Breaking The Mould - 25 - 10 - 13

hello welcome to another edition a breaking the mould a regular market review without investment research director Russ mould, Russ what's the fuss? Clara the fuss this week it's all about oil black gold now hard to believe that maybe the Royal Mail flotation the pandemonium that it caused actually has potential implications for the UK's largest listed oil company particularly BP and Royal Dutch Shell so come on then what's the link between postage stamps and oil pipeline, okay, the Royal Mail float was such a whacking success because at the top of the range 330 pence price the company was offering a yield of 6.7 percent now even at five quid which is roughly where the shares on now the yield is still 4 percent thats miles about anything he getting the bank and still comfortably above the UK market average around three-and-a-half so you guys who all got fairly small allocations for Royal Mail are scrambling around looking a decent yeilf stocks and two examples that a given are BP and Shell both given around five percent or a little bit more okay that sounds good what's the catch? we always go always got to make sure these dividends are set up so they are top of the class for focusing on risk aswell as reward the trick with BP and Shell is that actually having to spend a lot of money on Capp X capital expenditure to look for new reserves now this but the report numbers on the 29th BP 31st shell that pay quarterly dividends at nine cents and 45 cents each but look at the cap X number because these companies reserve replacement ratios are going down now that's the measurement of how much you all look pulling out the ground to replace the stuff that they pumped now we last year BP's RRR was 77 percent shells was 44 that the numbers not 100 and above consistently you will in a long time eventually run out of oil not clearly isn't gonna happen but there spending plans are gonna possibly have to go up and that could pressure the dividend payments so does that mean that their dividends are at risk? under pressure? at risk, that's a massive call because shell has been cut its dividend since 1945 BP's last cutt was caused by the Gulf of Mexico oil accident which is applied shipped separate situation but it does mean this pressure on that the lower the RRR the higher the capital expenditure number that will cut dividends and remember that dividend growth but you really need to be looking both for the long term all academinc research shows it's payment increases that count because that also drives the share price if you look at a stocks like HALMA or James Halstead 5 percent dividend increase a year for at least the last thirty years stocks have been absolutely fantastic performance okay so after all that crew talk what else have we got coming up? Smith & Nephew same days Royal Dutch Shell the 31st third quarter numbers orthopedic implant specialist now obviously there lots of fears about government health care spending cuts, austerity. Shares have done very well mainly because a program introduced by relatively new boss Olivier Bouhon he's got the company not focusing just on hips and knees in the traditional products but new areas like sports injuries advanced medical devices trauma in wound care top lines picking up a little bit there's also a $150 million dollar restructuring program going through that underpins estimates the three percent and growth this year 12 percent next year and most importantly dividend increases sounds good moving swiftly on them surgical precision is there a big macroeconomic event coming up the race I wish it was happening on the on the 5th November because I do lots and lame gags about firework displays we could have had one back there then which will look quite good it's actually November the 7th which is the big day when you got the Bank of England the Bank of Japan and the European Central Bank all with their latest policy announcements now having just got everyone in a lather about it there not really expected to do very much but that still actually very very important the US Federal Reserve is going a little bit quiet on reducing or tapering it's $85 billion dollar-a-month QE plan and the market is deciding this is actually good news because with america having come quite close to running out cash the Fed said the debt ceiling shenanigans the Fed ihas decided to keep its finger firmly pressed on the print button now because he's a little bit where the US economy might go soft and that could be a problem going into the next round the debt sealing negotiations in January the market thinking way more cheap money this is good news and also QE keeps bond yields low interest rates on cash low which leading best is still looking for decent yield and income stocks which brings us back to BP Shell a Royal Mail is where we came in the first place the most important thing to do your own research to make sure the dividend are safe and growing okay thank you Russ, pleasure, thanks for joining us this has been breaking the mould will be back with you again soon with lots more information until then goodbye and take care