Category: Share research

Reckitt Benckiser is one of the world’s leading fast moving consumer goods companies, selling familiar products like Dettol, Durex, Nurofen, Vanish and Cillit Bang.

In recent years RB and similar companies like Unilever have become very popular with investors, largely because they offered a seemingly low risk way to invest in shares whilst still achieving attractive returns.

For a long time RB lived up to that promise, but more recently things have become less certain and RB’s share price has declined by almost a third since its 2017 high.

This share price decline has driven the company’s dividend yield up to 3%. That’s below average, but it’s still much better than the sub-2% yield RB was offering a couple of years ago.

So does this lower share price and higher dividend yield mean Reckitt Benckiser is good value again, or is it just an overpriced seller of cheap goods?

Unilever has produced amazing results for shareholders over many decades and especially in the last ten years.

Its shares have more than tripled since their 2009 lows and, with progressive dividends included, shareholders have seen returns of around 15% per year over ten years.

That would be impressive for any company, but it’s even more impressive given Unilever’s defensive nature, thanks to its large portfolio of defensive consumer products such as Domestos bleach, Matey bubble bath and Ben & Jerry’s ice cream.

However, it’s a fact that trees do not grow to the sky and companies cannot grow faster than average forever.

So does this mean the good times are finally over for Unilever investors, or is the company still a no-brainer if you’re looking for income and growth?

As I’ve mentioned several times before, 2018 was not a vintage year for my model portfolio.

It wasn’t a terrible year either, but there were more bumps along the way than I would have liked.

One of those bumps was caused by N Brown, the size 20+ and age 50+ clothing retailer, when it cut its dividend in half.

When I think of WH Smith, I think of a company which sells products that are either:

• in decline (physical newspapers, magazines and books),
• can be purchased more easily online (note paper, pencils, exercise books) or
• are basically extinct (CDs, DVDs and vinyl records).

In other words, my default mental image is of a company destined to become the next Woolworths.

However, if you look at WH Smith’s financial results over the last decade, you’ll see a company which has grown its earnings and dividends per share by about 10% per year, every year. That’s pretty amazing, especially for a company over 200 years old.

That’s partly why I decided to review WH Smith in my latest article for Master Investor magazine.

Hargreaves Lansdown is a name we’ve all heard of. It’s the dominant leader of the investment platform market and its 40% market share is about four times that of its largest competitor.

Despite its size, it’s still growing quickly with a ten-year dividend growth rate of almost 17% per year.

That’s impressive, but perhaps more impressive is the company’s astronomical 70% average ten-year return on capital employed.

In fact, Hargreaves Lansdown is so profitable that the FCA has launched an investigation into the competitiveness of the investment platform market (although I guess those two facts could be unrelated).

Hargreaves Lansdown’s massive growth and profitability are extremely attractive features, but that attractiveness has driven the share price up and the dividend yield down, and today the company’s dividend yield is well-below 2%.

For some income investors, a sub-2% dividend yield will be unacceptable, and that includes me. But perhaps I’ll make an exception for a company as exceptional as Hargreaves Lansdown.

Ted Baker is an interesting company.

It started life in 1988 as a single store in Glasgow, selling its own brand of men’s shirts. 30 years later it’s listed in the FTSE 250, has several hundred stores and concessions and generates revenues of more than £500 million and net profits of more than £50 million.

That happy little success story is somewhat interesting, but as an investor what’s more interesting is the company’s near-perfect growth record.

What do I mean by “near-perfect”?

Well, Ted Baker joined the London Stock Exchange in 1997 and from then onwards its revenues and dividends (which it started paying in 1999) have increased every single year. And if it wasn’t for a minor one-year decline after the financial crisis, its profit growth would be just as impressive.

As a defensive value investor, I find that sort of consistency very interesting, along with its double-digit growth rate and near-3% dividend yield.

One nice feature of the stock market is that you don’t have to reinvest your income to benefit from compound interest.

That’s because most companies retain a significant portion of their profits even after dividends have been paid.

Those retained profits are then re-invested in the business, compounding profits even if you don’t reinvest your dividends.

Some of the best profit compounders are known as capital-light compounders.

In this month’s Master Investor magazine, I reviewed Centrica, a large and mature business operating in a very defensive sector, which at the time of writing had a dividend yield of more than 8%.

In the latest issue of Master Investor magazine, I looked at four high-growth “dividend champions”, i.e. companies that have grown quickly whilst raising their dividends every year for the last decade or more.