Share purchases: April 2017

By | May 16, 2017

Author: Mr DDU & Mrs DDU.

Disclaimer: Stocks mentioned on this blog are for general entertainment/documentation purposes only, following our own investment journey and decisions. Nothing in this article should be considered investment advice nor is intended to be investment advice. Please click here to continue reading our disclaimer. By viewing any page on this blog you are agreeing to the linked terms & conditions.

We’re into month 4 of our new investment strategy. Now that we’ve been successful with our IVF, we’ve decided to put at least $1,000 a month towards buying shares.

So let’s get into it:

What we bought: WAM Research (ASX:WAX). We bought 415 WAM Research shares at $1.54 each, with a dividend yield of 8.12%.

We already owned WAM Research and posted about them here earlier this year. In-case you haven’t read that article, here’s another summary:

What WAM Research do: It is a Listed Investment Company that has produced market-beating returns for many years. It turns a good portion of those investment returns into a big dividends. It keeps a large cash balance on hand for protection and for opportunities. It generally focuses on the smaller end of the Australian equity market.

A few numbers:

Market Capitalisation: $258 million

Dividend increase streak: 8 years

In its latest results for 6 months to 31st December 2016 it announced:

Latest dividend increased by: 5.88%

Latest earnings per share (EPS) decreased: 20% (This looks odd, but it’s simply that they didn’t grow the portfolio as much as in the previous period).

Operating cashflow: $45.3m

Profit after tax: $16m

Why we bought more: The main reason we decided to buy more is because the share price declined and we wanted to buy some shares anyway. We have been very impressed by the team’s performance since the GFC and they like to invest in shares we wouldn’t normally consider, so it’s a good way of getting exposure to other companies with a good performance. Plus, the large growing dividend really helps.

Risks: The main risks to WAM Research are if they underperform the market, there’s a market crash or some of their high-performing investment team leave.

Another April buy

What we bought: Rural Funds Group (ASX:RFF). We bought 293 Rural Funds shares at $1.87 each, with a dividend yield of 5.26%.

What Rural Funds Group: It’s the only REIT in Australia that focuses on farmland. It owns a good variety of farms such as cattle, vineyard, almond, macadamia and cotton.

A few numbers:

Market Capitalisation: $375 million

Dividend increase streak: 3 years

In its latest results for 6 months to 31st December 2016 it announced:

Latest dividend increased by: 8%

Latest earnings per share (EPS) increase: 150%

Latest adjusted funds from operations (AFFO (net cash rental profit)) increase: 48%

Operating cashflow: $14.7m

Adjusted funds from operations: $12.6m

Why we bought more Rural Funds: It’s by far our favourite REIT with exposure to long-term rising value of land and the apparent food export boom that Australia is starting to experience. We love the rental indexation that Rural Funds has built into nearly all its contracts which should see the net rental and distributions grow over time. We want to try to keep Rural to around (or just a bit over) 5% of our portfolio, which this purchase did.

Risks: Climate is a risk for all farmland, which management are trying to cover with the huge amount of water entitlements that Rural Funds own. Also, spreading the farms across a variety of states is also a good strategy.

The valuation is also a little expensive, but that’s mainly down to the low interest environment we find ourselves in. We’d be happy if the price/AFFO or NTA premium came down because we’ll be buying a lot more shares over the years through re-investing and additional purchases.

Final thoughts

So, there are our 2 April buys, we invested a total of $1,187. We’re happy with both of them, it was quite hard to find value when we were buying so it was good to boost our holdings of 2 of our favourites. With the way WAM Research is going, we may end up buying some more this month – we’ll have to see.

What investments did you make in April?

Thanks for reading this article about our investing journey Down Under.

Onwards and upwards!

20 thoughts on “Share purchases: April 2017

  1. Dividend Daze

    Nice buys. I have seen a lot of people buying WAX lately. Seems to be pretty popular with a high dividend yield to boot. These should add a nice amount of passive income to your portfolio. Cheers!

    Reply
    1. Dividends Down Under Post author

      Thanks DD – it is almost everything that we could want in a dividend stock and they invest in lots of stocks that we wouldn’t consider, so it’s a good pick for us all round.

      Mr DDU

      Reply
    1. Dividends Down Under Post author

      Hi Dividend Reaper, I think it would take another 2008 for the dividend to be cut. Don’t forget that the yield includes franking credits, so in reality their payout ratio is actually very manageable.

      Mr DDU

      Reply
  2. Wealth From Thirty

    I’m a fan of WAM, and many things Geoff has to say are worth giving thought to. I haven’t yet bought An LIC for my portfolio but WAM would make my top 5. Do you have a preference for one Wilson Assets fund over another?

    Your portfolio seems to be growing very nicely 🙂

    Reply
    1. Dividends Down Under Post author

      Definitely WF30, Geoff seems as clued up as any other manager that’s in the media spotlight. But in-particular, their returns over many different time periods are impressive to say the least.

      We prefer WAM Capital and WAM Research to WAM Active and WAM Leaders. I don’t think Leaders adds much compared to some of the best performing LICs, with much lower costs.

      Overall, we like WAM Research the most because it just focuses on just the best businesses to own, regardless of market movements, and has a lot more retained profits (therefore has more room to pay dividends) than the others.

      The portfolio is growing very nicely indeed, we’ll soon be coming up to a significant milestone that has come up a lot quicker than we thought it would.

      Mr DDU

      Reply
  3. Divnomics

    Always interesting to see companies we don’t know already. They both have a pretty amazing dividend yield, they will boost your income stream quite a lot. Great to see how you guys keep on buying with the new investment strategy. Keep it up!

    Reply
    1. Dividends Down Under Post author

      Thanks Divnomics 🙂 They will add a lot to our income going forwards and re-investing the dividend should grow our income very nicely quite quickly.

      Mr DDU

      Reply
    1. Dividends Down Under Post author

      Thanks TWB. This has a good bit of info on most of the LICs and they release this research every month: http://wilsonassetmanagement.com.au/wp-content/uploads/2017/04/IIR-March-2017.pdf

      Essentially, WAM Research (and WAM Capital) are nearly always trading at a premium, although it was significantly higher in March compared to now. For us, we can’t predict where the premium to the NTA will go, we’re buying the share price and dividend. We are big fans of the Wilson investing method which has served them well and should keep doing so. Where most LICs will (hopefully) match the VGS, the Wilson entities aim to beat it by a significant margin, which is worth paying a premium for us in our opinion.

      Plus, the dividend is huge and the franking credits on top just make it a winner for us.

      Mr DDU

      Reply
    1. Dividends Down Under Post author

      Thanks Nathan, they are definitely rolling in I can tell you that. We aim to grow how much we add every month for the rest of our lives.

      Mr DDU

      Reply
  4. Len @ Financialfarmers.com

    Thanks for sharing, guys. It’s interesting to read your thoughts about WAM. They definitely provide a solid yield which is pretty attractive at this time. Keep up the good work and I would be really interested in learning more about how you guys research and pick stocks to invest in.

    Reply
    1. Dividends Down Under Post author

      Thanks for the comment Len. The yield is very nice and growing, which is the most important thing. We may do an article on that if you’re interested – but essentially we make a prediction on what shares we think will grow their earnings per share and dividend over the long-term from when we invest. That involves looking at the industry they’re in, what plans they’re making for growth etc. We also look at things like the dividend payout ratio, debt and the cash flow to make sure it’s all healthy looking.

      Mr DDU

      Reply
  5. Undergrad Investing

    Are you concerned at all with how average WAM has been performing lately? As it’s my only holding of current, their moves seem to feel very large to me. I’m guessing it will all balance out though. RFF looks like a great buy thought. Good work guys

    Reply
    1. Dividends Down Under Post author

      Wilson has a long history of outperforming the accumulated index. They won’t necessarily be able to outperform every single month, or even every 6-month period. We believe in their investing process and how they manage their money by keeping lots of their assets as cash. There has been a (perhaps unfair) run up in share prices of the big companies, away from small and medium caps which Wilson tends to focus on. Perhaps over the next 3 months it will even out. For us, a big drop in the share price just creates a better entry price. In the long run, the large dividend (which we re-invest) and capital growth should more than make up for any short-term problems.

      Mr DDU

      Reply
  6. Early Investor

    I’ve been eyeing WAM research limited for a while too. Looks like a solid business.

    Do you guys have dividend reinvestment plans for all your shares like WAM research or for only some? I’ve been having a hard time wondering whether It’s worth it especially if a company one day could be overvalued if you use their DRP and also for tax reasons /fees in relation to tax payable each year.

    Anyways wish you guys all the best with your journey 🙂

    Reply
    1. Dividends Down Under Post author

      We have DRP in place for nearly all our holdings that do them, we want to build up all our holdings without necessarily adding more capital.

      It might produce a better overall result to take the dividend as cash than more shares, but for now we’re happy to do it. Whether you take the dividend as cash or DRP you’re still receiving the same dividend for tax, so that’s not really a consideration for us.

      Thanks for reading and the well wishes

      Mr DDU

      Reply

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