Imperial Leather soap, made by Cussons.
PZ Cussons has been awash with value for John Lee and his family

Looking back over my 60 years as a private investor, I have experienced regular changes in dividend yields over time — and sometimes I have benefited from them.

I cannot precisely remember the prevailing yield structure when I first ventured into the stock market in the late 1950s, but an examination of a 1960 investment list published by my late father’s Mancunian stockbrokers is interesting.

Many “blue-chips” were offering yields not significantly different from today: Distillers at nearly 4 per cent, AB Foods at 2.8 per cent, Reckitts and Unilever both at 3 per cent, though a long list of more speculative tea and rubber plantations, all long-departed, offered double-digit yields.

Moving through to the secondary banking crisis of the early 1970s, when London and County Bank collapsed, as did the housebuilder Northern Developments (and there were even rumours regarding the stability of NatWest bank), the market crashed to a level where blue-chip stocks were yielding 20 per cent or more — and even then there were no buyers.

Living through this period taught me that prices can fall calamitously and more importantly that one must never borrow to buy shares but only ever use one’s own money. Prices recovered sharply and brave investors would have done very well. Some years later I remember advocating buying “double seven” shares, where both the price-earnings ratio and dividend yield equated to approximately 7 per cent.

I remembered the experience of the 1970s during the financial crisis of 2008, when prices slumped, throwing up juicy double-digit yields. I bought heavily, benefiting considerably as prices strongly recovered.

Today, listed company valuations are much more stretched. Dividend yields are often miniscule with price-earnings ratios commonly into the 20s and beyond. These are not valuations which I am comfortable buying into. Indeed I did some modest “top-slicing” late last year, trimming my stakes in Gooch & Housego and Nichols to build up a degree of defensive liquidity and also to be available as the “Bank of Mum and Dad”.

Next month I will be reflecting on my six decades of investing experience at the Mello private investors’ conference in Derby. Of course, if I had successfully called all the peaks and troughs of markets over those years, my overall performance would have been better, but none of us ever get that right. In any case, many of my predominantly small-cap holdings, which have appreciated significantly, are not easily marketable. Thus, my conclusion is that most investors are better off patiently sitting through periods of volatility rather than trying to be clever.

This view has been strongly reinforced by my experience of looking after my sister-in-law’s portfolio. Sadly, she recently passed away, having retired many years ago to the south of France. Over 30 or 40 years I made even fewer changes in her portfolio than my own, just letting “good little ’uns” grow at their own pace.

Her five best performers were all proprietorial or family-controlled public companies. PZ Cussons grew 38-fold, James Halstead 22 times, timber merchant James Latham 17 times, Nichols 12 times, and S&U grew 9-fold. All have delivered steadily increasing dividends, with PZ Cussons now yielding an annual 90 per cent on cost.

With share prices currently flying historically high, any negative trading statements or poor results are savagely dealt with. I had thought it sensible to buy Tate & Lyle on a 4 per cent yield with a price-earnings ratio only just into double figures, judging that the market had not taken on board the major change in activity from bulk products to more specialised food ingredients. Then, a very mild negative trading statement produced a violent reaction.

It now yields 5 per cent — perhaps an overreaction — but in the present climate the market takes few prisoners. Most of my major holdings appear to be trading well commercially, including Air Partner, Anpario, Charles Taylor, Christie Group, Concurrent Technologies, Lok’nStore, Tarsus and Treatt, and encouragingly, smaller ones such as Cerillion and Titon increasingly generate positive interest.

Overall, though, I will be pleased just to maintain my values at the end of 2017, as this year looks to be very uncertain.

John Lee is an active private investor and author of ‘How to Make a Million — Slowly’. He is a shareholder in all the companies indicated.

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