Tag Archives: Cattles

Rising dividends from my RIRP strategy

Rising dividends from my RIRP strategy

Rising dividends from my RIRP strategy. Since the last article on the Rising Income Retirement Portfolio (RIRP) appeared three months ago, there has been a longer gap than usual, so there is a lot of catching up to do. Most of it is highly satisfactory.

The RIRP ended its fourth accounting year at the end of February with a flourish, as shown in the table below. Another £700 worth of dividends in the first two months of 2012 brought the dividend income for the year up to the projected 5.5% return on capital invested at year-end, a 14.5% increase on last year’s yield and way ahead of any measure of inflation during the period, and since inception.

Rising dividends from my RIRP strategy
The rising dividends show the value of my RIRP strategy

Every one a winner

That is what the fund is all about, and I am reassured to report that every company making an announcement during the past three months has indicated rising dividends; higher payments than previously. The figures in bold in the dividend column show the companies concerned, representing more than half the shares in the portfolio. Insurer RSA negated ill-founded market rumours of a possible cut, probably based on an uninformed assessment of their exposure to euro sovereign debt.

The last column shows how the actual dividends paid by each company during the reporting year compared with the same payments a year previously. The 10% average increase is lower than that for the RIRP because the fund has not been fully invested and often times its purchases cleverly around the ex-dividend dates so as to maximise the percentage value of its first dividend receipt. Two things to note:

  • The huge rise by Legal & General only takes the dividend a little above the 2007 level from which it was cut shortly after we made our first investment. This serves to offset the cut which United Utilities inflicted on shareholders last year when it “rebased” its future payments in the light of the latest Ofwat constraints. I should have chucked UU out when they announced that, and may yet revisit their status as the lowest-yielding share in the portfolio.
  • Bankers Investment Trust “only” raised its dividends by a little over one third of the RIRP average. The investment trust is included at the editor’s request to reassure us all that the RIRP is not an unnecessarily arcane reinvention of the wheel. Bankers is the only investment trust I could find which has as its target precisely the same aim as the RIRP: rises in dividends at least to match inflation. So far clearly it is: “Advantage: RIRP”; but the investment trust has been around a lot longer than the RIRP so it is far too early for me to crow.

The most pleasant news is of a payout by the Scheme Administrators of WFSL, part of the bankrupt Cattles company. Pleasant because it rewards a lot of work by myself and others in the dissident shareholder group that goes some way to establishing a principle not previously clear in UK law — that shareholders who are misled by information published by companies and signed off by auditors may have an equal claim with other creditors, such as the banks, in any subsequent Scheme of Arrangement designed to salvage something from the wreckage.

The Administrators have accepted in full the face value of claims under £20,000, such as the fund’s. Payments of around 27p in the pound are expected over up to six years, or a one-off lump sum settlement at a 10% discount. In view of the relatively small sums involved this clearly makes sense, and is what I am notionally accepting on behalf of the fund. The £1,079 payment compares with the £24.23 previously banked from accepting the derisory 1p per share offer which Cattles’ lawyers had advised the board was all they needed to pay to get rid of the shareholders. This moral, if not legal, fraud very nearly succeeded, but for the actions of the dissident shareholder group.

Speculating with Cattles windfall

For me the payout is pleasant for another reason: from the next issue I can remove once and for all the continuing reminder in the table of this disastrous investment (I will personally have lost a five figure sum, and at least one elderly private shareholder lost millions). The fund’s £4,000 investment was written off long ago, which means in accounting terms the payout represents a windfall. So I am going to depart from my normal conservative straightjacket and do something irrational in pursuit of rising dividends.

Our continuing Lloyds holding is the only other legacy of the early casualties in the portfolio — all the others were exited without loss. I am using the Cattles payout to top up the Lloyds holdings at no apparent cost to the fund, and so significantly reduce the average cost of the Lloyds shares we hold. This follows the accounting principles I apply in dealing with reinvested capital profits.

The purchase itself is irrational because averaging down for its own sake is usually a recipe for disaster (as contrasted with my normal policy of buying at lower prices if the fundamentals have not changed), and I frankly have less idea now what the prospects for the merged BOS/Halifax/ Lloyds/TSB behemoth really are than when I put them in the RIRP before the awful financial truths were known. The top-up is a straight gamble on Lloyds eventually coming right and the government getting out at a profit.

My only disappointment is that another company has followed Vodafone in declaring a special dividend. Glaxo is supplementing its highly satisfactory 7.6% rise in underlying dividend payments with a 5p special dividend, representing the proceeds of the sale of the company’s North American OTC brands in January. This will bring the payouts for the twelve months to mid-April 2012 more than 15% above last year’s.

But because the RIRP has only recently started investing in Glaxo it won’t feel or look like that to us — indeed our first two purchases were ex-dividend, so as the table shows we actually get nothing from Glaxo until the April payout. But with only two £1,000 units invested in Glaxo so far, I am making a further purchase at a price only a little above our average to date, though there will be no income from this latest tranche until the July quarterly payment.

Give me more regular divis!

So why should I be complaining? Of course it is nice to have more than you expected when you invested, but from a purely selfish professional standpoint, unless the special dividend is repeated next year too, I am likely to have to report the RIRP starting with a higher income from Glaxo in year 1 than it will get in year 2 — not at all what the portfolio is supposed to be delivering.

Similarly Vodafone is not certain of getting a continuing dividend from its joint venture with Verizon, which funded their recent special dividend and which in turn boosted the fund’s income from them by over 50%. Of course in an ideal world I should regard both the specials as just a little bonus, and lie back and enjoy them. But such payouts introduce an unwelcome element of unpredictability as to what I might expect in future, and one major virtue of the RIRP for someone of my essentially cautious — some may say lazy — disposition is its relative predictability.

Two more top-ups for rising dividends

Hunting for rising dividends meanwhile, I see no reason not to add another unit to our holding of Sainsbury, although now trading above our average purchase price, but still yielding over 4.8% on new investment. And the market continues to punish FirstGroup, knocking the shares back savagely after its latest trading statement. This showed lower than expected revenue growth from the bus franchises in Scotland and the north of England, which accounts for 60% of total revenue, and with lower subsidies and rising fuel costs this means margins will fall next year by one third. But the statement also says that the group continues to drive cash generation to support capital investment, debt reduction and dividend growth of 7%.

The company has told brokers that it regards the dividend as a long-term statement of how the board feels about the company and its ability to turn around the under-performing businesses. So, admittedly with some trepidation, I am making a top-up investment at 225p in the hope they will succeed, not least in retaining the Great Western rail franchise which expires in April next year, where they face stiff competition.

Assuming the directors mean what they say about the dividend, the yield on this new investment will be a shade over 10 per cent. But remember the old saying “the higher the yield, the greater the risk.”

First published in The IRS Report on 7th April 2012.

Increasing yield for RIRP and a Cattles bonus

Increasing yield for RIRP and a Cattles bonus

Increasing yield for RIRP and a Cattles bonus. As regular readers will know, the capital performance of the Rising Income Retirement Portfolio is very much of secondary importance to my principal objective: securing a dividend stream which rises by more than the cost of living through increasing yield. But once a year, mainly just out of interest, I check to see how the capital is doing.

When I wrote a year ago, the portfolio was showing a 10% gain, helped by the traditional Santa Claus rally which had taken the FTSE above 6,000. Despite another seasonal rally this year, the index still needs to climb another 7% or so to wipe out its losses for the year.

Yet again the portfolio is still showing a 10% profit on the book value, which itself increased by investment of some £14,000 new money over the year. Together with the projected 14.5% rise in the increasing yield from last year’s 4.8% to over 5.5% this confirms my long-held belief that if you concentrate on the dividend income stream, the capital eventually takes care of itself.

From now on, in response to reader requests, I am adding an extra line to the table to show the latest reported annual increase for the higher of the CPI or RPI, set against a calculation of the increase in this year’s projected fund yield against the previous year’s.

In the last article at the beginning of November I complained that it had been a fallow period for company results and dividend increases, but the following two months have more than made up for that. Six companies — whose dividends are shown in bold in the table — have announced payouts up by an average of 6% over previous payments or expectations. Vodafone is to pay nearly two and a half times what was paid out the previous year, primarily because of the special 4p dividend representing their maiden receipt from their joint holding in Verizon Wireless.

Increasing yield
Increasing yield in the Rising Income Retirement Portfolio

This month I am making further top up purchases of Sainsbury whose price is still only a fraction above our average purchase cost, and GlaxoSmithKline whose price is up nearly 10% since our first purchase, but still yielding over 4.7% on new money.

Cashback from Cattles

And Santa has brought a little Christmas cheer for long-suffering holders of Cattles shares. In a rare example of successful shareholder power, shareholders who had ignored the company’s misleading guidance on how to vote on the 1p a share offer and subsequent Scheme of Administration, and who instead followed the guidance on the dissident shareholder website and made claims under the two creditor schemes, have succeeded in forcing the Scheme Administrators to consider these claims seriously.

Investors who claimed for losses of less than £20,000 are being offered between 27% and 30% of the value of their claim, paid monthly from February or March, or a lump sum one-off settlement of some 10% less. I suspect the lump sum offer will have been calculated very much to the company’s advantage and would myself opt for the drip feed. But so far as the RIRP is concerned, for ease and speed, when the lump sum is quantified I will accept the lump. At well over 50 times what the company hoped it could fob shareholders off with a year ago, I consider this quite a result, and thank all readers who sent in proxies as suggested in support of the dissidents. There may yet be more to come if Cattles is successful in its legal action against the former auditors.

Disturbingly, however, the administrator is not admitting any legal liability in the current offer, and just before Christmas shareholders with claims of more than £20,000 were sent a series of tiresomely nit-picking supplementary questions with an arbitrary deadline to respond by January 10th. By the time you read this the dissident website http://cattlesshares.co.uk hopes to have guidance on how to respond without putting your legal foot in it.

The next feature on the RIRP will be one month later than usual in the April issue.

First published in The IRS Report on 7th January 2012.

Cattles say No to shabby board proposals

Cattles – say No to shabby board proposals

Cattles. Sum invested for RIRP: £4,000. Average price per share: 165p. Suspended 23.4.09. Value of offer under proposed Scheme of Arrangement £24.23.

As foreshadowed last summer, the rump Cattles board is proposing a Scheme of Arrangement which will involve ownership of the company effectively passing to the creditors, primarily the banks, if shareholders agree to an offer of 1p a share. In the case of the RIRP this represents £24.23.

The board is keen to stress that shareholders would get nothing if the company were forced into administration, the alternative if the proposed scheme is rejected. But they are wrong to claim the shares have no current value.

Their value is that until existing shareholders sell, we continue to own the company. If nothing else the shares have great nuisance value. I cannot see that any shareholder has any incentive to vote for this scheme, whose principal beneficiaries compared with liquidation are in fact the existing and former directors.

Some shabby small print reveals that the current directors have agreed not to sue former directors for the false accounting which the present board (whose chairman was a NED on the previous board) allege was the sole cause of the company’s collapse. Sanctioning the Scheme of Arrangement will let the existing and former directors off the hook of an insolvency report into their responsibility, if any, for the company’s collapse. For this reason alone I believe we should use all means to try to abort the scheme.

Too much money for a self-serving board

I am similarly not impressed that 4 directors, including the chairman, have awarded themselves contracts during the last 9 months providing for annual salaries equivalent to over £500,000 or more, plus “performance bonuses” of up to £162,500 every six months for the achievement of “certain key objectives as determined at the discretion of the Remuneration Committee” — which of course will be a sub-committee of the very same board.

I believe shareholders should call the board’s bluff and vote against the scheme. At the 2010 AGM there was a 40% minority against the board on one vote. The board need a 75% majority of the votes, and even more crucially a 50% majority of those attending the meeting. A proxy holder attending the meeting will count as though he is the number of shareholders for whom he holds votes, so we have a real chance of success. A vote against will trigger administration, which is what I suspect the board desperately want to avoid, in order to avoid the rigours of the insolvency report.

Unfortunately the shareholder action group seems to have been unable to get its act together, so it is up to individuals now. If you have been sent voting papers and do not wish to attend the meeting, I urge you to follow the instructions on both the blue and white proxy forms either mandating Douglas Moffitt to vote against the Scheme, or to vote at my discretion.

So that I can know how many shareholders I speak for, please send the forms urgently to me at The IRS Report’s registered office (address below), to arrive before January 15th, so we can copy them for our records and send them on to the company. If you hold nominee shares I urge you to contact your brokers to enable your shares to be voted on your behalf, in person, not merely cast against. If they are able to make me your nominee and advise me accordingly, this would strengthen our hand immensely.

The meetings are in Nottingham on January 31st and I shall be attending to vote my shares in person.

First published in The IRS Report on 8th January 2011.

Cattles shareholders fight back

Cattles – a chance for shareholders to fight back

Cattles shareholders fight back. As I reported last month on our web update service, my disaster investment Cattles held its AGM as we went to press last issue, and in a stormy session the directors revealed a plan to sell the company to its creditors for 1p per share. This did not go down well with the small shareholders, who made up most of the meeting, and who were able to stop the directors getting the majority which they required to pass a Special Resolution which would have enabled them to call EGMs at short notice.

In reality the number of votes cast was only a small proportion of the votes which could have been cast, because most private shareholders know nothing about what has happened, as their shares are held by nominees. Cattles itself does run an email alert service which you can subscribe to at www.cattles.co.uk/investors/shareholder-information/email-alerts/newsletter_signup.

The legal firm of Edwin Coe subsequently called a meeting at short notice to create a Shareholder Action Group at which only 20 people attended. Volunteers were asked for a committee, and I and a colleague are among the number. I feel a great deal more pressure is needed if anything useful is to be achieved.

Cattles itself is only now seeking counsel’s opinion as to whether they have a case against the auditors PWC despite me proposing it at last year’s AGM. Whatever happens to that action, any proceeds now will go only to the creditors, not the shareholders.
It is my belief that the shareholders’ only real chance of redress lies in a class action against PWC directly, not least for signing off the rights issue. The days when accountants could hide behind “accepting the representations of the directors” are long gone. The accountants are there to assure stakeholders that the figures the company is reporting are correct. They weren’t: it is now known “profits” were overstated by the little matter of a billion or so.

Edwin Coe are prepared to act on a no win, no fee basis, and want to seek counsel’s opinion on whether a case can be made against PWC, who will have insurance against any liability. For this they need a forensic accountant’s report, which could cost up to £10,000. They have institutional commitments for half this amount, and if all private shareholders could be mobilised the cost per head could be as low as £20. In any class action of the type proposed you will have to be on the list of subscribers to get the benefit of the claim.

If you hold Cattles shares and, like me, don’t want to go down without a fight:

• Register with Edwin Coe at www.edwincoe.com/CattlesShareholdersAssociation.

• Visit the website www.cattlesshares.co.uk run by Barry Dearing, a private shareholder who has so far made most of the running in trying to cut through shareholder apathy.

• And most important of all: if you hold your shares through nominees, contact them NOW and ask them to empower you to vote your shares at any forthcoming EGMs.

First published in The IRS Report on 7th August 2010.