Stock Purchase – Morrisons (Wm) PLC

On Wednesday 22nd October 2014, I bought 690 shares in FTSE 100 supermarket Morrisons (Wm) PLC. The share price at the time of purchase was 157.27p. The total cost with charges included was £1,102.54


Morrisons’ dividend average over the last 5 years was 4.04%. Their dividend for this year is currently prices at 8.52% at the time of writing. 

The dividend payment has increased every year for 11 years, aside from one year where it matched the dividend payment from the previous year (2005/06). The dividend growth rate averaged over the last 5 years is 18.1%. The dividend payment increased over 10% for the most recent 3 years. 

Their average dividend cover is 2.31 over the last 5 years, and for 2014, the dividends were covered by 1.94

The companies revenue has increased almost every year since 2003. Companies won’t increase revenue every year, but I want to see a very high percentage of progressive increases. 

Morrisons’ adjusted earnings per share have increased every year out of the last five apart from 2014, where they’re in line with their 2012 performance. This demonstrates more consistency from this company, showing that it has a solid history of increasing revenue and profits. 

There’s uncertainty around whether Morrisons is a good investment at the moment. It’s share price is almost half of what it was 12 months ago, it’s under intense pressure to compete against the other Big Supermarkets – Tesco, Asda, and Sainsbury’s, and they’re all trying to cope with the increasing market share Lidl and Aldi are taking. As a long term Income investor, who’s looking for value, I see an opportunity here. I’m investing for the long haul, and although the share price might very well decrease further, it has a large opportunity to increase back to what it was 1-3 years ago (328p at it’s peak), and I’m willing to wait for that to happen. Morrisons are now at a 10 year low in their share price. Their revenues and profits have consistently increased almost every year within this period up until 2014. This years performance hasn’t warranted the near 50% drop in share price that we’ve seen in my opinion, as their revenue has only dropped to it’s 2012 level. I think there’s a possibility to make a sound return on investment from capital gains, as well as benefiting from their consistent and stable dividend payments. 

This is my second and and likely to be my final investment into the supermarket sector until I sell one of my holdings (Tesco and Morrisons). I want to make sure I have a well diversified portfolio and I want to limit the amount of companies I have in each sector to 2 or 3 maximum. 

Morrisons are my supermarket of choice for shopping, as they are the largest retailer in our town. There’s a small Sainsburys, but the prices are generally higher there for seemingly the same items, and there’s also less range. It’s nice to invest in a company where I regularly use their service. Every penny I spend there is contributing towards my future dividend payments. 


What do you think of Morrisons as an investment right now? Have you invested in them? Would you?

0 Comments

  • Cerridwen

    Reply Reply 27th October 2014

    Hi Huw. That could turn out to be a very canny buy – I read recently that Morrisons are the only supermarket chain to be brave enough to include Aldi and Lidl in their price matching so they're obviously feeling confident going forward. Good luck with your investment,

  • Anonymous

    Reply Reply 27th October 2014

    Huw

    I had a look at Morrisons recently but did not buy it due to it violating my dividend growth rule. According to Sharescope its 3 year average dividend forecast growth is -13.34%. I tend to look at +5%. How accurate Sharescopes forecast is I do not know. Maybe it is keeping me out of some good stocks, only time will tell.

    There is one thing for certain Morrisons looks attractively valued and as Cerridwen says they are taking on Aldi and Lidl with price matching. Good luck with your purchase.

    Richard

  • weenie

    Reply Reply 27th October 2014

    Good luck with this purchase Huw, looks like it could be a canny one as Cerridwen says.

    I'm not really looking at any more supermarket shares, although I've been toying with the idea of taking some risk by adding to my existing Tesco shares. Not sure yet…

  • diy investor (UK)

    Reply Reply 27th October 2014

    For my sins, I also hold a couple of supermarkets in my income portfolio – Tesco and Sainsbury. Both have been topped up in recent weeks following the dramatic sell-off.

    Like you, I like to keep a diversified portfolio so would not consider adding a 3rd supermarket, tempting though the current price/dividend.

    as you point out, Morrison has experienced a few problems over the past couple of years posting a loss this past yr of -£176m compared to a profit of £879m the year before; its debt has increased significantly and it has negative cashflow in 4 of the past 5 yrs. Looking at these figures and the current climate makes me think a dividend cut must be a possibility in the next year or two unless there is a dramatic turnaround.

    That said, you have picked up the shares at half the price they were a short while back and at some point, sentiment will change and share prices will bounce back – we just don't know when. I must admit, I was expecting some sort of cut when the recent results were announced but it did not materialise so maybe they will find a way to maintain the divi?

    Good luck with this one and look forward to following your portfolio as it builds over time.

  • Huw Davies

    Reply Reply 28th October 2014

    Hi Cerridwen,

    Thanks for stopping by. I saw Ant and Dec advertising the Aldi and Lidl price match on TV recently. I think they are viewed as a more 'budget' option than Sainsburys and Tesco are, so it could be argued that they'll be more comfortable competing against the budget options.

    Morrisons are at a 10 year low, and they are a bigger company turning over significantly more money than they were 10 years ago. I think they're at an attractive price right now, and I'm confident they'll be worth more than they are now in 5-10+ years. I hope I'm right!

    All the best
    Huw

  • Huw Davies

    Reply Reply 28th October 2014

    Hi Richard,

    Thanks for sharing your thoughts. I've not used sharescope before, so I'm not sure how accurate they are either. You have to be comfortable with the risk you're taking. Sharescope, you and I don't know what the future holds, and that's part of the excitement in dealing with shares, you just never know. You're right though, time will tell!

    I think if their share price is at the same level in Spring they would be very likely to cut their dividend to a more stable level as they can't continue paying 8% to shareholders. If they half the share price to 4%, it would still be a nice yield. I have also invested for capital growth, as there is a possibility I could double my money in 5 years, as their price was twice as high 12 months ago.

    Thanks for the well wishes!
    Huw

  • Huw Davies

    Reply Reply 28th October 2014

    Hi Weenie,

    I like the look of Morrisons right now. They are at a 10 year low, but their Revenues, earnings per share and dividend would suggest that they're still a pretty stable company. They are currently paying an unsustainable dividend yield, so I hope their share price increases in order to keep the yield more manageable, but I won't be surprised or too concerned with a dividend cut. I'm in a good position to make some capital gains in the next 5-10 years too, as they're likely to be higher than they are no in that time frame. Just 12 months ago their share price was twice as high as it is now. There's a realistic chance of doubling my money and/or earning some solid dividends in the mean time.

    I'm done with Supermarkets for now. I'm interested to see what other great companies are on the market at a low price, so I can expand my portfolio a little more. (I haven't really done that with Morrisons). Tesco are still facing some uncertainty, and there's a chance their price could continue to drop. I'm aware that some people are jumping on board with them now due to their low price, but I was more comfortable spreading the risk with another supermarket chain. I'm also very keen on some of the Oil producing, and Oil servicing companies as they're very low right now.

    Good luck with your decision!
    Huw

  • Huw Davies

    Reply Reply 28th October 2014

    Hi DIY investor (UK),

    Thank you for stopping by! The UK supermarkets are very attractively priced right now. I think there's a lot of market noise around them, which I understand with Tesco, but I can't help but feel the market is over-reacting at present. All the better for us to capitalise on the current situation!

    I couldn't agree more. A dividend cut is certainly on the horizon, especially if they're unable to increase their share price. It won't be a bad thing either, if they're putting that money back into the company. If they slash it in half, it will still be at 4%, which I'd be happy with. A big reason for my investment choice is the share price and potential capital return. At their current position they're at a 10 yr low, and were twice as high just 12 months ago. There is a decent chance that I can double my money in 5-10+ years and I invest for the long run!

    My portfolio has taken a bit of a hammering over the last few months, but I'm largely ignoring it as I'm interested to see where it is in 5-10 years not now. I think the FTSE 100 could slide further down this year, but I'll continue to invest where I see a solid company at a low price.

    Thanks for sharing your views! All the best.

    Huw

  • sparklebeeblog

    Reply Reply 28th October 2014

    Wow – as an ex-employee – I am somewhat biased at the moment. I have a share save with them at the moment which isn't going anywhere – even at the discounted price, its making a loss due to the slashing of the share price. I have a few more months left before I need to make a decision – buy shares or get my money back. A dividend cut will be on the cards as I cannot see how they can continue to keep it up with the value of the company reduced. The supermarket zone is a battle ground at the moment – so good luck.

    They have had their share of bad news – their payroll data being stolen and a director being arrested for insider trading. At least it has been a 250m mis-calculation!

  • DivHut

    Reply Reply 1st November 2014

    Thanks for sharing your recent purchase of Morrisons with us. It certainly has a very high yield which is well above its average. Are you not worried about the sustainability of this yield? While I am not familiar with this company, till I read your post, I wonder if there aren't better places to invest your money these days.

  • Huw Davies

    Reply Reply 2nd November 2014

    Hi Sparklebee,

    That's a tough one! I did a share save with my company and we had a 20% discount on the share price. The final offer price turned out to be just over double of what the initial price was, so I was very fortunate. Even if you have a 3 or 5 year policy you're still 'unlikely' to get the price back to where it was in the remaining months….. but you never know with the stock market!

    I agree that a dividend cut could be on the cards for 2015 if the price doesn't improve, and revenues continue to fall. I don't think it will be all doom and goom though. Their current yield is massive and they could bring it down to a level they can maintain once again.

    As with all the bad news in the press, Morrisons in my opinion now presents an opportunity. Lets see if I'm right!

    Thanks again for stopping by. I hope for you and I that the price continues to rise in the near future.
    Huw

  • Huw Davies

    Reply Reply 2nd November 2014

    H DivHut,

    Thanks for stopping by. I don't mind sharing my purchases with everyone. It's nice that people offer their opinion on them (good and bad). I expect comments on my actions and in a way it helps with my decision making.

    The yield is unsustainable at the moment. Morrison's have had a tough ride, as have Tesco and Sainsbury's. They committed to paying an increasing dividend this autumn and they have another 6 months until their final dividend is due. A lot can happen in 6 months, and there is a possibility that things could improve in that time. It may get worse, but only time will tell!
    I'm not investing in Morrisons (or other companies) for their performance in 6 months, I'm a long term investor that will comfortably keep shares for 5-10+ years. Your last sentence is the million dollar question that we all want the answer to. I'm not sure if my money will be better in another company. I believe Morrison's at their current share price, adj earnings per share, revenue, and debt levels present a good opportunity. Their share price has gone in half in less than 3 years, but the figures I've mentioned have either not decreased at all in some cases, but certainly not by 50%. They're also at a 10 year low. Again, I don't think their performance warrants that drop in share price.

    Thank you for commenting. All the best!
    Huw

  • diy investor (UK)

    Reply Reply 6th November 2014

    Encouraging share price bounce today! 🙂

  • Ben

    Reply Reply 9th November 2014

    Hi Huw,

    Great post, thanks for sharing.

    It's an interesting one, I'm debating Morrisons at the moment and have similar motivations to you in that I'm looking for companies offering value who have good historical growth and dividend payment records.

    The -£176m profit for 2014 concerns me but I agree with you that if a dividend cut is coming in the not too distant future (surely!) it could be cut in half to say 4% and still be above the current FTSE 100 average.

    What I do like about Morrisons is that they definitely know what they're about in terms of brand. That's something that I feel Tesco struggle with and Sainsburys to a lesser extent. Morrisons are also clear that they are taking on the discounters.

    Cheers and all the best,

    Ben

  • Huw Davies

    Reply Reply 9th November 2014

    Hi Ben,

    Thank you for sharing your thoughts.

    I think there's always going to be a level of doubt when you're considering the purchase of a company that's lower in value, and there is a level of risk to following through.

    The historical data for Morrison's does offer some reassurance, and I don't believe their drop in profit warrants the price I purchased them for. Like you, I think Morrison's can connect to the budget options easier than Tesco and Sainsbury's can, who are more 'middle-road'.

    Only time will tell if I'm right. Thank you for the support and I wish you i n turn all the best with your decision making!

    Many thanks
    Huw

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