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Dividend Shares to Fund My Retirement

Investor Views: Private investor Gurmit Dhendsa is running his own share portfolio rather than rely on a pension manager

Emma Simon 10 July, 2019 | 12:08PM

GlaxoSmithKline

Gurmit Dhendsa says he initially started investing as a way of ensuring his mortgage was repaid.

Dhendsa, who live in Reading, Berkshire, says he and his wife took out an endowment mortgage in the 1980s. “This was the fashionable thing to do at the time. But it became clear several years later that this was not going to pay out what we thought it would, thanks to changing economic conditions.”

To build up an alternative savings pot Dhendsa started investing in shares. He explains: “I first started investing during the privatisations in the 1980s. I held British Gas shares, for example.” He says he had seen the value of these privatisation shares rise, so this seemed like a good option.

He now invests in a range of direct equities within his ISA, which is with AJ Bell. He also holds a smaller pension too.

He says: “Initially we started saving to ensure we could pay off the mortgage. But have since tried to build up a reasonable portfolio to provide for our retirement.”

Dhendsa, who works as a sub-postmaster,  says: “I have tended to stick with direct equities rather than funds. I do invest in specialist funds, like VCTs (Venture Capital Trusts). I have invested in a few funds in the past but I prefer picking my own stocks, rather than pay a fund manager or pension manager to do it for me.”

Dhendsa says that his experience with pensions has not been particularly good. In the past he had a “very small holding” with Equitable Life, the troubled insurance company that came close to collapse in the early 2000s.

Rather than withdraw these funds he has kept them invested with the insurer. “I assumed it would be a write off. But it looks like there will be some final uplift paid to the few remaining policyholders. I won’t have made much money but it won’t be the disaster I thought it was at the time.”

Patience Pays

Dhendsa says that one of the lessons he has learned over the years is that it can pay to be patient. For example he has held preference shares in Lloyds Banking Group (LLOY).

He explains: “Initially these were Halifax preference shares which were then converted to Lloyds shares after the banks merged. At the time they were paying a very attractive income of 9.5% a year.

“But after the financial crash this income wasn’t paid at all, as the bank stopped all dividends. As a result the share price went down too.”

Dhendsa held on to the shares, which after a few years in the doldrums have started to rise in value again. “The return overall has been good, particularly as I bought additional shares when they were at a low value. I added to my holding when shares were around 60 to 65p and then sold when they were around the £1.30 to £1.40 mark.”

Elsewhere Dhendsa tends to favour shares that have the potential to pay decent dividend streams. One of his long-standing holdings is the pharmaceutical giant GlaxoSmithKline (GSK).

This company currently yields around 4.88%, according to the latest data from Morningstar, where analysts give the stock a four-star rating.

Morningstar points out that the company has a wide economic moat, meaning its business, revenues and profits are well protected from rival companies.

Morningstar analysts say: “As one of the largest pharmaceutical companies, GlaxoSmithKline has used its vast resources to create the next generation of healthcare treatments. The company's innovative new product lineup and expansive list of patent-protected drugs create a wide economic moat, in our opinion.”

Other shares in Dhendsa’s portfolio currently include Royal Dutch Shell (RDSB), insurance company Aviva (AV.) and telecommunications giant Vodafone (VOD).

He says: “I mainly buy share listed on the London Stock Exchange. But this gives me access to large multi-national companies like these, who derive much of their revenue and profits from overseas.”

All three also have four-star ratings from Morningstar, reflecting the fact that shares in all these companies are currently trading below Morningstar’s ‘fair value estimate’.

Smaller Tech Stocks

However while such large cap companies make up a good proportion of his portfolio, Dhendsa also invests in a number of smaller companies. Alongside some VCT holdings, he has invested in a smaller technology companies like Arcontech (ARC).

Dhendsa says: “I’ve held onto this for a long time - almost as long as my Glaxo holdings - and for most of the time it hasn’t paid a dividend and has shown minimal growth.

“However in the last couple of years the share price has increased substantially. I bought the shares at around 2.5p each, and they are now worth around £1.76.”

Not all his holdings have proved to be quite so lucrative. Dhendsa says he did have a small stake in the alternative energy company Flowgroup, which has since gone into administration.

Dhendsa accepts that some disasters are inevitable, particularly when he is dabbling in smaller company stocks. He says: “I try not to invest too much in these riskier holdings.”

Some shares he holds for a long period of time, while others are traded more frequently.

He says: “I tend to have between 15 and 20 different companies in my portfolio. I have been investing through a number of different economic cycles but overall I have made better returns that simply keeping my money in the bank.”

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.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Arcontech Group PLC188.95 GBX1.31
Aviva PLC428.90 GBX-2.17
GlaxoSmithKline PLC1,738.72 GBX0.45
Lloyds Banking Group PLC59.01 GBX-0.97
Royal Dutch Shell PLC B2,318.50 GBX-0.54
Vodafone Group PLC163.00 GBX-1.36

About Author

Emma Simon

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

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