix of factors tested. Like other studies, it shows simple value measures beat the market, but with a surprising twist.
I'm going to stray off the subject of the Thrifty 30 portfolio today, and describe a trade I couldn't make in the model portfolio because it doesn't include unlisted shares. In some ways it felt like a kamikaze trade using a small portion of my own pension fund. But I'm relieved to discover, it probably wasn't!