Impact of dividends

The club’s investment strategy main focus is on growth.  Dividends contribute 13.4% of the club’s total net gains. Dividend yield stands at 3.9%.

  

 

 

Highlights


Introduction

Over its lifetime (to March 2021), Mobius invested in 147 stocks,  86 of these (58.5%) paid some  dividends. The focus was on growth and return on capital, many of these stocks initially did not pay any or little  dividends, and then gradually increased them. A point to note is that growth companies in early stages of their life cycle usually do not pay any dividend, they rather re-invest their earnings in gaining market share (e.g. acquisitions) and/or develop better/larger plants, facilities or platforms. As they establish themselves, they start to pay income via dividends.

To put this into context for Mobius, of the 86 stocks paying dividends, only 22 paid over 4% (annualised) return (“dividend/stock cost”). So over 74% (64/86) paid less than the FTSE-allshare average dividend yield (~4%). Mobius long term dividend yields is 3.9%


Top 5 dividend stocks

First, let’s start with our highest yielding dividend stocks. The table below shows the annualised return rate of dividends (relative to the stock’s cost). There have been exceptions to the club’s focus on growth; notably Legal & general and BG Group that were proposed and bought with dividend yield in mind. 

Persimmon  has developed the habit of announcing aggressive long term  plans for dividend payments and special distributions (cash payments) to shareholders; and in the main it has rarely disappointed. The club received 9.5% in dividends of its original investments on an annual basis (for over 10 years). 

 

Company Name An. %DivT
Persimmon 9.5%
Legal & General 6.3%
Safestyle UK 6.2%
T Clarke 6.2%
Albemarle & Bond 4.8%

   Top 5: Annualised return rate of dividends (relative to the stock’s cost)

 

Below is a table of the top 5 stocks that contributed to the overall dividend part of the club’s total return (capital + income). The total dividends contributed 13.4% of the club’s total return (over time). The %DivC column shows the breakdown of individual holdings to the total dividends. So for example, Persimmon contributed over a 1/3rd of the 13.4%, whilst Safestyle UK contributed 5.4% of the total dividends gained by the club. 

 

Company Name %DivC
Persimmon 33.9%
Safestyle UK 5.4%
Shell (RDS-A) 5.0%
Ashtead Group 4.5%
Legal & General 3.5%

  Top 5: % Contributed to the overall dividend part of the club’s total return

 

To add another perspective, these top 5 holdings represent over 52% of the total dividend payments received. The remaining 81 stocks cover the rest (36%). This shows how concentrated is the dividend return for the club (a handful of investments) and also this comes some way to  show the strong biais towards growth assets. 

It is also clear that Persimmon has  heavily impacted the overall dividend return (one could even argue it skewed it). Take away Persimmon, the long term dividend payments would have contributed around 8.9% of the club’s total net return (capital + income), instead of the 13.4%.  In addition, the long term dividend yield would drop from 3.9% to 2.6% (if we discounted the impact of Persimmon’s dividends).



Current portfolio’s perspective

The current portfolio (March 2021) has 11 entries, 7 of which pay a total dividend that contribute 3.4%  to the portfolio’s current total return (capital + income). Below is a table with current portfolio’s positions with dividend returns. Here, we go into a bit more detail with three columns to better understand the dividend impact. The first two columns use the metrics used in the tables above and we add a third one, %DivR (proportion of dividends to the share's net profit). This one highlights the balance of income/capital return for our assets on an individual basis.

  • %DivR is the dividend contributing part to the total net return to the stock itself. For example  Chemours' dividend  contributed 4.2% of the total return (capital & income) of the stock so far.

  • %DivC shows the dividend contribution part to the total dividends of the portfolio. The %DivC column sums up to 100%. For example Tracsis contributed 9.2% to the overall portfolio’s dividends.

  • %DivT is the dividend yield relative to the stock original costs. So if we consider the total costs of buying Diploma, the dividend yield so far is 22.6%.

  • All these figures are cumulative (not annualised) - that is considered for the lifetime of the stock in the portfolio.

  

Company Name % DivR %DivC %DivT
Judges Scientific 10.4% 12.8% 9.2%
Diploma 7.6% 62.9% 22.6%
Oakley Capital 5.1% 0.8% 0.9%
TI Fluid Systems 4.8% 6.0% 3.4%
Chemours 4.2% 1.9% 2.3%
Tracsis 1.7% 9.2% 3.3%
Ideagen 0.6% 6.5% 2.3%

Current Portfolio and the three dividend ratios (cumulative, not annualised)

Diploma dominates the contribution part of the overall portfolio dividends at 62.9% (with a holding period nearing 10 years). Ideagen and Tracsis put together have a similar holding period with a much smaller joint contributing part (15.7%, that is 6.5% + 9.2%). Ideagen and Tracsis are growth company still developing market share. It is interesting to note that in the current portfolio, the dividend return contribution plays a much smaller role than the long term average (3.4% versus 13.4%).  When reading %DivR column, we can establish that dividends are indeed small contributors to the overall return of a stock; even for Diploma the dividends make a mere 7.6%.  

Work in Progress: Thank you for your visit. For any feedback, you may contact Mourad Kara.   Last update: September 2021. © Mourad KaraDisclaimers