In August I decided not to add pawnbroking and lending group H&T to the SIF portfolio. My reasoning was that it didn’t add much useful diversification. That may have been true. On the other hand, H&T might have added some much-needed profit to the portfolio!
As often happens when I override my screening results, H&T shares have risen since the end of August, thanks to strong trading and upgraded full-year guidance. So my mission this week is to make a final decision on this stock. Does it still offer the kind of value and growth potential I’m looking for?
A dividend debate
Before we look at H&T, I’m going to take a quick diversion into my stock selection rules. I often think about how I might improve the screening rules I use to select stocks. And readers sometimes contribute suggestions too, for which I’m always grateful.
I generally prefer to invest in dividend-paying companies. I see dividends as a good discipline for management, and a useful indicator of profit and cash generation. But I’m well aware that many investors do well by focusing on capital gains and total returns, without worrying about yield.
I recently wondered whether my requirement for a flat or growing dividend yield of at least 1.5% might be an unnecessary restriction.
To test the impact of these requirements, I disabled the rules in my screen relating to yield and dividend growth. Doing this increased the number of qualifying stocks from 15 to 22.
That seemed encouraging, but when I looked at the new stocks, they didn’t seem that appealing. There were a number of dual-listed overseas energy stocks, a couple of small cap miners plus two stocks I might consider -- Wizz Air Holdings and Standard Chartered.
On balance, the nature of the extra stocks suggests to me that it’s prudent to require a dividend for SIF stocks. The portfolio’s focus is on affordable growth from reliable performers. I don’t want to increase the level of speculative risk, and I don’t want to focus on pure growth stocks or turnarounds.
My dividend rules will remain unchanged for now.
Back to H&T
Graham Neary covered H&T in depth following the group’s interim results in August. More recently, Paul Scott took a look when the firm upgraded its full-year guidance.
I won’t repeat Graham’s…
