Sold: Dunelm’s share price is too high for my liking

Dunelm share price chart


  • Dunelm is a high quality, highly profitable business with durable competitive advantages. It’s the UK’s leading homewares retailer.
  • Dunelm is not a defensive business, but it does operate in a growing market and uses relatively little financial leverage for a retailer.
  • Dunelm has performed very well during the pandemic and its shares have performed even better.
  • I still like the business, but after recent share price gains I think its valuation and dividend yield are no longer attractive.
  • I recently sold all my Dunelm shares having owned them since 2016.

“Dunelm is market leader in the £14bn UK homewares market and active in the £12bn UK furniture market. It currently operates 173 stores, of which the majority are out-of-town, and trades online through”
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These are my best and worst performing stocks through the pandemic (so far)

The world has been turned upside down by this pandemic, along with the prospects of many companies.

Perhaps some of your own holdings have soared to unexpected highs, or collapsed to unexpected lows.

Several of my holdings certainly have.

However, don’t pat yourself on the back or don a dunce cap too soon.

In most cases, these dramatic moves are mostly down to luck, both good and bad.

As an example let’s take Dunelm and WH Smith.

Respectively these are the best and worst performing retailers in my portfolio so far in 2020 (ignoring Ted Baker, which I’ve already sold).

Before the pandemic I thought they had broadly similar prospects, with Dunelm performing well as the UK’s leading homewares retailer and WH Smith with an impressive travel retail business.

But since the pandemic began their fortunes have gone in wildly different directions.

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Selling Xaar: Why heavy R&D and high cyclicality are not a good mix


  • Xaar is a relatively young and small leading-edge technology business which I bought in mid-2018
  • It’s a good example of how excessive R&D in highly cyclical businesses can produce bad results
  • I sold because a 90% increase in Xaar’s share price since November means the company is no longer obviously cheap
  • Although Xaar was a bad investment it has helped me define the boundaries of my comfort zone, which is defensive value stocks
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Jupiter AM: A good business but is it a good investment?

In this 4,000-word investment review I look at Jupiter Fund Management PLC, a self-described high conviction active asset manager.

  • Jupiter is a leading active fund manager focused on equity funds for UK retail investors sold through financial advisers
  • Assets under management have grown fairly consistently for most of the last 35 years
  • Profitability is high, even among fund managers where high returns on capital are fairly common
  • Jupiter recently made a large acquisition to increase fund diversity and economies of scale
  • At 212p Jupiter’s dividend yield is above 8%, largely due to the pandemic and declining assets over the last two years
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Why Ted Baker has been a disaster and a gift in equal measure

Any investment which loses more than 95% of its value can only be described as a disaster. However, the lessons learned from this disaster are so powerful I would have to describe Ted Baker as a gift, albeit a painful one.

Key points

  • Ted Baker produced consistent, rapid growth for many years
  • Ted’s growth was largely funded by banks and landlords rather than shareholders
  • External funding was used to drive growth because of Ted’s weak profitability
  • Even before the pandemic, Ted had more debt and leases than it could comfortably afford.
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How to find quality companies producing consistent and sustainable growth

This article outlines how I look for quality companies capable of producing consistent and sustainable growth over long periods of time.

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Tips for investing in a coronavirus world

This article covers some investing tips based on adjustments I’ve made to my defensive value investment strategy in response to the coronavirus pandemic.

So far this pandemic-driven downturn is nothing like a normal recession.

With high-quality companies suspending their dividends left, right and centre, the economic consequences of coronavirus are much more sector specific and much more devastating than we would normally see.

As a result, I’m sure that many investors have had to re-think their approach to buying and selling stocks as they attempt to minimise risks and maximise returns from their portfolios.

I’m no different. Over the last couple of months, I’ve made a few minor adjustments to my “defensive value” investment process which, I hope, will steer my portfolio through the storm and leave it well positioned on the other side.

These adjustments are based on sensible principles and I think they’ll apply to a wide range of investors.

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The S&P 500’s CAPE ratio says the US is still expensive

In this article I look at the S&P 500’s response to the coronavirus pandemic, the impact on CAPE valuations and what that means for the index’s expected ten-year returns.

The world is in the grip of a rapidly expanding pandemic and countries around the world have shut down large parts of their economies and told citizens not to go outside.

The International Monetary Fund (IMF) now expects a global recession far worse than the one that followed the financial crisis and worse than any since the great depression.

Companies left, right and centre are suspending dividends and reporting revenue declines of more than 80%.

And yet despite the obvious damage being done to the global economy, the S&P 500 is not even in bear market territory.

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The potential impact of coronavirus on dividends

Investors who rely on dividends for a large part of their income should prepare for significant dividend cuts and suspensions in 2020.

In recent weeks, stock markets around the world have crashed as a direct result of the coronavirus pandemic.

In most corrections and market crashes, dividend investors are able to shrug off paper losses and focus on what really matters; their reliable stream of dividend payments.

But in the current crisis that may not be so easy.

The limitations on free movement of people and goods being put in place to slow the spread of the virus will have (and are already beginning to have) a significantly negative impact on the ability of most companies to generate the cash they need to pay dividends.

Already we’ve seen dividend suspensions from Marks & Spencer, Kingfisher (B&Q and Screwfix), Weatherspoons, ITV, Stagecoach and many more.

So how bad could it get? Of course we don’t know, but history may provide us with a few clues.

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A few thoughts on coronavirus and the recent stock market crash

Unless you are a hermit living in a very remote cave, I’m sure you’re aware of the coronavirus pandemic.

And if you have any interest in investing, then you also probably know that stock markets around the globe have suffered what can only be described as a stock market crash.

Crash is a strong word, but with the FTSE 100 falling 26% (from 7,500 to 5,500) in less than a month it’s hard to call it anything else.

Technically speaking we are now in a bear market, which is somewhat arbitrarily defined as a decline of more than 20% from recent highs.

What does this mean for investors? Should we sell now and hide under a rock, or is there some alternative?

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Is Diageo’s share price too high?

Diageo share price chart

Diageo’s share price has increased by more than 300% since the financial crisis of 2009. In this article, I argue that the share price is somewhat stretched and that expected returns are not particularly attractive. I also calculate a target price at which I would be happy to invest.

Diageo is a well-known and generally much-liked business. It develops and manufactures alcoholic drinks such as Smirnoff, Guinness and Johnnie Walker, which it then sells in more than 180 countries.

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Hunting for sustainable dividend growth

I write the regular Dividend Hunter column for Master Investor magazine, and in the February issue I wrote about sustainable dividend growth and how to identify it.

In almost all cases, long-term dividend growth is unsustainable without earnings growth, earnings growth is unsustainable without revenue growth and revenue growth is unsustainable without capital employed growth.

In practice, this means companies can only produce long-term sustainable growth if they employ more capital to fund more factories, warehouses, vehicles, machines, robots, offices, computers and an endless array of other capital assets.

Or to put it another way, if you’re looking for sustainable dividend growth, you should start by looking for sustainable capital employed growth…

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FTSE 250 CAPE valuation and long-term forecast

FTSE 250 Cape chart

Mean reversion of market valuations will be one of the primary headwinds or tailwinds affecting your portfolio over the long term. In this article I look at the FTSE 250’s cyclically adjusted PE ratio (CAPE), and whether it’s likely to help or hinder your portfolio over the coming decade.

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Ted Baker’s collapse is a lesson in the dangers of too much growth

Ted Baker share price collapse

Ted Baker was by far my most disappointing investment in 2019.

As outlined in my recent annual performance review, Ted Baker’s share price fell by about 74% during 2019, contributing -2.7% to the UK Value Investor model portfolio‘s overall 2019 return.

Normally I don’t like to comment on the short-term ups and downs of specific holdings, but Ted Baker recently suspended its dividend and for me that’s more than enough reason to carry out a full mid-term review.

The eagle-eyed among you will know that this review comes only a few months after a similar mid-term review of Xaar. That, of course, is not ideal, but we are where we are and the best path forward is to review the situation, to learn, to evolve and to try to avoid similar situations in future.

And in case you’re interested in the history of this investment, you can read a 2018 review of Ted Baker which I wrote shortly before investing in the company.

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Why Admiral is my favourite dividend growth stock

At this time of year, many investors like to talk about which stock they think will perform best over the coming 12 months.

As a general rule I’m not a huge fan of cheerleading individual companies, especially over the short-term, but this year I thought I’d join in and write about Admiral Group, the UK’s leading car insurer, for the January issue of Master Investor magazine.

Let me be clear: I’m not in love with Admiral, but if I had to pick a favourite investment then Admiral would be it.

There are lots of reasons why, such as the fact that Admiral has produced consistent growth and average total shareholder returns of almost 16% per year since I first invested in 2013.

But that’s all in the past, and in investing it’s the future that counts.

And on that front, I think Admiral is probably more attractively positioned and more attractively valued today than it was when I became a shareholder.

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