Top telecoms?

TalkTalk Telecom Group (LSE: TALK) shares have had a tough 12 months, suffering a 43% fall to 221p. But that could well be overdone, with the shares now on a predicted P/E for the year to March 2017 of 15.6, dropping to 12.7 a year later. But what does today’s first-quarter update reveal?

Despite a lower customer base, overall revenue has been flat, with corporate revenue up 7.5% and data revenue up 38.5%. The company expects full-year revenue to “grow modestly“, and has reiterated its guidance of headline EBITDA of £320m-£360m. Debt is expected to keep falling, and the firm says its 2017 dividend should be at least in line with 2016’s and covered by cash flow.

The dividend, forecast to yield 7%, does concern me as it wouldn’t be covered by currently-forecast earnings per share, while net debt stood at £679m at year-end — and I don’t see that as optimum use of cash. But, with that low P/E valuation and EPS growth forecasts giving TalkTalk attractively low PEG valuations for this year and next, I think I do see a bargain here — and very possibly a takeover target.

Electronics winner

Shares in Electrocomponents (LSE: ECM) climbed by more than 9% to 282p by midday, after the electronics and engineering distributor released an impressive first-quarter update. Although overall sales only grew by 1%, that did build on a stronger fourth quarter, and showed sales growth slanted towards Europe — though Asian and North American sales are falling.

But is the firm’s focus on Europe a risk in the post-Brexit world? All chief executive Lindsley Ruth had to say was that it’s too early to tell, but the fall in the value of the pound should make the firm’s exports more attractive and should provide a benefit to profits stated in Sterling. One to buy? There’s some uncertainty here, but with the firm’s undemanding P/E of 17.5 this year, dropping to 15.5 next, coupled with expected dividend yields of 4.5% and with EPS growth forecasts, it looks relatively safe for a growth stock.

Silicon success

Shares in IQE (LSE: IQE) have had a rocky ride, losing 44% over the past five years. But a trading statement from the silicon wafer supplier this morning provided a 15% boost, taking the shares to 20.4p. Sales in the first half of the year are expected to be at least 15% higher than in the same half of 2015, with revenues coming from an increasingly diversified range of products and services.

Net debt is reducing thanks to strong cash generation, with £3.5m in license income from joint ventures expected to add to the pot in the half. Chief executive Dr Drew Nelson could barely have sounded more upbeat, telling us that “with the progress being made on new product qualifications, further product developments and with increasing revenue diversity, we remain on track to achieve full year expectations”.

With the shares valued at a mere six times forecast earnings, and two years of EPS growth forecast to follow on from the previous three, IQE is my pick of the bunch here.

The post Three shares to buy after today’s updates? appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

The Beginners’ Portfolio is a virtual portfolio, run as if based on real money with all costs, spreads and dividends accounted for. Transactions made for the portfolio are for educational purposes only and don’t constitute advice to buy or sell.

It can be nice to not look at our portfolios for a while — at least if we return to a pleasant surprise, that is. And when I updated the valuation of the Beginners’ Portfolio last week, I was pleased to see gains in most of our holdings taking us to a 35% gain since inception in 2012, after accounting for all costs and spreads.

Banking brightness?

I was especially pleased to see Barclays (LSE: BARC) coming back a little. At 165p, we’re still on an overall 34% loss, even after including dividends. But Barclays shares have picked up 16% now since their 2016 bottom on 5 April. The falling value of sterling in response to recent strengthening of the EU “Leave” campaign, however, has taken its toll on the banks, and Barclays shares have given up some of their recovery. I see a “Brexit” vote as possibly the biggest threat to Barclays right now — indeed, I fear it would devastate the UK’s banking sector in general.

Looking at Barclays itself, now that the market has had time to digest the true meaning if its recent dividend cut, I see sentiment as definitely having turned for the better. New boss Jes Staley is still in his honeymoon period, and he’s making the best of it to implement changes that will cause short-term pain but should set Barclays up for a stronger long-term future.

Technology boost

After staring the year weakly, shares in ARM Holdings (LSE: ARM) have been regaining ground — from their low of 11 February, they’re back up 12% now to 954p. Overall we’re up only a very modest 3% on ARM, but the shares have been in the doldrums for the past year or so, and as forecasts continue to strengthen we’re seeing a P/E multiple that’s looking increasingly attractive. If forecasts prove accurate, ARM’s P/E would drop as low as 24.5 for the year ending December 2017, and that’s lower than it’s been for years.

There really is no sign of ARM’s earnings growth falling off any time soon. First quarter figures released in April showed a 15% rise in normalised EPS after sterling revenue rose 22%, and the signing of new processor technology licences together with extensions of existing agreements is going strong — in the quarter, 4.1 billion ARM-based chips were shipped, for a 10% year-on-year rise.

And I remain insistent that mobile computing is still in its infancy.

Commodities recovery

Rio Tinto (LSE: RIO) has been a disappointment so far, as I greatly underestimated the depth and duration of the commodities downturn — and the portfolio is 28% down on Rio shares. But things have been starting to pick up, and since their low on 20 January, Rio Tinto shares have regained 23% to reach 1,945p. Figures from China have been better than expected of late, and the prices of some metals and minerals have been on the rise — Rio’s biggest product, iron ore, has been steadily picking up since its low point in December 2015.

I know I’ve said it before, but I really do think we could be past the bottom now for Rio Tinto.

Recovering commodities prices have helped our investment in BP too, with oil’s breaking of the $50 level helping the shares to a 20% rise since 11 February, to 369p, and boosting confidence in the dividend.

A storming rise for Sirius Minerals , to 18.7p, has taken us to a 29% profit so far. It’s still high risk, but multiple off-take agreements for the firm’s potash are helping boost confidence.

A solid recovery from Aviva has given us a 46% gain so far, including dividends, and I reckon this is one with a lot more to come. The shares are on a 2017 P/E of only 8.3, with a dividend yield of 6.2% forecast, and that still looks a steal.

The post Beginners Portfolio: Barclays plc, ARM Holdings plc and Rio Tinto plc take us to a 35% gain appeared first on The Twelfth Magpie.

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Alan Oscroft owns shares of Aviva. The Motley Fool UK has recommended ARM Holdings, Barclays, BP, and Rio Tinto. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Undervalued insurance

The insurance sector still seems to be inexplicably in the dumps after the financial crisis, and I reckon there are plenty of bargains to be had. Aviva (LSE: AV) remains my favourite, even though the share price has stubbornly stagnated since I bought some — despite a recent rally, it’s still down 13% over the past 12 months, at 450p.

And that’s a year in which the company has seen its restructuring strategy coming to fruition. At results time in March, chief executive Mark Wilson said that

“With a Solvency II ratio of 180% and a surplus of £9.7 billion, our balance sheet is one of the strongest and most resilient in the UK market. Over the last four years, we have tripled our economic capital surplus“.

Forecasts suggest a doubling in EPS this year to put the shares on a P/E of under 10, dropping to under nine on 2017 forecasts, and dividend yields of 5.4% and 6.1% are expected for this year and next. I think Aviva could double your money (and mine) in two or three years — providing we don’t leave the EU and plunge into a fresh economic crisis.

A great track record

One approach is to examine our past growth stars and look for ones that are likely to continue, and I think the obvious one is ARM Holdings (LSE: ARM). The designer of the chips that power iPhones and all manner of other devices has seen its shares soar by a stunning 1,025% since the end of 2008, as smartphone mania has taken hold.

For years I’ve been saying that the mobile computing revolution is still in its infancy, and that’s still true today — I doubt we’re seeing even 5% of the processor usage that we’ll have in another 10 years. There’s no guarantee that ARM will still dominate, of course, but while demand for its designs is still climbing and analysts are still forecasting double-digit rises in annual earnings, I can see a lot more share price growth to come.

Oh, and the stagnation of the past couple of years has put ARM shares, at 977p, on a P/E of 25 based on 2017 forecasts — their cheapest for a good few years.

Mining recovery?

Could a recovery in the downtrodden mining sector do the trick for you? It might surprise you to see that I’m considering Anglo American (LSE: AAL) as a candidate for doubling. The South Africa based miner has, after all, suffered from its own internal problems, in addition to the slump in metal and mineral prices, and as a result the share price has lost 80% since the end of 2010.

But since this year’s low on 20 January, we’ve seen a 180% rise to 636p, nearly trebling your money if you managed to get in at the right time. Can it continue?

Well, the prices of some of Anglo’s products have been recovering nicely of late, and analysts are predicting a bottoming in the firm’s declining earnings this year — there’s a 37% EPS rise forecast for 2017, which would put the shares on a P/E of 15.5.

Sustained rises will probably still be needed to keep Anglo’s shares rising, but I can’t help feeling we’ll be looking back at early 2016 as the moment of maximum pessimism and the perfect time to buy.

The post Which will double the quickest, Aviva plc, ARM Holdings plc or Anglo American plc? appeared first on The Twelfth Magpie.

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Alan Oscroft owns shares of Aviva. The Motley Fool UK has recommended ARM Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

A great prospect

Having said that, Lloyds Banking Group (LSE: LLOY) looks to me like it scores on both counts. The Bank of England’s Prudential Regulation Authority allowed Lloyds to resume paying dividends in 2014, although the cash only amounted to a yield of 1% that year. But in 2015 the bank upped that to 3.1%, which was already back in line with the FTSE 100 average.

And if you buy Lloyds shares now, analysts think you’ll be in for a very nice yield of 6.3% this year on shares priced at 70.2p, rising as high as 7.4% in 2017! That would be covered by earnings around 1.5 times, which is probably comfortable enough. But I wouldn’t like to see it getting any thinner than that, and I don’t see dividends rising any faster than earnings beyond next year.

In its recent first-quarter update, Lloyds reported a “strong balance sheet” with a CET1 ratio up at 13%, and told us its net tangible assets per share were up to 55.2p from 52.3p at 31 December. Coming on top of Lloyds having reiterated its “progressive and sustainable ordinary dividend policy” at full-year results time in February, I see Lloyds shares as a great dividend prospect for now and for the future.

A growth share?

You might think I’m a bit mad for suggesting ARM Holdings (LSE: ARM) as a dividend share. After all, the chip designer is a classic growth investment, with ARM shares up nearly 700% over the past ten years, to 938p — and its forecast dividend yield stands at only a little over 1%.

But what that misses is the rate of growth of ARM’s dividends. Over the past four years, the annual cash payment has been lifted by 29%, 27%, 23% and 25% — and there are further hikes of 16% and 21% forecast for 2016 and 2017 respectively. Those rises might not be enough to keep up with Venezuelan inflation, but they wipe the floor with the UK’s paltry couple of percent.

If you’d bought ARM shares at the start of 2011 at around 460p, you’d have only received 0.6% in dividends that year. But if 2017 forecasts prove accurate, you’ll enjoy a yield of 2.7% that year — you’d be raking in cash close to the FTSE 100 average after just four years, from an out-and-out growth share. Just think what effective yields you’ll be getting if dividends (which are still more than three times covered by earnings) keep on going at this pace for another decade!

Oil is for ever

Finally I come to one that I think is a really obvious long-term cash cow, and that’s Royal Dutch Shell (LSE: RDSB). Shell hasn’t made the same commitment to maintaining its dividend throughout the price crunch as BP, but with oil continuing to creep back up and getting close to $50 a barrel again, it seems increasingly likely that the payments will keep on coming.

With Shell shares at 1,664p, forecast dividends for 2016 and 2017 would yield 7.7% per year, and that’s one of the best in the FTSE 100 at the moment. In fact, though Shell shares have fallen by 19% over the past five years, dividends have actually brought the total return back into positive territory with an 8% gain — and how’s that for the worst oil crisis we’ve seen in decades?

Over the long term, oil prices are going to recover and oil demand will keep increasing. And I don’t see how Shell could not keep on handing out oodles of cash.

The post 3 top dividends for the next decade: Lloyds Banking Group plc, ARM Holdings plc and Royal Dutch Shell plc appeared first on The Twelfth Magpie.

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Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has recommended ARM Holdings, BP, and Royal Dutch Shell. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

I’d say a solid FTSE 100 growth share should definitely be among your candidates, and they don’t get much more solid than ARM Holdings (LSE: ARM). ARM’s chip designs power iPhones and all manner of other mobile computing devices, and sales have been rocketing for years — there were 4bn ARM-designed chips shipped in Q4 2015 alone!

That’s led to an explosive growth in the ARM share price, which has more than six-bagged in the past 10 years. Do you think maybe the growth might be over now? I don’t.

ARM shares have actually fallen by 22%, to 931p, over the past 12 months, and that’s put them on a forward P/E of just 27, falling to 24 on 2017 forecasts — and that’s the cheapest ARM shares have been for years.

Bearing in mind that the growth of mobile computing is still in its infancy, and that ARM has a progressive dividend policy that easily outstrips inflation, 2016 could be a great year to add ARM to your ISA portfolio.

Safety too

Then as a contrast, how about something super safe like insurer Prudential (LSE: PRU)? Prudential is well named, as its management style has always put security first — when other insurers were having to cut their dividends to help strengthen their balance sheets during the financial crisis, Prudential didn’t even blink as it never came close to overstretching itself.

Prudential has been paying pretty average dividends of around 3%, but they’re typically covered around 2.5 to 3 times by earnings per share, and the company’s progressive dividend policy has seen them regularly lifted ahead of inflation.

So you’ll almost certainly get dividends every year that easily beat interest from a cash ISA, but there’s a very attractive addition to that — over the past five years, Prudential shares have risen by 87%, while the FTSE 100 has struggled just to keep its head above zero.

The Pru’s share price has actually fallen back along with the market over the past year, to 1,443p, and a 12% fall has put them on a forward P/E of 11.5. I think that’s a steal.

Recovery?

A long-term ISA will surely benefit from exposure to the mining sector, as metals and minerals are never going to go out of fashion for long. What better time than at what could well be the bottom of the recent downward slide in commodities prices, and what better company to go for than Rio Tinto (LSE: RIO)?

Rio Tinto shares are down 45% over five years, after hefty falls in earnings on the back of sliding prices for iron, copper, aluminium and all the rest of the precious dirt it unearths. But since the start of 2016, iron is up again, copper is recovering, oil and precious metals are picking up… and Rio Tinto shares have put on 52% since 20 January, to 2,331p.

In the meantime, Rio Tinto has tightened up its costs and capital expenditure, and looks like a significantly leaner and more efficient company going into the next five years.

The post 3 Great Shares For A New ISA: Prudential plc, ARM Holdings plc And Rio Tinto plc? appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended ARM Holdings and Rio Tinto. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

That’s what Aviva (LSE: AV) revealed along with its 2015 results last month, which also announced a 20% rise in operating profits to £2.7bn aftern ew business value rose 24.5%. The general insurance combined ratio improved to 94.6%, the best in nine years, with fund management profits up by 33% to £105m.

Oh, and the total dividend for the year rose 15% to 20.8p per share after what Aviva called “a highly satisfactory set of results“.

Earnings to double?

With EPS predicted to double in the coming year, with a more modest 10% pencilled-in for 2017, the question I have to ask is… does this look like a firm whose shares should be languishing on a forward P/E of only 9.6 at today’s share price of 447p?

If that’s not easy to answer, how about taking into account dividends, which yielded 4% in 2015, with rises to 5.3% and 6.1% forecast for this year and next, respectively?

No, what I see here is a company whose successful restructuring efforts have been largely overlooked by the markets as institutional investors are still seeing the financial sector as poison. Aviva has gone from having to slash its dividend back in 2012 due to its weakening balance sheet, to having the “strongest and most resilient” balance sheet in the market in less than four years.

What I see here is the best in an overlooked sector, which should provide steady income for decades — and with share price growth likely over the next few years too. I bought some.

Growth star

Turning to a very different company now, I can remember when ARM Holdings (LSE: ARM) was an upstart daring to try to squeeze-in on the chip market dominated by the giants. We were all buying Intel-based PCs, and those new-fangled mobile bricks that posed different requirements were just starting out.

Now we’re looking at 4bn ARM-based chips shipped in Q4 2015 alone, and a share price up 680% over the past 10 years, to 1,008p. ARM has been a cracking growth share, that’s for sure, but is there anything left in it? I say yes, and I think there’s much more to come.

The share price has barely moved for three years, which might put some people off. But in that time, chip volumes kept on climbing, earnings rose nicely, and the modest dividend grew way faster than inflation.

Cheap as chips?

What that’s done is brought ARM’s forward P/E for this year down to 29, dropping to 25.6 based on 2017 forecasts. That’s around twice the FTSE 100 average — but it’s the lowest that ARM shares have been valued at for years, and I see it as a bargain rating. We’re still only in the early days of the mobile computing revolution, and I see a likely exponential rise in the number of connected-up things with ARM-based chips in them in the coming decade.

In ARM then, I see a still-great growth star, which is gradually changing into a future big dividend payer.

The post Are Aviva plc & ARM Holdings plc The Best Bargains In The FTSE 100? appeared first on The Twelfth Magpie.

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Alan Oscroft owns shares in Aviva. The Motley Fool UK has recommended ARM Holdings and Intel. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

The problem is, Tesco looks like it’s running to stand still at present. And though the rate of customer desertion to Lidl and Aldi might appear to be slowing, the competition is still hotting up and there’s surely more price deflation to come. Both of the cut-price upstarts are engaged in new store rollouts, each one set to compete with its local Tesco.

I see forecasts for Tesco as a bit optimistic right now. But even if the City is right, we’ll still see the shares’ P/E ratio dropping only as far as 16.7 by February 2018 (from a weighty 40 on this year’s expectations). I see that as just too high right now for the level of risk still there — and I don’t expect anything on the 13th to change my view.

Steamroller growth

Chip designer ARM Holdings (LSE: ARM), by contrast, has rarely looked better. Though we’ve had a couple of years of strong earnings growth, the shares have been stagnating of late, bringing their valuation down to attractive territory. After a 12-month drop of 6.6% to 1,028p, with only an overall 3% rise in two years, we’re looking at a P/E of 30 based on 2016 expectations, dropping to a bit over 26 on 2017 forecasts. And we’ll have a Q1 update on 20 April, which should put the first flesh on the bones of the year.

At the end of 2015, ARM talked of a “robust opportunity pipeline” heading into 2016, saying it expects its chips to “continue to gain share in mobile and enterprise markets“ where a higher royalty rate should help boost profits.

You might think P/E multiples close to 30 are high, but I reckon those are bargain levels for a company with ARM’s growth prospects — 4bn ARM-based chips shipped in the final quarter of 2015 alone. Forecasters are expecting continuing years of double-digit earnings growth.

Profit from the weed?

I’m disappointed to see people still killing themselves with tobacco in 2016, but it’s working wonders for the profits of British American Tobacco (LSE: BATS), which should be bringing us Q1 figures on 26 April. At 4,098p, the shares are up 14% in the past 12 months, and 64% in five years (the FTSE 100 has managed a feeble 1.5%). Earnings growth has slowed slightly over the past couple of years, but the pundits are predicting rises of 9% this year and 8% next. And the progressive dividend policy, which has been delivering inflation-beating rises, should provide yields above 4%.

Although tobacco volumes have been declining for some time, revenues and profits have been rising as more of the new wealthy in the developing world want to be seen puffing more expensive brands. BATS saw an 8.5% volume growth in its Global Drive Brands last year. I see no end to that trend any time soon.

I’m only wondering whether the company will rebrand itself to remove the T-word  from its name, after Imperial Tobacco became Imperial Brands in February. British American Lovely has a ring to it!

The post 3 Hot Dates For April: Tesco PLC, ARM Holdings plc And British American Tobacco plc appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended ARM Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Shares in Gulf Marine Services (LSE: GMS) dropped 6.6% today despite strong full-year results. With revenue up 12%, the supplier of self-propelled self-elevating support vessels to the offshore oil and gas business reported a 4% rise in adjusted net profit, with adjusted earnings per share (EPS) pretty much flat. The full year dividend was lifted 9% to 1.6p per share, ahead of forecasts.

In a year in which big oil companies have been tightening their belts on support spending, this looks like a pretty decent set of figures to me, and the firm seems to have no financing problems, with a new $620m debt facility in place in the final quarter and improved borrowing margins reported.

Chief executive Duncan Anderson called this a “solid set of results“, but he did say that last year’s turbulence in the markets is expected to “continue throughout 2016” — and that’s probably partly behind the price fall. Forecasts put Gulf Marine shares on a forward P/E for 2016 of only 3.8, dropping as low as 3.2 on 2017 predictions. With EPS growth expected to resume this year, I see that as far too cheap — even if the apparent oil price recovery takes a little longer to become established.

Wafers with that?

It was full-year results time for maker of semiconductor wafer IQE (LSE: IQE) too, although the share price has remained unchanged at 18.75p at the time of writing. After a slump towards the end of 2015, the shares are now down 19% in 12 months, and again we’re looking at a company on a very low P/E valuation — just 6.6 based on forecasts.

Chief executive Drew Nelson described 2015  as bringing in “another strong financial performance“, after adjusted EPS rose 7%. The firm managed to get its net debt down by 26% to £23.2m, and saw operational cash generation rise by 41%. IQE’s intellectual property portfolio is growing, with over 100 patents now in the field of advanced semiconductor design and manufacture.

Mr Nelson also says IQE is “on track to achieve our expectations for the full year“, and as far as I can see his optimism looks to be well placed.  I think we could be looking at another small cap bargain here.

Pills and potions

Finally, biotechnology specialist e-Therapeutics (LSE: ETX), whose shares gained 9% to 13.5p on the release of full-year results. CEO Professor Malcolm Young told us it was a “very productive year for our discovery platform which continues to exceed our expectations by generating high quality, potent compounds“, adding that some have “the potential to be game changers in immuno-oncology, cancer drug-resistance and anti-infection“.

That certainly sounds like a promising prospect, but the big risk I see is that e-Therapeutics still appears to be some years away from profit, with forecasts suggesting  losses continuing at around the current rate for at least two more years. For the year just ended, operating losses came to £11.6m, and I’m a little concerned that the company’s net cash of £24.8m might not last too long at that rate. However, the firm says is is “well funded to advance its programmes“, and top fund manager Neil Woodford bought some last year.

The post Should You Buy Gulf Marine Services PLC, IQE plc And e-Therapeutics plc After Today’s Results? appeared first on The Twelfth Magpie.

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• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

The Beginners’ Portfolio is a virtual portfolio, run as if based on real money with all costs, spreads and dividends accounted for. Transactions made for the portfolio are for educational purposes only and do not constitute advice to buy or sell.

The past few weeks of market turmoil have knocked the Beginners’ Portfolio back a bit, and we’re now only up 24.6% since inception in May 2012 (including all costs and spreads), compared with 34.3% at the end of 2015. But ironically it’s the “safer” shares that have been hurt the most, with the higher-risk growth constituents holding up well.

High-tech wonders

ARM Holdings (LSE: ARM) has actually disappointed a little since it was added in December 2014. After a promising first few months and a nice price rise, it’s been up and down ever since, and with the price today at 939p we’re looking at no overall movement at all once costs, spreads and dividends are included — the share price itself is up 2.8%.

But there’s nothing at all wrong with ARM’s fundamental performance, after adjusted EPS for 2015 came in 25% ahead of the previous year (with reported EPS actually up 33%). That came from a 19% increase in revenue in sterling terms, after 4bn ARM-based chips were shipped in the final quarter with microcontrollers and mobile device chips growing strongly.

Analysts are predicting a 43% rise in EPS this year, which would take the P/E down to 27 — that’s about double the FTSE average, but it’s the lowest ARM shares have been on for years.

Our investment in Apple (NASDAQ: AAPL) has done better, with a 50% total gain since January 2013, up to $96, thanks in part to the firm’s move to paying dividends. The price has flattened a bit of late, because of the possibility that sales might actually fall back a little this year.

But that’s a very short-term view, and to put it into perspective the company has just posted its biggest quarterly profit ever at $18.4bn after selling 74m iPhones. A vast proportion of the world’s population don’t have smartphones, and as wealth increases they’ll be buying them — and phone junkies will keep upgrading. Looking at that longer-term picture, on a P/E of only around 10.4, Apple shares still look cheap to me.

Plain old bricks

And finally to the portfolio’s biggest winner so far, Persimmon (LSE: PSN), which I added in July 2012 when the whole housebuilding sector looked insanely undervalued. Persimmon was in a strong financial position and was snapping up building land while it was going cheap, and that’s helped it post four years of EPS rises averaging around 50% per year.

The share price has soared to 2,060p today, and after adding in the firm’s special dividends (and deducting all costs), we’re on a 243% total gain. Is it time to take some profit? I don’t think so.

There’s an EPS rise of 28% expected for the year just ended, with results due on 23 February — and a January update told us of a 13% rise in revenue, with 8% more homes completed at a 4.5% higher average selling price. With the shares on a prospective P/E of 13, dropping to under 12 on 2016 forecasts, and dividends set to yield around 5%, Persimmon looks like it’s turning from a growth share into a strong income share.

The post Beginners’ Portfolio: Will ARM Holdings plc, Apple Inc. And Persimmon plc Drive Our Growth Forwards? appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Apple. The Motley Fool UK has recommended ARM Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

And that’s why I think ace growth stock ARM Holdings (LSE: ARM) should turn into a future dividend darling — and you can lock in future yields by buying the shares today. With the company on a forecast yield of only 0.7% for 2015, you might think I’m mad, but please bear with me.

There are two important things here. Firstly, the 0.7% yield that’s on the cards for this year would be around 3.7 times covered by earnings (compared with only around 1.5 times for some of our top FTSE 100 yields today), and those earnings have been growing rapidly and are set for a further 67% rise this year.

Progressive is best

And ARM’s dividend policy is progressive — the interim dividend this year was boosted by 25%, the mooted full-year payout would represent an 18% rise over last year, and that follows rises in previous years of 23% (2014), 27% (2013) and 29% (2012). And ARM’s dividends have been rising way above inflation since the company first started paying them in 2003.

Looking back a decade, in 2005 ARM’s dividend came in at just 0.84p per share. With 8.3p per share expected this year, the dividend has multiplied almost tenfold in ten years. Back then, with the shares trading at around 125p, you’d have had a yield of just 0.7% — but if you’d bought the shares and held them, you’d be on for a yield (based on your original purchase price) of 6.7% this year.

Of course, over that period the share price itself has soared eightfold to around 1,050p, and that’s kept the annual dividend yield at less than 1% — but you shouldn’t let that hide the remarkable dividend rises and the massive effective yield that last decade’s investors are enjoying today.

The next decade?

So what of the future? Well, if ARM’s dividend keeps on growing by 20% a year, we’d be looking at around 21p per share by 2020, and on today’s share price, that would provide an effective yield of 2% — not massive, but still 2.5 times better than this year. And in another decade’s time, 2025’s dividend would have grown to a very impressive 51p per share, providing a yield of 4.9% on today’s price.

And what about those investors who bought ARM as a growth share in 2005 and will keep them for the 20 years until 2025? Well, even ignoring the share price growth they will surely have enjoyed, they’ll be pocketing a dividend yield of 41% on their original purchase price!

From growth to maturity

Of course, ARM’s earnings growth must eventually start to slow, although I can’t see that happening for some time yet. But even when that day comes the company should be well on the way to becoming a high-yielding cash cow, converting a significantly bigger proportion of those earnings into dividends every year.

And the real lesson is that we shouldn’t be blinded by today’s dividend yields, but we should be looking for companies that will be able to keep lifting their dividends well ahead of inflation in the years to come.

The post My Dividend Pick For 2020: ARM Holdings plc appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended ARM Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.