Investor Views: "I Ignore Dividends When Selecting Shares"

Retired investor Philip Cairns lost 80% of his portfolio in the dotcom crash. But has built up his savings via blue chip and smaller company shareholdings

Emma Simon 22 February, 2018 | 9:26AM
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Fevertree has been a very successful stock UK equities smaller companies investor views

Retired investor Philip Cairns has learned from the technology bubble and has bounced back from losses to build a portfolio of blue chip and smaller company shares which he hopes will stand him in good stead for the future.

He says: “Like most people I started off investing in endowments and then diversified into PEPs – Personal Equity Plans, personal pensions and SIPPs.”

His first foray into stock picking was in the late 1990s. 

“In hindsight this was not a good time to start,” he says. “My initial investments were in good solid companies like British Airways and Imperial Tobacco (IMB). But I eventually got sucked into technology, media and telecom stocks.”

After an initial increase Cairns then saw the value of many of these stocks fall by 80%, as the TMT bubble burst.

He says: “Being a greenhorn and becoming somewhat desperate I resorted to Covered Warrants.” This he readily admits was a mistake and he lost a further £20,000 as a result. 

But despite this rocky start Cairns has gone on to build up a substantial investment portfolio in the intervening eighteen years. 

He says: “Fortunately we had not dabbled with my wife’s personal pension, which was deliberately under invested. Since we converted it to a SIPP it has done well. Also I have a protected right pension, which was also converted to a new SIPP via AJ Bell. This has proved to be a far more successful investment.”

These days Cairns says he likes to “keep it simple” when it comes to his investments. The couple’s SIPPs either hold cash or invest in UK-focused shares and a handful of ETFs that track the main stock market indices. He says: “We don’t invest in property and we are unlikely to breach the Capital Gains thresholds so don’t even bother with ISAs.”

They own a range of ETFs from different providers that track the FTSE 100, the FTSE 250, the DAX, Nikkei, plus the Shanghai Composite, S&P 500 and Nasdaq. 

Successful Stock Picks

When it comes to individual shareholdings successful investments have in recent years have included Rentokil (RTO), Fevertree Drinks (FEVR), and Computacentre (CCC).

Rentokil is probably best known for its pest-control services. But the company is also involved in the workwear, hygiene and medical services sector.

Although its share price has started to slip since Autumn last year, it has enjoyed strong and sustained growth since 2012, with particularly impressive gains made in 2016 and early 2017.

Over the past five years investors have enjoyed annualised returns of 27.15% a year, according to Morningstar data. This far outweighs the 6.51% annualised return seen on the FTSE 100 over this period.

Fevertree Drinks is a supplier of ‘premium mixers’ for alcoholic spirits. Its business is largely involved in selling to hotels, restaurants and bars, we well as supermarket and off-licences.

This is a far younger company – it does not have a five-year track record – but one that has enjoyed phenomenal growth. According to Morningstar data, investors in this company have enjoyed annualised returns of 132.11% over the past three years. Shares priced at just 210p at the start of 2015 reached a peak of 2502p earlier this year.

Computacentre is engaged in the supply, implementations and support and management of information technology systems. The company has operations in the UK as well as in Germany and France.

This company has been listed on the stock market for far longer, and its shares peaked and crashed in the late 1990s TMT boom. However, since 2008 the company has enjoyed steadier growth and upward share price trend. Over the past 10 years investors have seen annualised returns of 20.58% a year, over the same period the FTSE 100 has delivered annualised returns of 5.91%.

…And Stock Picks That Have Disappointed

Not all his investments have proved so successful though. Some of his blue-chip holdings haven’t produced such buoyant returns over the period he has held them. This includes GlaxoSmithKline (GSK) and BT (BT.A). 

Shares in GlaxoSmithKline, the pharmaceutical giant, have been volatile over the past five years, with shares failing to revisit the peak of 1749p seen in 2013. Over this period investors have seen annualised returns of just 3.03% - half the comparable return from the FTSE 100. Over the past year alone shares have slipped 15.3% according to Morningstar data.

However Morningstar equity analysts give this stock a four star rating, meaning they consider the company to be undervalued by the market. Director of healthcare equity research Damien Conover says: “The company’s innovative new product line0up and expansive list of patent-protected drugs create a wide economic moat in our opinion.

“The magnitude of the company’s reach is evidence by a product portfolio that spans several therapeutic classes as well as vaccines and consumer goods.”

The current share price of £13.09p is below the company’s “fair value estimate" of £17.90.

Cairns says that previously he has tended to hold the same shares but reduced or added to these holdings, depending on performance. However, he adds: “We try to anticipate market correction levels by analysis of wave patterns, history of previous secular bull and bear period and so on.”

Cairns adds that the couple don’t focus on dividends or higher-yielding shares. He says: “I consider dividends to be largely illusory as the share prices is adjusted downwards correspondingly on ex-dividend day.”

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Emma Simon

Emma Simon  is a financial journalist, specialising in investment and consumer issues, writing for Morningstar.co.uk