Friday, December 29, 2006

Gold Miners could be takeover targets

The acquisition of Newcrest Mining Limited (ASX:NCM) by an overseas party in 2007 would mean that 80% of Australia's gold industry would be foreign-owned. Surbiton Associates estimates that the industry is currently 66% foreign-owned.

Analysts believe that Newcrest has a gold resource and reserve base that is too substantial not to come to the attention of US-based Newmont Mining and Canada's Barrick Gold.

John Quinn, a former MD of Newcrest, believes that a takeover of Newcrest by Newmont is inevitable. Quinn says the world's largest gold miners are under pressure to maintain production in an environment of low rates of discovery, diminishing reserves and rising costs. There was significant mergers and acquisitions activity in the mining sector in 2006. The 12 biggest deals worldwide were worth a combined $A145bn.

It is believed that potential takeover targets in Australia could include Newcrest, Oxiana and Zinifex, while offshore targets may include Anglo American, Teck Cominco or Alcan.

It is not surprising with resources rapidly declining that companies are having to merge to keep up production rates. I beleive this will be a continuing trend and unfrotunately for us there is only a limited supply of reosurces in the world. I wonder when they will all be gone ?

Good Luck Investing

Banking Figures Released

The Australian Prudential Regulation Authority (APRA) has released October 2006 mortgage data. On 28 December 2006 it was confirmed that the Westpac Banking Limited (ASX:WBC) has surpassed the National Australia Bank Limited (ASX:NAB) to become Australia's second-largest home loans provider.

NAB's market share declined to 18.01 per cent in October, which is substantially lower than its market share of 18.87 per cent in April 2006. Commonwealth Bank (ASX:CBA) remains Australia's leading home lender at 22.91 per cent, up from 22.87 per cent previously.

The other banks gained ground in credit cards, with Westpac rising to 22.75 per cent, from 22.51 per cent, and ANZ Bank Limited (ASX:ANZ) increasing to 20.4 per cent.

Banking is going to be a profitable industry for quite a while but you need to get in when they are cheap and that certainly is not now. Banks are dependable shares and are good for writing naked puts and covered calls over (providing it is done safely and with the intention of owning the share for a long period).

Good Luck Investing.

Oxiana Positive Outlook

Oxiana Limited ( ASX:OXR) has had encouraging results from drilling at its projects in South Australia (SA) and Western Australia (WA). The group has advised that based on its latest drilling results, it may be able to significantly upgrade the resource estimates for both the Prominent Hill prospect in SA and the Golden Grove project in WA. Further drilling at both projects will be undertaken in 2007. Oxiana Ltd expects to commence gold and copper production at Prominent Hill in the September 2008 quarter. Oxiana Ltd aims to increase its market capitalisation to $A10bn by 2010.
This can only be more positive news for this company. If commodity prices stay high this company is trading at a very good price earnings yield. It doesn't fit all my criteria though but for a higher risk play this could be a good resource stock to trade.

Good Luck investing.

Directors buying and selling close to announcements

The Sydney Morning Herald reported today that gold miner Troy Resources Limited (ASX:TRY) has had three directors trade in its shares less than five weeks before its past three profit results were released.

Troy Resources Ltd director, John Dow, acquired 20,000 shares three weeks before the company announced a doubling of net profit to a record $A16m for 2005-06 while Troy Resources Ltd director, Philip Naylor, sold 17,776 shares less than four weeks before the miner and explorer reported a 36% decline in revenue and a 38% fall in profits for 2004-05.

There were no significant share price movements after the announcements, indicating that they did not contain information that surprised the market, but the trades show that some companies have accommodating share trading policies. The Australian Institute of Company Directors says there are important legal and reputational reasons for companies to maintain sound share trading policies.

The above is a good reason why director buying is something you should be looking for when purchasing a share. You always need to question a stock where the directors are selling out of it especially if it is coming up to a reporting period.

Good Luck investing.

End of Year Portfolio Update

This Portfolio has come to the end of its first month. It was started on the 13th Dec but to make it easier I will go by the end of month results.

So how did it perform ?

RHD Bought at 65c now trading at 62c for a LOSS of 3c (-4.6%)
SCV Bought at 80c now trading at 80c for a BREAKEVEN (0.0%)
FEA Bought at 63c now trading at 63.5c for a PROFIT of 0.5c (0.7%)
ITD Bought at 41.5c now trading at 52c for a PROFIT of 10.5c (25%)
CKL Bought at 59c now trading at 62.5c for a PROFIT of 3.5c (5.9%)
MCP Bought at $2.65 now trading at $2.84 for a PROFIT of 19c (7.1%)
AVE Bought at $2.19 now trading at $2.46 for a PROFIT of 27c (12.3%)

Cash : $30,000
RHD : $ 9,538
SCV : $10,000
FEA : $10,079
ITD : $12,530
CKL : $10,593
MCP : $10,716
AVE : $11,232

Total : $104, 688

Month 1: Profit of $4,688 or 4.688%. Annualised this is a gain of 56%.

The strike rate on this was 5 out of 6 stocks at breakeven or higher. Only 1 stock showing a slight loss.

My goal is to average around 20% for each year ( or 1.66% a month ).

For those interested my personal portfolio is up 37% this year (JAN 06 to JAN 07). It has had 11 trades and only 1 is showing a minor 5% loss.

Good Luck Investing.

Thursday, December 28, 2006

Portfolio Update

Another Portfolio update :

RHD Bought at 65c now trading at 64.5c for a LOSS of 0.5c (-1.0%)
SCV Bought at 80c now trading at 80c for a BREAKEVEN (0.0%)
FEA Bought at 63c now trading at 62.5c for a LOSS of 0.5c (-1.0%)
ITD Bought at 41.5c now trading at 51.5c for a PROFIT of 10c (24%)
CKL Bought at 59c now trading at 62.5c for a PROFIT of 3.5c (5.9%)
MCP Bought at $2.65 now trading at $2.85 for a PROFIT of 20c (7.5%)
AVE Bought at $2.19 now trading at $2.42 for a PROFIT of 23c (10.5%)

Cash : $30,000
RHD : $ 9,923
SCV : $10,000
FEA : $ 9,920
ITD : $12,409
CKL : $10,593
MCP : $10,754
AVE : $11,050

Total : $104, 649 ( Profit of $4,649 or 4.649%)

Good Luck.

Monday, December 25, 2006

Brokers and Clients - Wheres the money ?

Here is an interesting story on brokers. I am not sure where is originated.

There is a story on Wall Street that tells of a recently retired elderly gentleman, who was receiving a tour of Wall Street. The tour guide pointed to the East River and said, "There are the yachts of the powerful brokers who work on The Street". The wise man thought for a while and then replied, "That's very impressive, now can you show me where are all the yachts of their clients?"

The morale of this story is that your broker may try to be your friend but he is only doing it for his commission. A lot of people rely on broker advice for buying and selling shares rather than relying on their own analysis. You really need to conduct your own analysis otherwise how can you feel comfortable in owning the share.

Good Luck Investing...

Sunday, December 24, 2006

Merry Christmas

Merry Christmas
and a
Happy New Year

Homeowners face uncertain future

Home buyers and mortgage holders face an uncertain future as experts disagree on the movements of interest rates in the new year.

Consumers are carrying more debt than ever and this can be expected to rise with spending on Christmas. The average credit card balance now stands at $2821 -- almost 10 per cent higher than last year. Along with the ride are figures showing a low savings rate and slower growth in household asset values.

These figures all point to a bleak future for the average Australian household.

Good luck investing

Saturday, December 23, 2006

Portfolio update

Another Portfolio update :

RHD Bought at 65c now trading at 63c for a LOSS of 2c (-3.0%)
SCV Bought at 80c now trading at 80c for a BREAKEVEN (0.0%)
FEA Bought at 63c now trading at 63c for a BREAKEVEN (0.0%)
ITD Bought at 41.5c now trading at 49c for a PROFIT of 7.5c (18%)
CKL Bought at 59c now trading at 63c for a PROFIT of 4c (6.7%)
MCP Bought at $2.65 now trading at $2.84 for a PROFIT of 19c (7.1%)
AVE Bought at $2.19 now trading at $2.35 for a PROFIT of 16c (7.3%)

This is not a bad run so far with only one share showing a slight loss. Four stocks are showing a profit and pulling the portfolio up.

To keep a running total on how this portfolio is performing I will start with 100K and invest 10% in each stock selection.

Cash : $30,000
RHD : $ 9,692
SCV : $10,000
FEA : $10,000
ITD : $11,807
CKL : $10,677
MCP : $10,716
AVE : $10,730

Total : $103, 622 ( Profit of $3,622 or 3.622%)

Good Luck.

Friday, December 22, 2006

Telstra news not so great

Telstra has had some bad news lately. A class suit action against them for 300 million and a very poor outlook for its TelstraClear business in New Zealand. Both articles are below :

Telstra's disclosure practices are under scrutiny as it prepares to mount its defence against a class action lawsuit. Slater & Gordon is seeking about $A300m in damages for over 200 of the telco's shareholders. The case centres on Telstra's alleged failure to fully inform the Australian sharemarket and investors about a fall in earnings. According to the claimants, Telstra informed the market of an expected downturn in earnings on 7 September 2006, but had briefed Prime Minister John Howard on the issue several weeks earlier. Telstra's shares fell by nearly 10 per cent between the two dates. Telstra's general counsel describes the case as a "misunderstanding of the facts".

Internal emails have leaked from Australian telco Telstra that indicate a growing rift over its New Zealand (NZ) subsidiary TelstraClear. The latter's CEO, Allan Freeth, claims in the message that the parent company is failing to make the necessary investments in the business at a time when it should be taking advantage of a newly-deregulated telco environment in NZ. Freeth predicts that TelstraClear will make a loss of $NZ7m ($A6.2m), down from a profit of $NZ15m, as it rapidly loses customers. He was appointed as CEO in April 2005 and has recently clashed with chair David Thodey as well as with Telstra CEO Sol Trujillo.

This comes at a time when the share price of Australian telco Telstra Limited has recovered to reach levels not seen for about a year. The telco sector is experiencing a turnaround and T3 had a high demand which has caused the instalment receipts to be trading at very healthy prices since the float.

The Long term prospects of Telstra are still unclear to me and it is a company I will stay away from in the near future. I don't trust management or the government and there is a lot of uncertainity of the possible dividends in the future. To me the risk is too high for such a mediocre share that is heavily traded by institutions.

Good Luck investing.

AFL rights a joke

Australian pay TV provider Foxtel appears to have lost any opportunity to screen Australian Football League (AFL) matches. It had been in negotiations with the rights holders for the seasons to 2011, free-to-air networks Seven and Ten, and recently sweetened its offer. However, Seven insisted on a payment of $A60m annually, and is now in talks with public broadcaster SBS about offloading Friday night matches to it.

Meanwhile a toss of a coin decided which TV network would broadcast the 2007 Australian Football League (AFL) Grand Final. At a TV executives' meeting on 20 December 2006, Seven Network executive, David Leckie, tossed a coin with the Ten Network's GM of Sport. Leckie lost and the Ten Network will broadcast the highly-lucrative event. This came at a time when the screening of AFL matches was being finalised between rights holders Ten and Seven, and public broadcaster SBS.

How can any company make deals that rely on a toss of the coin. It shows that both companies have no idea about how to construct deals and make the most for their shareholders. Once again the public has been screwed when it comes to watching sports events as Seven Network Limited and Ten Network holdings Limited and SBS will not show every game. I don't know how they can turn down $50 million from Foxtel and then go and toss a coin for the most lucrative part of the contract with Ten.

The directors at Ten and Seven need to have a good hard think about how they are running the business. This once again adds another long term negative to both stocks. Along with High PE atios, ludicrous Price to book ratios and a poor long term outlook I can now add poor management from the directors.

Well that's my thoughts on the subject

Good Luck investing.

Colorado faces tougher times

A private equity takeover and the departure of its CEO in 2006 will downgrade profits for outdoor clothing retailer Colorado Group Limited. Decreased earnings before interest and tax (EBIT), in addition to costs associated with the September takeover by Affinity Equity Partners, an operations review and a payout for boss Mel Sutton, are expected to decrease profits to $A27m. Businessman Solomon Lew has prevented Affinity's complete takeover of the Australian company by purchasing a 10% stake.

Colorado Group Limited is at a good Price Earnings yield and dividend yield but the longer term outlook for the stock is not as rosy. Its PEG and P/B ratio are also not very good. Its also operating in a sector that is having a rough time and is out of cycle (retail sector). Its worth waiting to see if this share will go much lower especially with the bad news.

ADV Group Limited seems a bit confused ?

ADV Group Limited (ASX:ADS) is switching from medical imaging to exploration for precious metals in Saudi Arabia. ADV Group Limited announced, in December 2006, that it will acquire Vertex Group, a company that holds precious metals and base metals prospects close to the Red Sea. A shareholder approval meeting is scheduled for March 2007. Recent drilling in the region by Vertex shows promise.

To me companies that completely change their core focus are usually not the best companies with which to invest. Investors in this company should feel concerned as the company will change the sector weightings in their portfolio.

This is not a good value investment as it has not been making a profit with EPS last year of -6.1.

Remember to BEWARE companies that chan ge their primary focus as you need to wonder why they couldn't make a profit at the first business why should the second one work.

Good Luck investing.

Wednesday, December 20, 2006

Stockmarket takes off but you need to keep Grounded

It's easy to get carried away with success in the stockmarket. But the most important lesson you can learn is how to keep your feet on the ground. Investing in the stockmarket can be very safe over the longer term (10+ years), but that does not make investing any easier. Investing in the stockmarket is a positive game. Understanding this shows why investing n the stockmarket is a much better investment then a negative game (horse racing, cash, etc).

Here are two principles that should be used for successful investing that can win in bear markets where you are clawing to get gains as well as when the bulls are running strong.

1. Very boring companies often make great investments.
Banks for example are very boring shares. But most banks charge an arm and a leg in transactions and are therefore great investments. They don't do anything exciting like find medical cures or large ore deposits and this is why their share price does not jump up dramatically ( but it doesn't usually decline rapidly either).

2. Look for Earnings growth and Reasonable Price Earnings
Investors should look for solid earnings per share (EPS) growth and a low price earnings ratio (PER). The PER is an indicator of the market's perception of a stock. It is calculated by dividing the share price by earnings per share - and is expressed in multiples of a year's earnings.

Good Luck Investing.

Steel industry still uncertain on merger

Talks between Smorgon Steel Group Limited, OneSteel Limited and BlueScope Steel Limited will recommence in 2007. Revelations of a plan that could allow Smorgon and OneSteel to proceed with their merger in spite of opposition from BlueScope Steel pushed up the value of both Smorgon and OneSteel shares. However, articles state that sources close to BlueScope Steel have indicated that it will not be pressured and that the proposed merger could still be blocked by the Australian Competition & Consumer Commission (ACCC).

Personally If I held shares in any of these companies at the moment I would be wary. There is a major chance it could be knocked back. If it is knocked back then the share price will plummet for both stocks and Bluescope will gain. If it goes ahead the stocks will get another boost but I suspect bluescopes share price might take a dive.

The steel industry is a very compeitive environment and has increased compeititon from overseas and is facing higher commodoty prices which is restricting sales and profit margins.

Good Luck investing.

Equity building at MFS

MFS Limited announced $A120 million of fresh equity. The company has taken a view of promoting itself as a small investment bank and has upgraded its economic forecasts at the same time as announcing several new deals. Its recurrent after-tax earnings will reach $0.35 per share, an increase of $0.04 on previous forecasts.

Some of MFS's acquisitions include S8 and the Saville Hotel Group, and it has stakes in a Melbourne property group and a New Zealand financial adviser. It has been noted that it has poor Institutional support but to me this is a positive as it may be a target in the future and stakes taken by an institution will push the price up.

The company is sitting on a PE of approx 13 and a dividend yield of almost 5%. It is a share worth considering as it may be slightly undervalued and there is a good chance of a significant rise if institutions buy into it. You should also note the genreal trend of this stock is in the right direction (UP).

Good Luck.

Australian Pharmaceutical Industries Limited loses $17.3 Million

Australian Pharmaceutical Industries Limited (ASX:API) had a terrible year. There were more than its share of mishaps. It has reported an interim net loss of $A17.3 million for the six months ended 31 October. The group has a new CEO, Stephen Roche, who is optimistic about its future. He is predicting a much better performance in the current half-year. Since this release the shares have dropped 1% to $2.27.

Is this a turnaround story ? Can it come back now that it has a new CEO ?

Personally I steer clear of these companies. A lot of people think fundamental analysis is about buying the cheap stocks which are going poorly and then waiting for the turnoaround to happen. I take a different view and that is that some good companies come cheap and when they do you want to jump on them. A company that is making a net loss of 17.3 million is not a good company. You need a company that is making a proifit if you want to see any type of captial gain or dividend payout.

Good Luck.

Tabcorp upgrading facilities - In my opinion a waste of money

Tabcorp Holdings Limited (ASX:TAH) , is going to upgrade its facilities in New South Wales. Tabcorp management noted that the company will spend $A50 million over five years to revamp its TAB retail network across NSW. Tabcorp has just finished a $A53 million refurbishment of its Conrad Jupiters casino on the Gold Coast in Queensland.

The management is planning to derive more money from its Australian assets. The refurbished TAB outlets in Victoria are taking in far more money than the ageing facilities in NSW. On 19 December 2006, shares in Tabcorp dipped by $A0.14 to $A16.75

This could be seen to be a good thing but I think it is money being wasted as tabcorp is failing in the growth area which is internet gambling. Betfair and bookmakers are growing a rate far higher than tabcorp and I believe this trend will continue into the future. tabcorp needs to fight betfair on the same feild by offering a similar marketpalce which punters can lay or bet selections. This would attract far more revenue than upgrading some NSW tab outlets.

Good Luck investing

Lo Doc Home Loans under Fire

A NSW judge has made a key ruling on the low doc home loans. The NSW Court of Appeal found that a loan made to a pensioner and his wife should be revoked, because insufficient effort was made to check the couple's ability to repay and it relied only on the security of the family home.

The Mortgage Industry Association of Australasia has issued warning on its web site noting that lenders, including those who source loans from mortgage brokers, have to satisfy themselves that the person can repay the loan. The rising use of low-documentation loans is causing problems, because some of those borrowers are in arrears.

I can see the point of the lender and the mortagee in this case. I do feel that some lenders are taking advantage of some mortgagees such as pensioners and people with poor english skills as they do not really understand what they are getting themselves into BUT I do think people should be responsible for the contracts they make and it is there own fault for signing.

This could cause some drop in the housing market as borrowers are going into the arrears and won't be able to pay their mortgage thus more homes on the market. But longer term this could be more of an issue with less people being able to apply for a home loan.

Its an interesting case and I think it could hurt some of the banking stocks longer term.

Good Luck investing

ACCC seeks fine for WoolWorths

The Australian Competition & Consumer Commission (ACCC) is seeking a fine of $A16m for Woolworths (ASX:WOW).

The retailer is accused of breaching trade practices law by blackmailing small liquor stores into co-operation with it in return for Woolworths dropping objections to license applications.
The legal team for the company has argued in the Federal Court that a penalty of $A2m should be adequate, pointing out a previous case in which rival Coles had been fined $A4.75m in 2005. The lawyers also noted that the behavior now being punished was an industry-wide practice at the time.

You have to love their argument ... Our competitors did it so that makes it ok. The last time I heard a similar excuse is from a small child when they got into trouble "But Jimmy did it". Woolworths should have known this was not an ethical stance to take. I believe blackmail should be deterred as harshly as possible.

Whether the board of directors knew about the blackmail is another thing but those responsible should be dealt with and punished and should not be allowed to use a "He did it too" defense.

The market hasn't reacted badly to the news as Woolworths (ASX:WOW) is currently up 35c on the day to $22.95. At this price the company is overpriced and not worth considering.

Good Luck Investing.

Tuesday, December 19, 2006

PEG ratio and How to use it

The Price Earnings Growth Ratio compares a stock's price/earnings ("P/E") ratio to its expected Earnings per share growth rate. A Price Earnings Growth ratio should not be used alone. You should also combine it with a few other fundamental ratios. When used in conjunction with other ratios it can be a seriously powerful tool. I prefer to read the numbers availble from huntleys or comsec as you will need a calculator handy to estimate your own PEG ratio. Access to past annual reports and future earnings estmates allow you to provide the current and perceived future PEG ratios.

I have added below an extract from the Investopedia definition:

The PEG Ratio: “The PEG ratio compares a stock's price/earnings ("P/E") ratio to its expected EPS growth rate. If the PEG ratio is equal to one, it means that the market is pricing the stock to fully reflect the stock's EPS growth. This is "normal" in theory because, in a rational and efficient market, the P/E is supposed to reflect a stock's future earnings growth.

If the PEG ratio is greater than one, it indicates that the stock is possibly overvalued or that the market expects future EPS growth to be greater than what is currently
in the Street consensus number. Growth stocks typically have a PEG ratio greater than one because investors are willing to pay more for a stock that is expected to grow rapidly (otherwise known as "growth at any price"). It could also be that the earnings forecasts have been lowered while the stock price remains relatively stable for other reasons.

If the PEG ratio is less than one, it is a sign of a possibly undervalued stock or that the market does not expect the company to achieve the earnings growth that is reflected in the Street estimates. Value stocks usually have a PEG ratio less than one because the stock's earnings expectations have risen and the market has not yet recognized the growth potential. On the other hand, it could also indicate that earnings expectations have fallen faster than the Street could issue new forecasts.” -
provided by www.Investopedia.com

the key words in the above definition are :

If the PEG ratio is less than one, it is a sign of a possibly undervalued stock

In my expereince we are not going to get great stocks coming under the PEG ratio of 1 but you may get stocks coming close to it. The genreal market ratio for this is 1.6 So in general if a stock has a PEG of 1.6 or lower it is probably going to a contender for analysing.

I prefer to have a PEG of at least 1.5 or less and preferably less than 1.2 . I find these figures throw up a number of stocks which can then be filtered again with other fundamental ratios such as debt to equity, price earnings, price/sales, and dividend yeild to name but a few.

This is a good filter to use to start filtering companies but as indicated it should not be the only indicator. One thing to watch out for is the indicator only works with positive earnings and shouldn't be used with a company that is dropping its earnings ( why you would want to buy such a company sounds bizarre to me ).

Good Luck Investing

Monday, December 18, 2006

Portfolio Update

I thought a quick update was needed as there has been some major activity in the portfolio.

RHD Bought at 65c now trading at 64c for a LOSS of 1c (-1.5%)
SCV Bought at 80c now trading at 74c for a LOSS of 6c (-7.5%)
FEA Bought at 63c now trading at 64.5c for a PROFIT of 1.5c (2.3%)
ITD Bought at 41.5c now trading at 43c for a PROFIT of 1.5c (3.6%)
CKL Bought at 59c now trading at 60.5c for a PROFIT of 1.5c (2.5%)
MCP Bought at $2.65 now trading at $2.89 for a PROFIT of 24c (9.0%)
AVE Bought at $2.19 now trading at $2.30 for a PROFIT of 11c

MCP came out with a good profit outlook. They are expecting increased earnings on like for like sales up 40%. This is a very good news story and should push the company up much higher. Even after the news this company is only trading around 11 times earnings.

Good Luck.

Thursday, December 14, 2006

The dividend yield and how to use it when analysing companies

The dividend yield has some major advantages when valuing stocks.

It is very easy to work out and it lets us look at the fundamental reason for investing which is a return on our investment. Unlike earnings, dividends are actual cash flows into our very own bank accounts. They are real returns that are available to investors with added incentives.

There are, of course, some shortcomings, though, and the first of these is that, unlike the PER, the dividend yield doesn’t factor anything in for growth. We would need to factor in the growth aspects ourself. One way to do this and often the simplest is to assume that a stock’s dividend yield remains at its current level. To keep the dividend yield at the same level, the stock price must grow at the same rate as the dividend. Therefore our total return will equal the dividend yield plus the rate of dividend growth.

Lets look at an example :

If a share has a dividend yield of 5% now, and we expect the dividend to grow at 6% a year, then we’d expect to make a return of 11% a year, and if we edged up our expectations for dividend growth to 8% a year, then we’d expect a return of 13% a year. Alternatively if a share provided a dividend this year of $1 and we expected this to grow at 6% a year, then if we wanted a return of 10% a year, we’d need a dividend yield of 4%—giving us a value for the share of $25. And if we were aiming for a return of 14%, then we’d need the same share to provide a dividend yield of 8%, thereby halving our value to $12.50. This gives us some reference points in theory. Of course in the real world this is just a starting price and we need to take into account other factors to come up with a realistic value for the company.

There are a few other things to look out for with dividends. Importantly you should only really be looking for a company’s ‘ordinary’ dividends, rather than any ‘special’ dividends (which tend to be one-off). Secondly, and perhaps most importantly is to bear in mind that dividends are just numbers chosen by the directors. In some cases, an overoptimistic assessment of the future will lead to them being set at too high a level and they’ll actually need to be reduced. If you think that’s the case, then you’ll need to make your own adjustment downwards to a level you think is sustainable (and indeed might allow for a little growth). One way of checking this is to check the payout ratio from year to year of the company. If you find it is going up but the dividends are declining or staying the same then there is a good chance that the company will not be able to keep the current level of dividends. On the other hand if you see a company's payout ratio go down and the dividend remain steady or go up then you know the company will be finanically stable to increase the dividend in future years.

Remember this is only one part of analysing a company but it can be a very important part as dividends provide a real return while you are holding the stock. You don't need to sell the share to get the benefit.

Good Luck.

Wednesday, December 13, 2006

New Portfolio

This is the new Portfolio that I will keep updated. It wiull be reviewed once a week.

RHD Bought at 65c
SCV Bought at 80c
FEA Bought at 63c
ITD Bought at 41.5c
CKL Bought at 59c
MCP Bought at $2.65
AVE Bought at $2.19

They have all been bought because they are undervalued at the current moment. Some of these shares have already risen 20% + in the last few months but I think they have a long way yet to go.

Good Luck.

An update on some of the stocks I have previously highlighted:

AMM has moved from 16c to 17.5c for a gain of 9%.
LGD has moved from 64c to 79c for a gain of 23%.
AJL has moved from 79c to $1.15 for a gain of 45%.
RHD has moved from 53c to 65c for a gain of 22%.

I will be starting a new portfolio of stocks based on the techniques I used to pick these stocks.
I will keep it updated with new stocks and will remove stocks regularly.

This is an attempt by me to provide more useful information on what types of stocks I think are worthwhile investments. Of course there is no guarranttee.

Good Luck

Wednesday, December 06, 2006

Baby News

Just a quick update to say I know I haven't posted regularly the last few weeks but I have some major news.

My wife had our first baby girl yesterday. She weighed in at 10 pounds 2 ounces. Of course this has slowed done my access to market information and I didn't feel right posting my views without getting the whole picture.

I hope to be back to regular posting in the next few weeks.

Good Luck everyone.