Back to basics to find quality dividend paying stocks

This is a back to basics method on how I look for stocks. There are numerous methods that other people use but some investors get too caught up in a stock’s current yield and don’t look at the fundamentals.

It’s all about finding sustainable growth.

While higher yields might be tempting, the best dividend stocks are those that increase their payout on a consistent basis. That’s why investors should look past the dividend yield and focus their attention on companies that have the traits needed to deliver steady dividend growth. That pursuit should enable investors to build up more wealth over the long term.

The characteristics of a great dividend growth stock

The best dividend growth stocks tend to share four traits:

  • They generate lots of excess cash flow.
  • They have a strong, investment-grade balance sheet with solid credit metrics for their sector.
  • They have a healthy dividend payout ratio, which varies by industry.
  • They have visible growth prospects, which improve the probability that they can continue expanding cash flow and their dividend for years to come.

So lets get into how to find one.

Price in its self means absolutely nothing so I’m first of not interested in that . I head over and search the 52 week low of the FTSE 250 , If your looking at US stocks you’d be looking and maybe the S and P or the DJIA. With a quick google of ’52 week low FTSE 250′ , I get all the companies showing on a list on the Investing.com website. From this I click on the fundamentals.

The only companies on this list that currently have my attention are the ones showing revenue and showing a P/E between 10 and 20. Any higher than 20 and on this list, is probably having a crash due to an over priced stock and its growth potential is limited, and any lower than 7 then the company is going to have very slow growth. So just from this sample screen shot we can eliminate everything except Biffa, Caffyns and Concurrent Technologies.

Now we have three companies to look at, the next part would be to see if they pay a dividend and is it in my remit. The amount of dividend that is acceptable all depends on person to person. Personally for myself I look for dividends around 3.5-8%. While on this same site I can click on the company and click on the financials then dividend. I’m also looking to see if the dividend has been falling or rising.

Biffa = 3.48% Caffyns = 6% Concurrent Technologies =3.38% From this screen shot I’ve whittled all these stocks down to just Caffyns.

From here the next stage for me is to find its intrinsic value. Before I dig deeper in to this company I need to know is it still over valued or is it now ripe for further investigation. To find this value I’ve written a simple version and can be found on my blog here: https://thesimplemindedinvestor.wordpress.com/2019/01/01/calculating-a-company-intrinsic-value/

Intrinsic value is 26.86p where as at the moment its 67.00. This means the stock is potentially still very much over valued and has lot more to fall yet. Out of the 250 potential stocks of the 20 on the screen shot 41 stocks are at their 52 week low and none of the 20 were hitting my investing criteria. So I then looked at the other half of the list, and I came across Xp Power . I done exactly as above and the intrinsic value came out at 6195p compared to today’s price 2000p. This company seems to be very much undervalued, with a dividend at 3.77%. On taking the intrinsic value it would have also been noted the growth estimates . You can see whether the company is growing sufficiently compared to previous years.In this case the estimated growth for the next year is 8.9% and last year it made growth of 18.90%. Over the next 5 years its expected to be 27%.

Quick catch up:

We’ve looked up today’s largest market caps at there 52 week lows (this changes daily). From here I then checked for the allowable (personal choice) PE ratios and then the dividend payers that also have revenue. This slims down the party numbers and whats left I then check their intrinsic value.

Cash flow is next:

To understand the true profitability of the business, analysts look at Free Cash Flow (FCF). It is a really useful measure of financial performance – that tells a better story than net income — because it shows what money the company has leftover to expand the business or return to shareholders, after paying dividends, buying back stock or paying off debt – Investopedia.

Its free cash flow has steadily increased from a negative position in 2014 at -2.5 m to today’s positive of + 5.8 m . This FCF also includes the paying of dividends. This is a growing company.

Balance sheet:

Is the company growing? are its debts growing? Over the last 4 years its assets have risen from 103 m to new highs now at 171 m . Its debts over the same period have gone from 22 M to now at 54 M. This equals a 68% debt.

Conclusion:

On the basis of this the company looks like a good buy on most aspects. The one downside for me was the debt ratio , for ideally this would be 40% or less. A very important thing to do is to actually look up the company to find out what it does and how long the management have been in place. If this company is a lender of some sort then this debt % would be very good. There would be two methods I would now enter into this company. The first is I would allocate a % of my buying funds purely for this purchase, for example 6% of my portfolio. Of this 6% I would break this up into 3 parts. These three parts are used to dollar average in, in case the stock drops lower. My second entry point (as long as the fundamentals still hold) is when the stock drops another 30% . For example if you put on 1k and it drops to 0.7k that would be the second entry, and the third and last the next 30% drop. The timing in the first entry would be a weekly engulfing candle. Please note I know everyone is different on the way they choose their stocks and this is just one way of looking at it.

After all this there is a simpler way and that to use a stock screener. Though its good to know how to do it yourself so you know what your buying and so your better educated.

Thank you for reading.

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My relationship with the taxman

After world war two my granddad fortunately made it back though he did suffer from various aliments.I cannot remember them all as he had passed away before I was born but one thing he suffered from (I have no idea what it was ) meant that he had to sleep outside . This was the general practice back then for what ever reason. Anyhow apart from all this he managed to set up a hairdressing business in the town that became very successful.

I’m guessing the year on this bit , but I’d say it would have been around the late 1950’s and my granddad got done by the tax man. The way he got caught was a tax man decided to check his books, but before making himself known he decided to have his hair cut. He would do this for a few months going in for a cut every few weeks. As he was sat there he would count the customers and work out roughly how many customers my granddad got. Then he’d be able to work out his turnover compared to the turn over my granddad was declaring. Needless to say in this cash industry the turnover declared was lower then what the taxman had worked out. I don’t know how much he got ‘done’ by , but it must have been alot as the story has been passed down for a number of years.

Now fast forward to when I was 17 , I set up my first business. Oh the cash was lovely and paying tax was the last thing on my mind, that was until I reached around 24. A nice brown envelope came through the door from the tax man and he wanted to check my books. I’d never used an accountant and my books were awful to say the least.

At this point in my life I was settled with my now wife and we’d bought our first home. I really needed to make sure everything was done correctly so I set up a meeting with the taxman. Oh boy it went badly; he just gave my books a 10 second glance and said “you best get yourself an accountant”.

I had a meeting now set up with my accountant and gave him all my paper work and he said he’ll be in touch. A month or so later he invited me back. He worked out that from over the last few years I’d probably owe between 3-7 thousand pound. OK I thought, that’s not too bad. So he wrote off to the taxman on my behalf and made an offer. The taxman wanted more. More paper work.

Its from here we need to fast forward 2 years. All that’s happened is my accountant would say how much, which was basically the same but the taxman wanted more paper work. This went to and fro for two whole years. By now my wife was pregnant and I was driving through a local village on a Sunday when I saw the taxman on the side of the road. I pulled over. “Hi” I said. I explained who I was and that could he give us the final bill as its been going on along time this overhanging our heads, and my wife is pregnant.

The paper work carried on going for another two years on top until finally the taxman presented a final bill. He wanted 27 thousand pound paid within 14 days!!!!. Jeez man that’s a heck of a lot of money and in all honesty I had only evaded a maximum 7 k. All of the add on’s were interest and fines. There was a moment struck of luck for me for I never had that sort of money , but can you believe it but I’d just sold my house and had a cheque of 75 K come through the post. Holy smoke how lucky were we. It gets even better.

This really bugged me that the government put me and my family through such stress that throughout the whole 5 year period that it took from start to finish , I learnt a ton of stuff. this is some of what I learnt:

1- Always use an accountant. A good one can do amazing stuff and mine was very good. I still use him today 20 years later.

2- I learnt how to stay legal but play the system. I have recouped every single penny back.

3- Don’t break the law, play the system. You must learn to play the game.

4- If you are in a negative position look for ways to turn it into a positive.

5- Avoiding tax is not illegal (though a lot of people get jealous) evading is illegal.

A UK stock I’ve purchased for January

This post is just generally not that exciting. Its more for my own purpose on why I’m buying this stock so I can look back in the future. Hays ticker LSE:HAS. As normal I will analyse each section of the company and give it a ranking. This ranking will then be converted to a percentage on whether its a good buy.

Hays is the a global specialist recruitment group, and a market leader in places such as the UK, Germany and Australia. They are experts in recruiting qualified, professional and skilled people across a wide range of specialised industries and professions. They operate across the private and public sectors, dealing in permanent positions, contract roles and temporary assignments. Its market cap is £2 Billion.

Hays current price has recently came of a 52 week + low at £1.36 . The last time it was this low was back in 2016. The current price now is £1.40. Rank 10

Intrinsic value:

The intrinsic value is £1.91 which gives the current price of £1.40 at a sale of 27%. This is a mild discount with a rank 10.

P/E : 12.2 This is good value based on earnings . Rank 10

Annual growth and earnings:

Future growth in earnings is expected to be 9.3% with the revenue at 5.7%. Over the last 5 years earnings have been 15.8% and revenue 19.2%. Hays has exceed it its expectations in the past and the future is still showing a steady growth. Rank 10

Balance sheet:

It current net worth is £700.50 m and this and been steadily rising as in 2012 its net worth was £190.60m. As regards debt then it has none. It has had debt in the past but has steadily paid it all off while growing the company. 5 years ago its debt was at 67%. Rank 10

Dividends:

This company pays an amazing 6.29% and its expected to increase to 6.6% this year 2019. Over the last 10 years the dividends have increased and the current payout ratio is only 33% Rank 10

Management:

The tenure time is longer than 5 years and this suggests they are a seasoned and experienced team. Rank 10 but with some board directors selling stock recently this will drop the rank down to 5.

Conclusion :

The overall percentage to buy is an impressive 89.24%. I’m happy to buy this stock

Calculating a company Intrinsic Value

This is the third time I’ve written this blog and I have not published. Every time I’ve wrote it I’ve ended up deleting it. I’ve either written it so long that its bores the pants off me, or its just so damn complicated to understand. So here goes again in trying to explain this in pure simple English fashion.

Most of the source for calculations from this post is taken from the book ‘The Intelligent Investor’ by Benjamin Graham. He was Warren Buffets tutor. Its a good book but with some one like me with a simple mind, I do find the book heavy in parts.

What is Intrinsic Value

Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, using fundamental analysis. Also called the true value, the intrinsic value may or may not be the same as the current market value.  – Investopedia
The Ben Graham formula is a simple and straightforward (So they say) formula that investors can use to evaluate a stock’s intrinsic value. The stock’s intrinsic value is the key idea behind it. The belief is that the stock market doesn’t really reflect the intrinsic value of the company. The intrinsic value itself is an estimate of a company’s value and depends on both tangible and intangible aspects of the company.

This is the formula:

This is the break down of the formula: If I can work this out by the end of the blog then anyone can.

  • Value is the intrinsic value that we are calculating
  • EPS: The trailing 12-month EPS (Earnings per Share). This helps us adjust EPS to a more normalized number
  • 8.5: The constant represents the PE ratio of the company with 0% growth as proposed by Graham. It is reasonable to assume this number to be anywhere between 7 and 8.5.
  • g: the company’s long-term (5-10 years) earnings growth rate
  • 4.4: The minimum required rate of return. The risk-free rate was 4.4% in around 1962, when this model was introduced
  • Y: The current 20-year AAA corporate bond rate

Two things we are going to change on this formula as times have changed and stocks grow much faster now than when they used to .

Lets try a stock and see where it takes us. Everyone knows Apple , so here goes:

The EPS (earnings per share) I found on Yahoo is 11.91

Now the growth estimates that I also found on yahoo.

Going good so far kind of ish….. Though its still quite a bit of work.

Value = 11.91 x (7 +13) x 4.4 divided by 3.97 =$264 per share

And breath …….. to find the 3.97 (the triple A bond rate) I just googled 20 year AAA bond rate. Wow I have to be honest, that was not that bad. So now we have the intrinsic value of apple it would be time to check all the other stuff in the company to see if its worth investing in. For example , Debt, Dividends, Growth, Fundamentals etc. Apples current share price is $156.

Now I’m excited about this I think I’ll check out one more company that I have my eyes on and I’m the middle of writing a blog about . Its on the London stock exchange : Hays ticker HAS.

EPS = 7.44 and Growth is 15.58

Value = 7.44 x (7 + 15.58) x 4.4 divided by 3.97 = 186p (£1.86 ) current price is £1.40.

This calculation was harder as I could not find the forecast growth very easily. Using yahoo was a very easy site as it had everything there.

There is another way

That’s one way of calculating the Intrinsic value. For me that took a while to work out and my head is spinning a little . Fortunately there is another way very similar but slightly easier. Here is the equation:

This way is much more simple . So lets run through these with Apple and Hays again:

Apple EPS =11.91 and earnings growth is =13%

V = 11.91 x (8.5 + 2 x 13.00) = $410.89 a share for Apple.

Hays EPS = 7.44 and earnings growth is =15.58%

V = 7.44 x (8.5 + 2 x 15.58) = 295p = £2.95 a share for Hays.

Analysis of the methods

Well its quite obvious the two methods produce different results. It seems the more complicated way produced a more accurate result as it seems closer to the current market price. It also tells us that intrinsic is purely a guide and its not meant to be used as the sole reason to buy or sell stocks.
Intrinsic value helps us find bargains, that is what we are after. We want to find sales and this tool can help us find them.

Conclusion:

Buying stocks that are undervalued, dividend payers with the fundamentals to match is the cream of the crop. Finding the intrinsic value helps us in finding those crops that are ripe for investing in. The next obvious step would be to put this calculation in an excel so that it on auto when looking though stocks.

I hope you’ve enjoyed this read and that its understandable. As mentioned before I have tried typing this up before but I kept deleting it as I was finding it hard to explain for my simple mind.

Happy New Year to you all and may your dividends be safe 🙂

If you’d like to keep up with updates i am on both facebook: The simple minded Invester and twitter https://twitter.com/Mindedinvestor

A stock for January 2019 for UK investors.

This blog is part one of a few stocks that I’m researching in the UK stock market to possibly invest for the coming New Year.

Each section of the stock has been given a rank with either a 1 for a sell, 5 for a hold and 10 for a buy. This is then converted to a percentage on whether its a good buy. This ranking method is completely my method and I’m not saying its right or wrong , though its does help to keep track of stocks I own or ones I’m researching.

Legal and General is on the London stock exchange with ticker LGEN.
Its a British multinational financial services company headquartered in London, United Kingdom. Its products and services include life insurance, general insurance, pensions and investment management. With a market cap at £13B.

Value:

Its current market share price is £2.24 and is at a 52 week plus low, with an intrinsic value (based on future cash flows) at £4.41 per share. This gives a discount of 49% and makes it a fair value to buy. Ranked 10

Price per earnings:

Its P/E is 8.2 (£8.2 an investor is willing to pay for £1 of current earnings). This is a very reasonable level and below the market average of 14.7. This suggests the company has room for growth and is not overvalued. Ranked 5

Growth and Earnings:

Over the coming year LGEN is expected to have an annual growth in earnings of around 2.7% with a revenue growth at 12.6%. Both of these are positive, with the growth revenue exceeding the average for the UK. While both are positive neither are high growth. The past though has been even better. Over the last 5 years it has produced 14.7% on earnings as an average, and this last year it was 15.5%, again both very positive. Ranked 5

Net worth and debt:

This has been quite a roller coaster of a ride with debt at one point in 2017 at £32,128.00m and equity at only £7,565.00m. Its net worth has increased moderately over the last 5 years from £5,122.00m to today’s net worth at £7,778.00m. Whats more impressive is that while its debt is 57.2% it has been reducing its debt and the company is very much solvent. Over the last 5 years its debt has been coming down.
Debt is well covered by operating cash flow (133%, greater than 20% of total debt) .Interest payments on debt are well covered by earnings. Ranked 5

Popularity :

This is not very technical at all. Its just noticing whether the stock is currently really popular , for example Bitcoin (though not a stock ) was extremely popular a few months ago and since then its crashed. If its over popular and people just cannot stop talking about it this would be ranked a 1. Ranked 10

Dividends:

Very good dividends at 6.59% and have increased over the past 10 years. Dividends are very well covered and the payout is only 57% of earnings. Over the next three years its expected for the dividends to increase an the payout to raise to a reasonable 62%. Ranked 10

Management:

The current management team seem well balanced with one board member having served 19.9 years so far. Ranked 10

Insider trading:

If members of the company are buying their own company shares then this gives confidence that the company is happy in its operations for can see a bright future. Sometimes something so simple can give a great insight into a company. Over the last 12 months there has been a lot of inside buying and no selling , from board members to the chairman. Ranked 10

Conclusion:

This seems a good company to buy into with a good history and stable future. I do not own any of this company stock as of yet . The total score as a percentage came out as 81.25% buy which is good. The downside to the company is its slow growth rate for the future and its debt is still over 40%. If the company carries on paying down its debt then this will increase its popularity which in turn will increase it share price. Legal and General is a house hold name throughout the UK and there is no reason to suggest a downside to the company as insurance will always be needed.

Thank you for reading this and I Wish you a Happy New year.

Kind regards

Why does everyone love Apple and should I buy some?

Warren Buffett once famously avoided tech stocks because he claimed to not understand them. However, in the past few years, Buffett’s Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B) has made an exception by loading up on Apple (NASDAQ:AAPL) stock. 

While Buffett doesn’t own an iPhone, he told CNBC last year that he simply liked Apple and believed it would be the first company to hit $1 trillion. His prediction was spot-on as Apple famously hit the $1 trillion valuation mark ahead of Amazon (NASDAQ:AMZN) in early August 2018. 

Berkshire Hathaway’s Apple investments timeline

Berkshire first invested 9.8 million shares in Apple in the first quarter of 2016 when it was trading in the low $100’s. By the end of 2016, Buffett had increased his Apple shares to about 61.2 million, which were brought in the $106 to $118 price range. 

Then, in early 2017, Buffett paid between $116 and $122 per share to more than double his Apple stake to about 130 million shares. And by the end of 2017, Berkshire owned more than 165 million shares of the tech giant. But he wasn’t done. In the first quarter of 2018, Buffett added a whopping 75 million Apple shares to the pile. And, finally, in the latest quarter, Buffett added 12 million Apple shares for a total of about 250 million shares, or a $46.6 billion stake, as of June 30.  – source Motley fool.

Clearly Warren Buffet likes this stock and I have no doubts his investment is going to be a good one . But this stock is now getting a lot of attention and as Benjamin Graham would put it ‘ beware of popular stock’.With Apple reaching all new highs at $233 on the 3rd October 2018, touching the 52 week low $146 on the 26th December, is it still worth buying now at $150?

Price per Earnings:

At 12.61 needed to be paid to earn $1 of earnings this seems very reasonable.

Stocks with low PE can be considered good bargains as their growth potential is still unknown to the market.

If the PE was high over the 20 mark, it warns of an over-priced stock. It means the stock’s price is much higher than its actual growth potential. So the stock would be more liable to crash drastically. Though comparing this with Amazon at a PE 80.2 on the last market drop , they both crashed by the near same amount at 37% from all time highs. To compare these two companies is not truly fair as they are both in different industries and what could fair better for amazon is its been producing a growth rate over 20% year on year.Amazon is classed as overvalued and has great growth potential. Apple is classed as ‘just right’ up to around the $170 mark. Therefore apple is on sale with a 7% discount . Apple for me on this is seen as a stock that is steady with growth potential, not over valued and is a buy.

Growth and revenue:

The expected annual growth in earnings are expected to grow by 3% yearly and its revenue is expected to grow by 4% yearly. This is about right compared to the overall tech market (earnings 4.1% , ) and is above the tech market on revenue growth at 3.9%. These aren’t amazing numbers and at 3% earnings growth more could be made in a low risk savings account. The company is currently not showing signs of any dramatic growth for the future from the books. But lets look at the facts of the past for the future is an educated guess.

  • Apple’s year on year earnings growth rate has been positive over the past 5 years.
  • Apple’s 1-year earnings growth exceeds its 5-year average (23.2% vs 6.8%)
  • Apple’s earnings growth has exceeded the US Tech industry average in the past year (23.2% vs 7.4%)

Apple in the past has made some impressive moves but the future may be slowing, for me this is a ‘buy at the right price’ , but currently its not cheap enough, though its a safe buy.

Net worth and Debt

  • Net worth (equity) =$102,147.00m
  • Debt =$114,483.00m

Apple’s level of debt (106.8%) compared to net worth is high (greater than 40%) . The level of debt compared to net worth has increased over the past 5 years (13.7% vs 106.8% today). For me this is concerning as this includes all cash abroad as well and the company is clearly in debt. Its debt is being covered by operating cash flow and the interest that it pays on the debt is not really a concern as it earns more than the interest is paid. One main concern of this debt is that Apple has taken it on to Buy Back Shares.

So this gets me wondering why would Apple take on debt and use some of its reserves to buy back shares , as buy backs are normally for the following:

  • Unused Cash Is Costly – its not good just holding onto cash and using it to pay dividends.
  • It Preserves the Stock Price – The less shares there are then this can hold value and in a recession there will be less shares to pay out dividends to.
  • The Stock Is Undervalued – Similar to above,. the less shares there are the easier it is to raise the value.
  • It’s a Quick Fix for the Financial Statement –
    By reducing the number of outstanding shares, a company’s earnings per share (EPS) ratio is automatically increased.  

It could be because of bullet points 1 and 2 and the company may be acting very prudently with growth potentially slowing and the stock market so high. The company debt is not a problem and if they reduce outgoings and preserve the stock price then this will help for the future. Currently for me this is a watch on the company.

Dividends:

1.86% Current annual income from Apple dividends. Estimated to be 2.05% next year .Whilst dividend payments have been stable, Apple has been paying a dividend for less than 10 years.Dividend payments have increased, but Apple only paid a dividend in the past 7 years.Dividends paid are well covered by earnings (4.4x coverage), 23% payout ratio. For the upcoming 3 years the dividend is expected to remain around the 23% pay out ratio.For me the dividend is too low and has not been tested through turbulent times. Currently for me this is not a buy.

Management:

This all seems good, with them all having an average time with their experience. The only down side is that neither has been in their current position through a market turmoil or has made any inside buying within the last 12 months.

Conclusion:

Well there’s no arguing this is an amazing company and it seems Warren buffet bought at a very good price, for at that time it was clearly undervalued. He obviously sees value and security with his money in this company and I totally agree. With the company showing long term strength and a quality management team this company could increase its dividends for a long time to come. Its a solid company with a slowing growth rate, and as witnessed these last few months the price will drop very hard on a market turmoil. Nearly everyone loves apple, for the past has been truly amazing with amazing products. For any investor this love for the stock has been compounded when Warren Buffet bought into the company.

For me this could be a long term buy as apple has a lot going for it and the share price could very well go a lot higher . Unfortunately due to the above analysis this does not fit into my portfolio requirements .I’m just going to watch for the moment, watching for a entry opportunity in the future.

Many thanks for reading this .

Facebook page – The Simple Minded Investor

Do I ‘dollar cost average’ into one of my worst stock holdings?

Well the end of the year is here and my stocks are in the red, due to the stock market officially in a bear market. It officially entered the bear market last Monday on the 24th December as the Standard and Poor index went over a 20% decline. A 20% decline is the bench mark on whether a market has entered a bear market. As of today the S&P hit a decline of 25.25%.

Now what no one knows is whether this decline is just a hard correction or its going to turn into a full blown market crash like that of 2008. Timing wise it would be due a crash but economy wise I’m not so sure. All I can do is trade on this ‘sale’. Any drop in the market is a sale and so the harder the drop the better the sale. Its a funny thing the market as it seems to be the only place where there’s a sale that people actually leave the shop.

The consensus is that the market is in a sale, whether the sale will become better is anyone’s guess , but one thing is for sure; if there’s a sale then its time to add to positions of good companies.

Of all the stocks I own Costain group (LSE:cost) is down by 24.47%. The question is do I buy more of this stock while the price is at a 52 week + low?

Costain is in the building industry and this sector has been going down for a while now .
Costain Group PLC provides engineering solutions for various energy, water, and transportation infrastructures in the United Kingdom, Spain, and internationally.

Company check:

Price per earnings stands at 9.3 ( $9.3 to earn $1 of current earnings). For me this seems reasonably cheap and inline to buy.

Intrinsic value:
 Intrinsic value refers to the value of a company, stock, currency or product determined through fundamental analysis without reference to its market value. It is also frequently called fundamental value.

This puts the company at a share valuation at £5.17 ($6.53) yet the current trading price is £3.17 ($4.01) . This is a huge discount sale at 39% . This is inline for a buy.

Growth :

The expected annual earnings growth is 7.8% ( the profit a company has earned for a period) and of this the revenue
(the total income earned by a company for selling its goods and services ) is expected to drop to -0.5%.Its revenue is expected to shrink. To put this in comparison ‘cost’ has had a past earnings growth over the last 5 years at 19.6%. This puts the company in the position that its still growing but is slowing. Its not a sell but its not fully inline with a buy for me . This for me is just a hold

Net worth and debt:

Its net worth has been steadily been growing from £30 million in 2012 to today’s worth at £181 million. This is its value after all both short and long term liabilities have been removed. This is inline with a buy for me.

Its debt (44.3%) compared to net worth is high (greater than 40%). So while this company is solvent its debts need to be watched for and if this creeps too high this could make the company struggle for growth. The level of debt compared to net worth has increased over the past 5 years (31.4% vs 44.3% today) This is again on the border line of neither a buy or a sell for me. Its a hold position as i already own shares.

Dividends:

4.42% Current annual income from Costain Group dividends. Estimated to be 5.27% next year. Dividends per share have been stable in the past 10 years. Dividends per share have increased over the past 10 years. The current payout ratio is only 42%. This gives it plenty of room for the dividends not to be a burden. For the next 3 years the payout ratio is expected to increase to 43%. This could be down to the expected drop in revenue. This is inline for a buy.

Management team:

They seem pretty well experienced as the average tenure time is just over 10 years. This means some of them rode the company through the 2008 storms. The average time in this industry is 4.5 years.This is inline for a buy.

Conclusion:

The company is not a super fast growth company but more of a ‘steady eddy’. It seems a solid company that pays a solid dividend and will do into the future years. One concern is the drop in revenue but this seems to be down the the industry slowing in this sector. ‘Cost’ in my portfolio takes up 3.6% , I’d be willing to take this up to 7% of the current holdings. As I will be adding more capital to the account throughout 2019 these percentages will start to lower. Therefore I will add to my position as its a solid company that has room within in portfolio and will not present an adverse risk.

Hope you all had a merry Christmas yesterday and are enjoying the holidays.

Kind regards