My biggest wage of the year has arrived, and it's time to spend that money! I love this time of the month. It feels extra sweet, as I have enough money to buy shares in two companies (with some left over), and the two purchases will take me over the threshold of my 2014 Goal of having a portfolio worth £12,000.
My first purchase was SSE plc. I bought 63 shares at 1585.95p per share which cost £1,016.10 including charges.
SSE are a company I've earmarked for a longtime. They've delivered a dividend increase every year since 1999. Not only that, but they are ranked firmly in the top 10 among continuing FTSE 100 companies for Total Shareholder Return over that period. Over the last 5 years they've averaged 5.98% (I'm looking for companies over 3.5%). This year the yield is 5.9%. Not bad hey!
As a Dividend Growth Investor (DGI) I'm looking at dividend payments that increase every year, and as I mentioned above they've managed an increase every year since 1999. Over the last 5 years they've increased their dividend payment by an average of 5.6% each year. So, I'm not only receiving a high Dividend payment (5.9%), but I'm reassured that each year SSE are very likely to increase the annual payment every year.
I found the last part of that paragraph hard to get my head around, when I first got into DGI. I'll explain it to try and help those who are new to investing. In the most recent financial year end (31 March 2014) SSE paid 86.70p per share to all shareholders. In 2013 they paid 84.20p. In 2012 it was 80.10p and so on...... In 2010 they paid 70p. As you can see every year they're paying their shareholders more money per share. So, my £1,016.10 investment or 63 shares would have earned me £44.10 in 2010, £50.46 in 2012, £53.04 in 2013, and £54.62 in 2014. Each year I'm getting more money, but my investment has remained the same. I can then choose to reinvest that money and buy more shares, which will then in turn earn more money every year for me. How awesome is that!! The yield % I mentioned at the top of the post is the % of the payout on investment.
Now that I'm a shareholder, I don't need to do anything. Just count the money as it rolls in twice a year. This is why I love DGI.
Back onto SSE, they have just about enough dividend cover for me personally. I look for a figure around the 1.5 mark. Simplified, this informs me they have enough money in the bank to cover the cost of the dividend payment. SSE have 1.42 for 2014. Over the last 5 years they've averaged 1.46. This is rounded up to 1.5, and it's close for me personally.
SSE weren't cheap, and they are fairly close to their 52 week high price. This means the companies price is almost the highest it's been in the last 12 months. This doesn't represent good value, however as a long term investor who wants to own shares in this company for 30-40+ years I want to benefit from their exceptional dividend payments for as long as possible. If I were to 'wait' for their price to come down I could be waiting for 2-3 years and potentially 'missing out' on the payments. I looked at the companies offering better value, but I owned most of them already. I could have invested more money into those companies ('make hay when the sun shines'), but I want to balance my portfolio with various companies in different sectors to reduce the risk of my total investment portfolio. That's why I've invested in 2 different companies that I don't already own.
Has this helped people understand how I and many others invest in individual companies? Does anyone else own shares in SSE? Are you pleased with being a shareholder?
(I just want to clarify that I am not a financial professional, I don't work in the finance industry and I'm not recommending anyone do what I do above. I am 100% comfortable with the risks I'm taking. Please seek professional assistance if you wish to invest yourself.)
Labels: Stock Purchase, Strategy