Honey #338 🍯 Top 10 ISA buys in October, UK dividends and Made.com

Fact of the day ‍

Source: Freetrade, 1 Nov 2022. Please remember this list is purely based on Freetrade’s buy data in October and should not be seen as a recommendation to buy or sell any of the securities mentioned.

What’s been going on?

Slowly but surely, UK dividends are healing.

You wouldn’t know it from the latest market payout reading but there’s a bigger picture emerging that tells more of the story.

First, though, the figures.

According to fund administration group Link, total UK dividends in Q3 fell by 8.4% to £31.4bn, compared to 2021.

There were a few big factors here, one being the effect of mining giant BHP delisting and taking its shares to Australia. Overall, the mining sector’s payouts were 21% lower, which hit the headline dividend level given the size of the payments it dishes out.

On a positive note, oil and gas payouts rose by 19% on last year and financial firms paid out 49% (£2.7bn) more as they turned the divi taps on after the worst of the Covid period.

Inflationary pressures are still weighing on UK companies’ ability to plan for big dividend trajectories from here but the important thing is the sense of regularity returning to investors’ dividend schedules.

A glance at the chart above shows that, while dividends are still lower than many of us would like, the payout pattern is more in line with the long-term rhythm than the mess of 2020/21.

And, as especially those in retirement know, the sustainability and consistency of dividends are vastly more important than the payments themselves.

As the dividend payers start to get back into the swing of things, here are a few things for income hunters to keep in mind:

  1. Don’t get hypnotised by monster yields. They’re rarely sustainable and probably only appear superficially impressive because of a falling share price. Even if income is front of mind, total return has to be your ultimate goal. If the company’s overall performance is lagging, you can be sure they’ll be thinking about cutting the dividend.
  1. Look for a progressive dividend policy. Check the dividend cover (1.5x is a healthy benchmark) and consider how the company dealt with Covid. Did they crumble and shelve payouts or was management nimble enough to navigate through the worst of the crisis and do their best to preserve cash?
  1. Beware of the dividend clump. Lift the bonnet on most UK equity income trusts and the same names pop up again and again. Holding just a few of these funds means your income sources are actually being concentrated, not diversified. Have a look at what underlying holdings you’re buying so that you’re not paying to hold them all over again somewhere else.

 

Buzzing 🐝

Shares in the microcap investment company shot up as the market began to digest the potential value of a tie-up with BP (BP.) subsidiary, BP Alternative Energy Investments.

The partnership, stretching from one end of the cap scale right down to the other, centres around green hydrogen.

ALK’s main asset, Tees Valley Lithium, is aiming to become one of the world’s most sustainable producers of lithium hydroxide. In its pursuit, a collaboration with BP could help it switch from using natural gas to the green hydrogen produced at BP's facility. ‍

Who knew alchemy was actually about lithium hydroxide all along?

Whether the news somewhat legitimised the small cap player’s ambitions among investors or it simply shone a lot on some punchy production targets, it had the market’s interest piqued. ALK’s shares are up around 77% in the past month as a result.

Small cap lithium miners like Zinnwald (ZNWD) and Kodal Minerals (KOD) have developed a bit of a cult following thanks to a connection to the global shift to EVs. Alkemy’s a bit different though and focuses less on the mining and more on the processing of lithium hydroxide. Ultimately it wants to provide 15% of European demand, predominantly for use in EV battery tech production.

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Got stung 🐝

Is it curtains for posh sofa maker Made.com?

It feels like only yesterday the velour-clad Made.com came to market with a £775m price tag. But a lot can happen in (just over) a year.

An altogether less rosy scene has developed since then, culminating in the retailer’s shares being suspended yesterday after emergency funding efforts failed. 

It now looks like insolvency consultants at PwC will bring in administrators to sell off whatever they can from the business or hopefully find some new investors.

So, where did it all go wrong?

A perennial sight on tube billboards and buses, Made grew in popularity over lockdowns as the UK household savings rate grew and sprucing up the house felt a bit more important once we had to spend every second inside. ‍

Good news for orders but supply chain traffic jams meant Made opted to hold inventory close to its main markets instead of its regular ‘just in time’ approach. That meant the firm really started to rack up stock - useful for quick delivery if the orders keep on coming, nightmarish if they don’t. 

And as inflation started to steal pounds from consumer pockets, the latter scenario kicked in.

A slew of profit warnings followed, as well as updates informing investors the firm would need up to £70m to keep the dream alive.

With warehouses full of stock, the company had turned into one of the Covid casualties its model had been designed to disrupt. And with investors so far unconvinced a turnaround is possible, the writing seems to be on the wall.

Made’s shares are now down over 99% since IPO.

Past performance is not a reliable indicator of future returns.  ‍

Source: FE, as at 31 October 2022. Basis: bid-bid in local currency terms with income reinvested.

Important information

This should not be read as personal investment advice and individual investors should make their own decisions or seek independent advice. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.

When you invest, your capital is at risk. The value of your portfolio and any income you receive can go down as well as up and you may get back less than you invest. Past performance is not a reliable indicator of future results.

Eligibility to invest into an ISA and the value of tax savings both depend on personal circumstances and all tax rules may change.

Freetrade is a trading name of Freetrade Limited, which is a member firm of the London Stock Exchange and is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales (no. 09797821).


This is a companion discussion topic for the original entry at https://freetrade.io/honey-by-freetrade/top-10-stock-buys-in-october
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…And now I can’t stop thinking about this:
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Interesting that there were more Inverse SP500 buys than long. Thats quite substantial

Would love to know the top 10 ISA ETF buys! @gemma

NAIT didnt use any of its dividend reserve during covid and post covid. The last 2 dividends were increased by 5% and 3%. Prior the average increase was 9%.
Of the 40 company portfolio only 2 decreased there dividends one was variable anyway and the other quickly got back to its previous dividend. Of the other 38 all held or increased there dividend. Easily achieved in the US as US companies spend a lot on buybacks they simply stopped them and stuck with dividends.
I have read that the Prudential Regulatory authority has told the banks they should consider spending more on buybacks so in times of stress they stand a better chance of being able to pay a full dividend.

Stay tuned for an article on our Invest Hub about this! :eyes: