Derek Pain: Looking for recruits but we're too close to the market's peak
No Pain, No Gain
Saturday 17 March 2012
With the no pain, no gain portfolio below strength I have, on a number of occasions, asserted that I am actively looking to enlist a couple of newcomers. But any recruits have been conspicuous by their absence. Why? Quite simply I have experienced difficulty alighting on any additional constituents and I have been a little disconcerted by the strength of the stock market so far this year.
Greece may have achieved its bailout but will almost certainly need further cash injections. Some other eurozone countries are still suffering acute difficulties and will require help. In addition, the world economy, although showing encouraging signs of improving, is still relatively sluggish. I know the stock market likes to anticipate events but I cannot help wondering whether it has got uncomfortably ahead in the recovery game. I am, therefore, worried that this year's advance is too far, too soon.
The desperate and unyielding crunch on interest rates, with savers stripped of much of their expected income, has obviously helped high-paying shares. Many of the more generous dividend payers are constituents of the FTSE 350 index. Surprisingly around 50 per cent of payouts come from just nine companies. Last year total payments increased by approaching 20 per cent although, as Rob Burgeman at stockbroker Brewin Dolphin points out, special dividends, which formed a chunk of the distributed cash, are really a return of capital.
There are a number of ways companies can reward shareholders when distributing cash to them. Dividends are one method. Buying in shares through stock-market purchases is another. But the merits of share buybacks have been questioned and it seems only City institutions and other professional investors can benefit. Although buybacks help earnings per share calculations there is little evidence they improve share prices; so small investors are, again, left out in the cold.
Tender offers are an often overlooked way of distributing cash. Yet all shareholders benefit, even the smallest, and the earnings per share sums are again influenced. Why more companies do not adopt such an equitable cash distribution process is a mystery.
Two of the companies I have examined have recently adopted the tender approach. James Halstead, a family-run floor coverings group, and PSG Solutions, with property services and electronic surveillance interests, have successfully used tenders in the past year. Mind you the companies, although highly rated, are chalk and cheese. Halstead is capitalised at around £521m and PSG at £26.4m. The floor coverer started life nearly 100 years ago as a maker of weatherproof materials whereas PSG is a comparatively recent creation.
The Halstead record is outstanding. Pre-tax profits should top £40m this year and another dividend increase, making 36 consecutive years of progress, is expected. And the cash-rich group returned cash through a tender in December. Not surprisingly the shares are near their peak; hence my hesitation to recruit them. I like to invest in shares when they are underappreciated but, there is, I must admit, a temptation to ignore my long-standing prejudice.
It's more or less the same story with PSG. The shares are a little below their peak. In the past year they have risen from 20p to 120p; as I write they are 102.5p. A profits explosion has done the trick. At the half year pre-tax profits were £3.9m against a £315,000 loss. Government contracts have helped. Westminster-inspired interest coincided with a dramatic advance in the performance of the electronics operation.
I contemplated adding PSG to the portfolio in 2008. Then it seemed destined to score from the ill-considered and since abandoned Housing Information Packs. Following the HIPs débâcle entrepreneur Bob Morton and PSG chairman Jonathan Mervis bid 17.125p a share. Their joint interests are now around 50 per cent.
Although Halstead and PSG would make fine constituents, I eventually hate getting in at or near the top. So for now I am holding off. Who knows? Perhaps the shares of these two excellent companies will get nearer a more tempting level.
Questions of Cash: I don't use Amazon Prime, but my credit card bill says I do
HSBC becomes first bank to offer five-year fixed rate mortgage with interest rate under 2%
Are finance apps stealing your personal data?
Pension freedoms: How to deal with cold calls from scammers
Women to lose benefits from contracted-out pension scheme
- 1 Rarest Beanie Baby bought for just £10 at car boot sale could be sold for £62,500 on eBay
- 5 Cancel Sky at your peril: man spends 96 minutes in chat but fails to get rid of service
If I’m being racially abused I don’t need a stranger with a saviour complex to rescue me
The only black face in the Ukip manifesto is on the page about overseas aid
Ukip is the only main political party to not address LGBT rights in its manifesto
Food banks: One million Britons will soon be using them, according to Trussell Trust
Religion isn't growing, it is becoming vigorous in its demise, says philosopher AC Grayling
BBC election debate: The one photo that summed up the whole 90-minute leaders debate
iJobs Money & Business
£30 - 35k (DOE): Guru Careers: We are seeking a Pricing Analyst with experienc...
£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...
£21000 - £24000 per annum: Ashdown Group: The Ashdown Group has been engaged b...
£45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, int...
Day In a Page
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000