Jason Birtles has been investing for 15 years. Birtles, who lives in Buckinghamshire, started dabbling in the stock market shortly after qualifying as an accountant.
“My father was a keen investor, so I guess some of this has rubbed off. My main priority back then was saving a deposit for a house, but I have always tried to invest for the long term alongside this,” he says. “I am hoping this will help fund my retirement.”
Birtles has built a portfolio of good quality blue chip shares. He says: “I like shares that pay a decent dividend. Although markets have been good in recent years I started investing before the financial downturn, so have experienced both bull and bear markets.
“One lesson I’ve learned is that getting a decent yield or income on any shareholding can boost overall returns, even if markets appear to be just moving sideways.”
He is particularly sticking to this strategy at the moment, as he feels markets are due another shake-up, saying: “We’ve had a few periods recently when share prices have dipped, but then recovered. I’ve thought in the past that we were due a market correction but have been wrong. But it will come at some point.”
Two Long-term Dividend Payers
Birtles says two of his longer-term holdings have been Centrica (CNA) and Lloyds (LLOY).
“I remember by Dad buying British Gas shares when the company was first privatised,” says Birtles, who has held these shares for a number of years. Although share prices have dipped from their 2014 high, he says he is content to stick with the “solid dividend payer”.
Morningstar equity analyst Tancrede Fulop says: “Centrica revised its strategy in 2015 to focus on customer-facing activities and downsize upstream activities after a new chief executive was appointed.”
As a result, Fulop says the company disposed of its combined-cycle gas turbines, wind farms, and exploration and production assets outside Europe and is acquiring small, light-capital-intensive companies involved in innovative energy services linked to digitalisation, efficiency, and distributed energy.
But Fulop points out that these businesses have little in the way of an economic moat, to protect them from competitors and “uncertain structural profitability”.
However Fulop adds that the company’s dividend policy makes it attractive to investors, saying: “Non-risk-averse income seekers could be enticed by the 8% dividend yield as of late September 2018.”
Centrica’s current share price of 147.85p is below analysts’ fair price estimate of 160p
Lloyds has a four-star rating, meaning analyst believe it is trading below its fair value. Although the bank’s share price is still well below the peaks seen prior to the global financial crash, shares have rallied since the recession.
Morningstar equity analyst Derya Guzel says: “Lloyds is a pure UK banking play, with 95% of its assets based domestically. After its massive restructuring, which started in 2011, the bank emerged as a low-risk domestic retail and commercial bank.”
Guzel says that Brexit could affect its operations, but Morningstar believes the bank is “well placed to weather any short-term volatility”.
Guzel says Lloyds is viewed as having a narrow economic moat, given it some protection from newer entrants into the banking market. Its share price of 58.57p is currently below Morningstar’s fair value estimate of 76p.
Buy-to-let and Property Stocks for Income
Birtles has recently reduced his exposure to the UK property market. He explains: “My wife and I invested in a small buy to let property around 10 years ago. This has done well for us, but I am concerned the property market is looking unsustainable.”
As well as this direct investment Birtles has had a number of property stocks in his portfolio. “These have done exceptionally well in recent years. But I am starting to take some gains and reduce my exposure to this sector,” he says.
“I won’t sell out altogether. We are still going to need more houses built, and there’s clearly some political will to do this. But I do wonder whether the profit margins will be quite so attractive in this sector going forward.”
Two of his current holdings are Barratt Developments (BDEV) and Taylor Wimpey (TW.). Both have seen significant share price gains since 2012.
Over the past five years shares in Barratt Developments delivered annualised returns of 16.5% while Taylor Wimpey shares have produced annualised returns of 15.28% over the same period.
This compares to annualised returns of 4.99% from the FTSE 100.
This has coincided with a strong rise in property prices and the Government’s ‘Help to Buy’ initiative – which offers five-year interest-free “deposit” loans to first-time buyers purchasing a new build property. This has encouraged many developers to step up their house building programmes.
Diversifying Portfolio Returns
Birtles has more recently looked to diversify by investing in closed-end funds. “Similar to my stock picking, I have gone for trusts that have a track record of paying decent dividends. I felt these investments offer a way to diversify my holdings and get more exposure to global markets, which may not be a bad idea as we approach – then deal – with the immediate aftermath of Brexit,” he says.
“That said, the FTSE 100 is a very international index, so I haven’t been overly worried about this.”
His holdings include an investment in Scottish Mortgage (SMT). This global trust has a coveted Gold Rating from Morningstar analysts as well as a five-star performance rating.
Morningstar analyst David Holder says: “This isn’t a fund for the risk-averse but does have considerable merit for long-term investors seeking exposure to the potential winners of tomorrow within a broadly spread portfolio.”
