My jaw dropped…
I knew shares in Woolworths (ASX: WOW) had been on a tear in 2013, but I didn’t realise just how far they’d jumped in just a few short months — almost 22% to be precise.
Given Woolworths is my family’s largest holding, by some considerable distance, it brought a smile to the dial of this particular Fool. If ever there was any doubt blue chip dividend stocks are HOT, that was all the proof needed.
Elephants don’t gallop
Today, Woolworths shares are not exactly cheap, especially compared to their modest growth prospects. Large companies like Woolworths, simply can’t grow as quickly now as they did in the past…elephants don’t gallop.
In late February, I sold some of my family’s holdings in Woolworths, although even after the sale, they remain our largest holding. With the shares trading at around $35, given our overweight position, and with the downside risk far outweighing the upside potential, a partial sale made sense…to me anyway.
In my mind, I remembered a recent article in The Australian Financial Review titled “Income play goalposts are shifting” where the author said…
“…the perception of income investing has become seemingly reduced to a basket of household names…”
Woolworths. Telstra (ASX: TLS). The banks.
It’s a crowded trade. But if there’s one thing I’ve learnt from almost 25 years of investing, you don’t make money following the crowd.
Stand clear of the platform.
That said, I also don’t recommend jumping in front of a fast moving train, and that describes the movement of the popular blue chip high yielding ASX stocks over the past 12 months…
Commonwealth Bank (ASX: CBA): Up 36%
Westpac Banking Corporation (ASX: WBC): Up 42%
Telstra: Up 41%
Wesfarmers (ASX: WES): Up 42%
But there are times, when even Foolish Investors, like me, feel like valuations of stocks like Woolworths are getting more than a little ahead of themselves.
Don’t get me wrong. I’m not suggesting you sell up everything, go to cash, and sit back and wait for the next stock market crash.
What I am suggesting is the next leg of the Great Dividend Boom could be driven by stocks other than the small “basket of household names” that have driven the market higher over the last 12 months.
But that day is not today, with share price gains of around 1% or more from the big four banks and a special dividend from Woodside Petroleum (ASX: WPL) propelling the S&P/ASX 200 back above the mystical and magical 5,000 mark.
BHP Billiton: Close, but no cigar
A couple of months ago, in the same AFR article mentioned above, Scott Bennett of Russell Australian Shares Enhanced Income Fund said…
“We think there are substantially better (income) opportunities…in other areas that people may not go looking for yield.”
Mr Bennett highlighted an unlikely candidate in BHP Billiton (ASX: BHP), saying….
“Dividends in The Big Australian have grown dramatically over a long period of time”.
BHP shares today yield around 3.5%. Not bad, especially if the dividend keeps growing. Last year BHP upped their dividend by 11%.
In November last year I revealed to Motley Fool Take Stock readers that I had my eye on BHP, saying…
“The mining boom may be over, but the industrialisation of countries like China, India and Indonesia has decades to run. BHP Billiton is my way to play that trend. Simple.”
All sounding good…except for the recent hiccup in commodities prices, which sent BHP shares “crashing” from a 2013 high of almost $40 all the way back down to a low of $30.58 last Thursday, before bouncing back to around $32 today.
As regular readers may remember, I was waiting for BHP to pull back to around $30 before adding more to the family’s existing holding.
Not one for watching share price movements like a hawk — life is too short — I never did jump in to BHP last week. But, with patience, I may yet get my chance.
Two stocks I DID buy last week
Although I missed BHP, I did pick up shares in two mid-cap companies last Thursday — one a brand new holding, the other an addition to an existing holding.
The addition was to my holding in a company that might be familiar to long-term readers of The Motley Fool — an oil producer called Maverick Drilling & Exploration (ASX: MAD).
It was just over a week ago when Motley Fool Share Advisor — our premium stock picking service — published an exclusive one-on-one interview with Maverick’s executive directors, Don Henrich and Brad Simmons.
This may give you a quick flavour of the interview, and as to why I added to my holding. As a clue, it’s all about risk versus reward…
Bruce Jackson: What is the most exciting element you see in Maverick’s future?
Don Henrich & Brad Simmons: Bruce, it would have to be the prospects ahead for us in our high-impact drilling. For almost 40 years, we have made discoveries and major finds for our contract customers — this is hopefully the year Maverick does it for ourselves and our own shareholders. We have identified some very exciting prospects via newly reprocessed old seismic lines and new 3-D shoots we have been conducting. If any of the 100-plus serious overhang and outer-flank structures are successful (and there is no guarantee any will be), then we have a whole new ballgame!
Motley Fool Share Advisor subscribers can access the full interview in the updates section of the member’s only area of our website.
The new addition to the Jackson family SMSF is a fast-growing designer and manufacturer of electronics products for the global government, business and sophisticated consumer markets.
Unlike Maverick, this company is an official Motley Fool Share Advisor recommended stock. It had been on a tear since Scott Phillips first tipped it, at one stage being up over 85% in less than 6 months.
Under The Motley Fool’s very strict trading rules, I’m not allowed to buy shares in companies recommended in Motley Fool Share Advisor until at least 2 days after publication. Obviously our subscribers come first, and secondly, I don’t fancy detention time at Her Majesty’s pleasure for “front-running” our own recommendations.
A bargain I simply couldn’t resist
Last week, courtesy of a major wobble in the share price, on no news whatsoever, I was able to finally grab a holding in the company at what I think will turn out to be a bargain basement price.
Motley Fool Share Advisor Investment Analyst Scott Phillips, completely independently of me I might add, reiterated the company as a buy in his most recent email update to Motley Fool Share Advisor members, even though the shares have already jumped a whopping 33% higher since their lows of just last Thursday.
Panic selling by weak hands gives opportunities for canny investors to pick up a bargain or two. And if you have a good watchlist of high-quality stocks on your radar — such as those on the Motley Fool Share Advisor scorecard — you can swoop at just the right moment.
Up 33% in just a few days
Now not every stock I buy will jump 33% in just a few days. For me it was a case of right place, right time. But, when it comes to investing, armed with a bit of knowledge, some sound education, experience, and a watchlist, you often make your own luck.
Their best years are still ahead
Stock market wealth is created by investing in great companies at good prices, holding them for the long-term, and reinvesting the dividends…as witnessed by my family’s huge returns from a modest initial investment in Woolworths.
Most of the companies on our Motley Fool Share Advisor scorecard are still growing strongly.
Unlike Woolworths, their best years are still ahead. Better, they still trade at modest valuations and pay attractive dividends.
Markets don’t go up in straight lines. But nor is the next market crash around the corner.
Commit to a lifetime of investing, invest regularly, and it won’t matter what the market does next week, next month or next year.
Over time, through common-sense, Foolish investing, you’ll come out a stock market winner.
The dramatic run-up in the ASX 50 means many of our Aussie “blue chips” are trading for truly eye-popping prices. Yet, two of Australia’s most promising small companies are still flying under the radar. Discover these two exciting ASX investments in our brand-new special FREE report, “2 Small Cap Superstars”. Click here now, it’s free!
The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Motley Fool General Manager Bruce Jackson owns shares in Woolworths, BHP, Telstra, Maverick Drilling & Exploration, Commonwealth Bank and Westpac.
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