Dividends by the bucket load

March has been the busiest month at the UK Value Investor head office (spare bedroom) for a long time. I’ve had reports from Mallett and J Smart, a report and strategic review from French Connection (I love their new website) and dividends from Waterman, Gleeson, Northamber and Titon. Then there’s the somewhat infamous purchase of Luminar, a company so scary it seems that almost no one will touch it.


I’ve updated the Benchmark, Holdings and Trades pages so you can see how things have evolved since last month. The total book value is up by over 14% and the market value is up by just over 7%. This compares quite well with the benchmark FTSE 100 ETF, with over 13% out-performance over 3 months. However, I won’t get too excited as that could vanish in no time. I’m looking forward to getting some 6 and 12-month comparisons which will be a bit more meaningful, and one thing to remember is that these 3-month figures are helped out somewhat as the portfolio was coming out of a bit of a lull a few months ago.

Annual and Interim Reports

French Connection’s latest report provided some information on their strategic review of how the management is going to turn things around. I don’t really look into these sorts of things too deeply, preferring instead to leave the running of the company to the professionals. Book value was down slightly.

J Smart, the property investment and development company, said (via the Chairman) “There seems to be little prospect of an increase in turnover here over the next twelve months“.  Book value was effectively unchanged.

As mentioned in the last post, Mallett’s situation is improving somewhat and book value was down only a small amount.


First up is the very large dividend from M J Gleeson (over £1,000).  Since they have basically shut the business down into hibernation mode to sleep out the recession, they’ve built up excess cash which they gave away in this dividend.  For now, this is going to stay as cash although I expect to invest it somewhere more exciting during the month.

After that dazzling payout, there’s been a good showing of dividends from some of the other holdings.  Waterman has paid out another small amount, bringing the return so far from that company to 3.8%.  Northamber continues to keep me happy with another dividend bringing their realised returns to 5.3%, although that’s only 3% annualised.  Finally, the eternal Titon (soon to reach its second anniversary as a holding) has paid out again, bringing returns to 8.5% or 5% annualised.

It’s interesting that despite me paying no attention to dividends whatsoever, they still make up about 35% of the realised gains so far.


As I said in my last post, EDP is no more and Luminar is now the newest and (by book value) biggest holding in the portfolio.  Because of the extremely low valuation, I have decided to limit the amount put into Luminar; and according to others that’s a good thing as most people seem to think the company is either doomed or about to raise capital thereby diluting existing shareholders, i.e. me.  As ever, I try to keep any prognostications to a minimum and simply look at the company structure and valuation today.

FTSE 100: 15% under fair value

I thought I’d have a go at market prognostication.  Sweeping many of the details under the carpet, I try to value the UK market via the FTSE 100 and its current price relative to the last 10 years’ real earnings (PE10 or CAPE) and how that compares to the long-run average of CAPE.   There’s not much data for the UK but there is plenty for our friends in the USA.  Over there the average value of CAPE is about 16.5 and I can only assume that ours is in the same ballpark.  That’s not a hideous assumption since from 1993 it has averaged 18.7 during the biggest bull market in history.

From what data I can salvage for the FTSE 100, our current CAPE is 14, which is good since a lower CAPE results in higher expected future returns (a subject I will bang on about in future posts since I think it is important and doesn’t seem to get mentioned enough). I might even stick my neck out and say the 30-year annualised real returns are likely to be between 1.75% and 5.75% based on some scatter plots and other fiddlings I’ve hacked together.

House Prices : 37% over fair value

Another area that I think can be valued using PE ratios is housing.  In this case you don’t need to average earnings over 10 years when looking at housing, as house buyer earnings are pretty stable, vastly more so that corporate earnings. The long run average PE (from 1980) is about 4 and in my mind 3 means the market is very cheap and 5 is very expensive.  Of course there are regional variations etc etc, but I try not to worry about the details.  Also I think my 37% number is ludicrously precise but at least I didn’t add a decimal place.

Happy Easter.

Author: John Kingham

I cover both the theory and practice of investing in high-quality UK dividend stocks for long-term income and growth.

9 thoughts on “Dividends by the bucket load”

  1. I smiled when I read your final sentence on not adding a decimal place 🙂 Very wise.I'm fascinated by your portfolio. French Connection, Smart, and Luminar have all come up in my screens but I've not invested. I think they have recovery potential but I'm not confident yet. You, of course, aren't looking at that. You're just looking at the assets. If you're right you'll get more of the recovery and I'll be the first to congratulate you.

  2. According to the FTSE Actuaries Share Indices – UK Series the FTSE 100 at 5744.9 (1st April 2010) corresponds to a P/E of 16.62RegardsKen Hutchinson

  3. Hi Richard – I think next time I might just say 'about 35%' and revel in the uncertainty of it all! Where we differ is that I believe the market is very efficient but not very rational; or you could say it is efficient at reflecting the irrational beliefs of its participants. You think out-performance can come from analysing companies in detail to gain an edge, whereas I think on average that is not possible since the market is efficient – everyone else knows what you know and is probably smarter than you (sorry!). I think you can take advantage of Mr Market's irrationality by largely ignoring the future, being cautions and a few other things that Ben Graham taught. However I do understand that people enjoy investing, so it's a bit of a competitive sport as well and your approach is probably more fun for most people!

  4. Hi Ken – Thanks for the comment. You're right, current P/E was 16.62; but P/E10 or CAPE is only 14 since the average earnings over the last 10 years has been slightly higher than the last year's, so the long term P/E ratio is slightly lower and therefore more attractive in my eyes.

  5. ERROR – There's an error in the post above… I thought it was but couldn't see where I was going wrong. Anyway, my expected future returns for the FTSE 100 is not between 1.75% and 5.75%, it is between 4% and 9% based on a scatter plot of 30 year real returns at different CAPE values of the S&P 500 (from the Shiller data).

  6. Hi UKVIThanks for stopping by my blog and importantly making me aware of yours. It's great to see another UK financial blog out there. They are quite thin on the ground from what I can find.I've added your blog to my blog list so that I don't miss any of the action.Successful investing,RetirementInvestingToday

  7. Hi RetirementInvestingTodayI see you use CAPE in an attempt to value the market and adjust your allocations. I've written a bit about how I approach the same subject, which you might find interesting. Search the blog for 'shiller' or 'tactical' and the relevant posts should crop up.

  8. I've recently been reading articles on Warren Buffet and Benjamin Graham with regards to how to value invest. It's a very interesting topic which once understood i'm sure could prove profitable. My questions are, can you value invest in the UK market (FTSE)? Is there enough stock to look through to find bargains?

  9. My filters typically only throw up 10 or 20 companies, so the pool is pretty small. However it depends on what criteria you use and how extreme you want your valuations to be. Including AIM companies can give you more to look at as there are lots of technically 'cheap' companies in there. Personally though I have avoided AIM so far as its value companies seem more volatile than those in the main markets, at least to me.

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