Mia's Portfolio Update

Mia is 9 weeks old today and lest grass start to grow under this project, I’ve been working on making my initial selection of shares for her Child Millionaire portfolio. In time I’d like her portfolio to be diversified across a variety of economic sectors including energy and utilities, insurance, financials, healthcare and pharma, food and perhaps publishing.


For now I’m looking to leg-in with an initial investment of £500 to £1,000 in each of two or three companies spread across different sectors and then to add to these holdings via regular investments and dividend reinvestment to take advantage of pound (dollar) cost averaging and to lower the market timing risk inherent in lump sum investing.


As I mentioned two days ago, right now there seems to be quite a bit of risk out there and global stock markets are exhibiting some pretty strange behaviour. However, as I explain in The Child Millionaire, although the global economic outlook is inherently unpredictable, because the Child Millionaire portfolio is oriented to the very long-term (30-50+ years) I’m happy to buy in now and keep purchasing shares on a regular basis and to reinvest the dividends into even more shares. This approach takes advantage of pound (dollar) cost averaging and allows you to ignore short-term market machinations and not get caught up in the fool’s game of trying to time the market. This sort of strategic ignorance of the noise in the global economy is what we want with the Child Millionaire portfolio.


For Mia’s portfolio, I’m currently focussing on shares on the London Stock Exchange (LSE) because I’m located in London, Mia’s portfolio is housed here and denominated in Sterling and because I’m most in touch with this market.


LSE contenders right now for Mia’s portfolio include Standard Life (LSE: SL.) trading around 213p. Although the company dates from 1825, Standard Life has only been on the LSE since 2006 so it doesn’t technically qualify as a ‘dividend aristocrat.’ SL is basically a life insurance and investment management company and although its publically-traded track record is short, it has raised its dividend for four years running from 11.5p for the year ending 2007 to 13.0p for 2010. Forward guidance from Standard Life is for a 2011 divided of 13.4p and a larger increase in 2012. At 213p the shares yield a massive 6.3% (13.4p / 213p = 6.3%), which is the kind of yield I like to see.


As an alternative to Standard Life, I might opt for insurer Aviva (LSE: AV.), which at today’s price of about 440p and a forecasted dividend of 27.0p, is yielding an equally hefty 6.14%. Aviva’s dividend has fluctuated over the past few years, even dropping a bit during the global financial crisis (I prefer ever rising dividends), so on balance Standard Life seems more enticing.


Another contender for Mia’s portfolio is Scottish & Southern Energy (LSE: SSE). SSE is a UK energy generator and retailer with a strong portfolio in renewable energy, which I like. SSE has been increasing its dividend for at least a decade from 30p in 2001 to 70p last year and the share price has been up over 1,600p and down almost to 400p. The annual report points to future growth, a rising dividend for the next few years and a strong commitment to returning profits to shareholders. Right now the share price is around 1304p, which is a bit high for this share, and a recent spike in the price suggests investors are starting to seek out these sorts of reliable, safe high dividend payers in the face of economic uncertainty. However, the current yield is still a chunky 5.37% (70p / 1304p = 5.37%). SSE is also the subject of periodic speculation as a takeover target which could boost the share price. As we are long-term dividend investors this isn’t something to factor into the investment decision but it might be a nice bonus in time.


For full disclosure I already own shares in SSE.


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