UK
Will David Cameron Bring A New Dawn for UK?
Conservative leader David Cameron became the Prime Minister of UK after 13 years of Labor Party rule. He inherits a high budget and other economic ills as the graph shows below:
Source: Bloomberg BusinessWeek
The British Pound fell steadily against the US dollar during former PM Gordon Brown’s time:
Source: Money Week
One of the main reasons for the lackluster performance of the British economy during the labor rule is the rise in lavish public spending with borrowed funds. For example, the public sector employment is very high in UK. There are about 6.098 million public workers in the country. 7000 more public workers were added to the state’s payroll in fourth quarter of 2009 when private sector jobs decreased by 61,000. Many of the public workers are unproductive and union members with great pay and benefits.
The national business model in the current state is unsustainable according to a scathing report titled Undisclosed and unsustaible: problems of the UK national business model from the Centre for Research on Socio-Cultural Change (CRESC) of The Open University. Many of the cities cannot afford to have so many public sector employees.
From the research report:
“The UK business model of expanding state and para-state employment was never sustainable in the longer term because government expenditure and subsidy are limited. And these emerging problems have been crystallised and focused by the financial crisis which removes the pre-2007 stimulus of public reflation and private asset bubble. Going forward, the UK cannot sustain a reasonable diffusion of prosperity into disadvantaged regions and social groups; while the upcoming public expenditure cuts will aggravate the UK’s national problems.”
From 2000 thru 2007, under Labor party the the real expenditure increased sharply from £411 billion to £606 billion. Most of these money were discretionary spending on health and education.
In recent years Britain has become a nanny state where some people get paid liberally and remain unemployed since it is better to live off the state than work. From the Why work when I can get £42,000 in benefits a year AND drive a Merc? article:
“The Davey family’s £815-a week state handouts pay for a four-bedroom home, top-of-the-range mod cons and two vehicles including a Mercedes people carrier.
Father-of-seven Peter gave up work because he could make more living on benefits. Yet he and his wife Claire are still not happy with their lot.
With an eighth child on the way, they are demanding a bigger house, courtesy of the taxpayer.
‘It’s really hard,’ said Mrs Davey, 29, who is seven months pregnant. ‘We can’t afford holidays and I don’t want my kids living on a council estate and struggling like I have.”
It is about time that the David Cameron government fixes social spending issues such as the above and puts the British economy back on the right track.
6 British Dividend Stocks To Buy Now
The payout ratio is one important factor to consider in addition to the yield when selecting dividend stocks. Higher payout ratios indicate management’s willingness to distribute more of the profits as dividends to shareholders.
The following 6 British ADRs pay more than 5% dividends and their payout ratio is more than 50%:
1.Company: BP Plc (BP)
Dividend Yield: 6.93%
Payout Ratio: 52%
2.Company: British American Tobacco (BTI)
Dividend Yield: 5.03%
Payout Ratio: 72%
3.Company: GlaxoSmithKline plc (GSK)
Dividend Yield: 5.61%
Payout Ratio: 54%
4.Company: National Grid Plc (NGG)
Dividend Yield: 6.18%
Payout Ratio: 73%
5.Company: Unilever Plc (UL)
Dividend Yield: 5.50%
Payout Ratio: 65%
6.Company: Vodafone Group Plc (VOD)
Dividend Yield: 6.20%
Payout Ratio: 71%
Note: Information posted above is known to be accurate. Please do your own reasearch before making any investment decisions.
Another advantage with the companies noted above is that they all have large exposure to emerging markets. For investors who would rather capture the emerging markets growth by investing in developed market firms, these stocks excellent choices.For example, British American Tobacco (BTI) has 63% exposure to emerging markets where the demand for its products are growing exponentially.
Top 10 Holdings of one of UK’s Most Popular Funds
The Invesco Perpetual High Income Fund is one of the largest and most popular unit trust (mutual fund) in the U.K. The fund aims to achieve high level of income in addition to capital growth. This fund invests mostly in UK-based companies with the rest invested globally.
At the end of November, 2009 it has total assets of £8.9B or $14.3B. From its launch date in 1988 this fund continues to be popular with investors for consistent performance. Due to the presence of large number of defensive companies in the fund, the performance has slightly declined recently. But over the 5 and 10 year periods the returns easily beat others in the same fund category.
The Top 10 Holdings of the Invesco Perpetual High Income Fund as of November, 2009 are:
GlaxosmithKline (GSK)
Current Dividend Yield:4.62%
Astrazeneca (AZN)
Current Dividend Yield: 2.52%
BG Group (OTC: BRGYY)
Current Dividend Yield: 1.02%
Vodafone Group (VOD)
Current Dividend Yield: 3.89%
Reynolds American Inc (RAI)
Current Dividend Yield: 6.69%
British American Tobacco (BTI)
Current Dividend Yield: 2.85%
Tesco (OTC: TSCDY)
Current Dividend Yield: N/A
National Grid (NGG)
Current Dividend Yield: 4.40%
BT Group (BT)
Current Dividend Yield: 3.46%
Imperial Tobacco Group (OTC: ITYBY)
Current Dividend Yield: 5.55%
Three of the above picks are tobacco stocks. It is interesting to note that this fund does not have any financials in the top 10 holdings. In fact financials account for less than 10% of the total portfolio.
Royal Bank of Scotland Group plc(ADR): Reverse Split Complete
Yesterday November 7,2008 Royal Bank of Scotland Group plc(RBS) completed a reverse split in the ratio of 20:1 of its ADR shares traded in New York.
This reverse split was first announced on Oct 30,2008 (Source: RBS Investor Relations Site):
Royal Bank of Scotland Group PLC- RBS Ratio Change for ADR Holders
“To maintain an appropriate price range for The Royal Bank of Scotland Group American depositary shares (”ADSs”) representing ordinary shares trading on the New York Stock Exchange, (NYSE Symbol: RBS), effective November 7, 2008, the ratio of one (1) ADS representing One (1) ordinary share will change to one (1) ADS representing 20 (twenty) ordinary shares.
Existing ADR holders will receive one (1) “New” ADS for every twenty (20) “Old” ADSs surrendered for cancellation.
This ratio change does not affect any of the RBS Preferred share ADS programmes.”
Before this reverse split the ratio between an ordinary share and an ADR share was 1:1.
ADR Share Price Calculation:
Yesterday closing price of 1 London-listed RBS ordinary share = 64.0 p
At an exchange rate of 1 British Pound = 1.56911 $, 1 RBS ordinary share = 1.00465$
So with the Reverse Split 1 ADR = 20 ordinary shares
That means 1 ADR must trade for: 20 * 1.00465 = $20.09
However RBS closed at $19.28 yesterday in New York.One reason may be that the market does not believe this reverse split will have a positive effect on the stock.
As part of the British Government’s 37 billion pounds rescue plan announced last month, RBS will boost its capital by 20 billion pounds by turning over control to the government. The government will get 5 billion pounds of preferred shares and common shares for the remaining 15 billion pounds. As a condition for accepting the government cash infusion, RBS has agreed not to pay a cash dividend as well until 2010. Despite the above cash infusion, many institutional and individual investors may not touch RBS due to many unknowns faced by the bank and the banking industry in general. Also on November 4, 2008 RBS warned “it will be hit by more writedowns and rising bad debts this quarter as its incoming chief executive kick-started a strategy overhaul aiming to restart dividends in 2010″ and added that “it expects losses on bad loans to continue to rise as a worsening economy and tough financial markets feed through to consumers and businesses”
Only time will tell if the reverse split will be successful or not in the long run.
Disclosure: Long RBS
Stocks of The Best British Brands
London, UK
In April of this year, the marketing research firm Millward Brown, released the third annual Top 100 Brandz list. According to the report, companies that own the brands in this top 100 list “have significantly outperformed the stock market when compared to the S&P 500″. The rankings are based on analysis of financial data of the companies studies from Jan 2,2007 to Dec 31,2007 and interviews conducted with customers worldwide.
The top global brand name in this list is Google (GOOG) with a brand value of $86.0B. Coca-Cola (KO) is listed as fourth with a brand value of $58.0B. Other companies in the top 10 are General Electric (GE), Microsoft(MSFT), China Mobile, IBM (IBM), Apple(APPL), McDonald’s (MCD), Nokia (NOK) and Marlbaro. In this article we will review “The Top 10 British Brands” and the companies that own them.
The The Top 10 British Brands in the order of “Brand Value”are:
1. Vodafone (VOD)
2. Tesco (TSCDY)
3. HSBC (HBC)
4. Marks & Spencer
5. Barclays (BCS)
6. Standard Chartered Bank
7. BP (BP)
8. Royal Bank of Scotland (RBS)
9. Asda
10. Natwest
Some of the companies that own the above brands trade in the US. A brief overview of these stocks follows:
1. Vodafone (VOD) is a mobile telecom service provider with a customer base of 269 million in Asia, Europe, USA, the Middle East and Africa. VOD has a dividend yield of 8.57%. The PE ratio is 10.15 and the company has a market cap of $125.0B. The annual dividend growth rate is 31.6% for the past 5 years.
2. Tesco (TSCDY) is a retailer (grocery) with operations in the UK, Europe and Asia. Tesco’s ADR stock trades on the OTC market. Total revenue has been rising over the past 5 years due in part to the rise in global food prices. The current dividend yield is 4.44%.
3. HSBC (HBC) is a money center bank that serves 128 million customers worldwide. The dividend yield is 4.42% and the earnings growth in the past 5 years is about 25%. HBC is one of the few British banks to have limited impact from the current credit crisis.
4. Marks & Spencer - This famous retailer trades on the London Stock Exchange with ticker MKS.L.
5. Another global bank based in the UK is Barclays (BCS) . The stock pays a 5.72% dividend yield and is down about 40% in 52 weeks due to the global meltdown in financials. Barclays owns iShares, the world’s largest and best known ETF provider.
6. Standard Chartered Bank - StanChart does not have an ADR but is listed on the LSE with ticker STAN.L
7. BP (BP) is one of the world’s largest integrated oil and gas producers. The dividends for EPS have increased at an annual rate of 24.5% and 12% in the past 5 years. BP pays a great 6.07% dividend.
8. The holding company Royal Bank of Scotland Group Plc (RBS) owns the Royal Bank of Scotland and National Westminster Bank Plc which is number ten in the list above. Last year RBS together with Banco Santander (STD) and Fortis acquired ABN AMRO of the Netherlands.
9. Asda is UK’s second largest supermarket chain and owned by Wal-Mart(WMT). Asda competes against Tesco and other retailers.
10. Natwest, a short name for National Westminster Bank Plc is now part of the Royal Bank of Scotland Group plc (RBS).
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Sainsbury and Tesco ADRs
Tesco and Sainsbury are two large supermarket chains in the UK. With food prices rising worldwide and in UK, it may be worth looking into these stocks.Both these companies trade as ADRs in the OTC market.Some basic details about these ADRs are noted below:
1. Sainsbury Plc - JSAIY
Company profile: “J Sainsbury plc is a United Kingdom-based company principally engaged in grocery and related retailing, and financial services. The Company’s businesses are organized into two operating divisions: Retailing (supermarkets and convenience stores) and Financial Services (Sainsbury’s Bank). J Sainsbury plc consists of Sainsbury’s, a chain of 504 supermarkets and 319 convenience stores, and Sainsbury’s Bank. A typical Sainsbury’s store offers around 30,000 products, and many stores also offer non-food products and services. During the fiscal year ended March 22, 2008 (fiscal 2008), 147 stores provided an Internet-based home delivery shopping service”
Dividend Yield: 5.22%
P/E Ratio: 19.25
Market Cap: $12.0B
2.Tesco Plc - TSCDY
Company Profile: “Tesco PLC is an international retailer. The United Kingdom segment includes the start-up operations for establishing the operations in the United States. Its Rest of Europe segment includes the Republic of Ireland, Hungary, Poland, the Czech Republic, Slovakia and Turkey. The Asia reporting segment includes Thailand, South Korea, Malaysia, China and Japan. On April 15, 2008, the Company announced the launch of Tesco Digital, a one-stop shop for entertainment needs.”
Dividend Yield: 4.09%
P/E Ratio: 14.52
Market Cap: $58.2B
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