The changes announced this month’s Budget could cost David Griffin £15,000 a year. He isn’t a buy-to-let property magnate, nor someone who claims welfare tax credits. Instead he describes himself as “an ordinary investor” who has invested in a range of UK companies over the past 30 years.
I let stocks wither rather than sell
He says: “I don’t see why the Government wants to punish investors who are supporting UK companies. But the new dividend tax will do this.”
“You’d think they’d want people to take invest their money productively in the UK economy. But changes in recent years have had the opposite effect.”
Griffin says the taxation system in this country seems to be geared towards investing in property, or buying funds. “I am not really a fan of open-end funds, I don’t think the fee structure makes them particularly cost effective.”
He adds that they also “keep investors one step removed from the companies they are ultimately investing in.”
Griffin is now semi-retired and uses his portfolio to supplement his income. He has built up a large portfolio, mainly invested in UK companies and investment trusts.
“I use the trusts to enable me to get global exposure,” he adds. “It can be expensive to buy overseas stocks directly.”
But he says the Budget changes may force him to sell some of his long-standing share holdings.
One investment trust that has done well for him over the past 10 years is European Assets (EAT), managed by F&C.
This high conviction trust aims to deliver long term capital growth by investing in smaller and medium-sized European companies. The fund has a progressive dividend policy, currently paying 6% of the year-end NAV paid out to shareholders. It has beaten in benchmark over both five and 10 years, but is not rated by Morningstar fund analysts.
AGM’s Provide a Guide to Investment
Whether he is buying shares or trusts Griffin’s approach is the same. “I invest a small amount of money to start with. Then I get a copy of the report and account and read the statement.
“I like going to annual meetings: you get the measure of who is running the company or investment trust. Is it being run for the good of the board or to benefit their shareholders? If I think it’s the latter then I will invest more. It’s like an umbilical cord, I’ll follow its progress, learn more about the company and remain an investor.”
But he says more and more companies distance themselves for ordinary shareholders, and seem resistant to send out annual reports. “Sometimes you get an ‘opt-in’ tick box. I don’t like that approach. If that’s their attitude I don’t want to invest in their company.”
Griffin describes himself as a long-term buy-and-hold investor, who rarely sells.
“Some fund managers seem to labour under the illusion that holding a stock for five years is ‘long-term’. This seems very short sighted to me. If I invest in a good company, and its pays a good and rising dividend I see no reason to sell at all, provided I don’t need my capital back. I am not interested in constantly switching holdings; it’s costly and inefficient. I want to invest in good companies and share in their profits.”
His holdings cover a broad spread of different sectors, and different sized companies. Some of his longer term holdings include: Great Portland Estates (GPOR), Whitbread (WTB), Ladbrokes (LAD), engineer service group Vp Plc (VP) and GlaxoSmithKline (GSK),
Morningstar equity analysts point out that recent results at GlaxoSmithKline’s have been in line with expectations and consider the stock to be fairly valued – although the dividend yield is “shaky”.
They point out like all pharmaceutical companies Glaxo faces risks of drug deals or non-approvals from regulatory agencies. But Glaxo faces the specific problem of generic competition to its leading drug, Advair - a drug used in asthma treatments - which represents a significant proportion of its profits.
Morningstar equity analysts are less optimistic about another of Griffin’s long-term holdings, BP (BP). Analysts point out that the oil-giant has been “more aggressive than peers in cutting costs, which could lead to a leaner more competitive company”. Lower oil prices in future years are going to act as a significant headwind for companies like BP, who are struggling to find low-cost oil and gas reserves, rather than the higher-cost deep water and shale gas developments.
Griffin says he sticks with companies like BP when they go through stickier patches.
“In some cases I just let an investment wither rather than sell. I realise this is a rather unstructured approach but it seems to work overall.”
More information about the dividend tax, can be found in our coverage of the summer Budget here and for some expert views click here
How do you decide what funds or shares to buy? Do you have a fail-safe sell trigger? If you'd like to feature in Investment Views and tell us about your investment strategy please contact the Editorial team on editorial@morningstar.co.uk
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