Tuesday, 25 February 2014

Bye-Bye BaBY (Portfolio Sale)

Buy the T-shirt!


The one that I'm holding onto - even though it's price rise is already the equivalent of 5.8 years' current income (in addition to a still-respectable dividend yield of 4.6%) is Carillion (LSE:CLLN). Moreover it's dividend cover is still a very comfortable 2.5 - and this is forecast to continue.  So that's a 'keeper' - for now (but its days are probably limited as I'm guessing that the price will continue to rise - but I can't fight the urge to sell for ever).

The one that I'm kissing goodbye to is Balfour Beatty (LSE:BBY). I bought this at the end of March 2013, doubling up my stake when the price fell in the following week. It's showing a reasonable - but by no means spectacular price rise of 26% - just hitting 5 years' worth of current income. The dividend yield is still 4.5%. Although the dividend cover is still very respectable at 2.5, this is forecast to fall. And some of the other numbers don't look good - for example Return on Capital Employed (ROCE) seems quite low. Looking at the price history over the past few years, this is a share that has bobbed up and down quite significantly, no doubt due to surprises it has given to the market. So, I'm grabbing a profit.

There you have it: two very similar dividend shares - but one stays and one goes. The differences are subtle - and it is obviously by no means certain that I've made the right call. But it's a system, of sorts.

[Sale price: £3.1441]



  1. That's pretty much how I see it too. As I commented on your other recent post, I'm running BBY with a tight stop-loss (almost triggered yesterday) but wondering if I should just cash in now and keep that extra few %.

    As I write the share price has rebounded to near to the 12 month high, so I'm going to see if it can push any higher before making a decision.

  2. When you do sell because it has reached your target of a price increase equivalent to 5 years income, do you then always manage to replace it with another investment that produces more income. Your post states that the Balfour Beatty yield is 4.5% with a cover of 2.5, and I am wondering what you would replace this with?

    1. Hi FI,

      Usually I aim to replace it with something having a higher yield than the portfolio average (currently 5.5%). Alternatively, I might try a new ETF which might have a slightly lower yield, as I am still building up a 'reference' portfolio of income-producing ETFs. I like to think that this process helps to 'refresh' the overall portfolio and fine-tune the strategy.

  3. Hi DIY,
    I've been looking at the I shares JP Morgan Emerging Markets Bond (SEMB), a sovereign + quasi sovereign ETF, near 52 week low, down -12% for year, NAV of $3.3bn, yielding 5% according to Bloomberg, 4.5% according to I shares literature .... however what I really like is that it pays income monthly .... great for compounding. What do you think ?

  4. I've now joined you in selling BBY and recycled part of the proceeds into Ladbrokes (LAD) which is yielding 6% - now crossing fingers for a recovery, if they ever manage to sort out their online offering!

  5. I sold out my BBY and AZN on similar grounds - I was up 40% on each in less than 2 years and though offering good yields were feeling a bit overpriced.

    Been a bit of a mental tussle as to what to re-invest in though.

    Still not got my investing strategy nailed down yet but thank you for the blog - I have definitely been affected by yours!

  6. Hi Sisyphus,

    One candidate that you can look at for your portfolio is NB Private Equity Zero Dividend Preferred Shares listed in LSE. Ticker NBPZ.

    They will redeem it in 2017 May.

    The share is trading at 1.4975. Redemption is set at 1.6973. So, in 3 years you have a 13% appreciation potential.

    Annualized return of 4.11%, a bit lower than your normal 5% yield, but seems like a reasonably sure investment.



    1. Thanks Vatsa

      That might be worth thinking about - but the short maturity means that it is not eligible for an ISA.