At the end of July in 2011 Jean and I ceased writing our columns for Business Day. In my last column I reviewed the history of the High Yield Portfolio.

From time to time readers of Business Day ask me how the High Yield portfolio is progressing. As you probably realise, I have had something of a sabbatical and have written very little on our own website. So, as something of a change, I’ve decided to write a little more about the progress of the portfolio.

The High Yield portfolio is an important part of Jean’s and my investments. The assets have been acquired since November 2009 invested from cash received from dividend income from the rest of our assets. Two of the counters, Imperial and Pick ‘n Pay, were made by a book-over at market value at the time and the price was added to the transaction cost.

We relied on technical buy signals in buying each counter.

The portfolio has no inception date. Its return is gauged entirely on a cash-flow basis. Each purchase is a cash-outflow. Each dividend or sale of shares is a cash-inflow. The realisable value of the investments (less transaction costs) – the actual market value to date – is the latest cash-inflow.

The objective of the portfolio is to earn a growing dividend return higher than the after-tax income available from cash investments. We aimed to invest in companies whose historic dividend yields were higher than 4% and, on fundamentals, would, we hope, over two to three years, rise to over 5% or better. We were flexible on historic dividend yield in some cases. The argument in these cases was that investment fundamentals supported the belief that their earnings growth were accelerating. Consequently, the dividend yield criterion would be achieved over a short time-span.

The measure of the performance of the portfolio is the- cash-out to cash-in, the internal annualised compound annual return of the portfolio. (I use the Excel formula, XIRR).

Studiously since then, I have updated the cash-flows for each of the counters, the portfolio as a whole and also, those for the most of the equity investments that we hold but are not in the portfolio.

Clearly, the internal rate of return changes from day to day as the time-span increases, dividends are received and the realisable market value changes.

When I last wrote in Business Day at the end of July 2011 the annualised compound annual return of the portfolio was 9%. I observed that at various times the return had been close to 12%.

The internal rate of return of the portfolio has improved significantly since column was published and at the end of 2013, its return was 19,4%. Over 2013 it has been higher than 20% and has edged down to 18%.

Interestingly the actual dividend after-tax income has been a compound annualised return of 5,4%.

The internal rate of return of each the counters since acquisition until the end of 2013 were: AVI 22%, Pick ‘n Pay 9,4%, Spar 26%, Grindrod 13,6%, Imperial 27%, Hudaco 17,4%, MMI 25%, Fambrands 45% and Reunert 10,8%.

Of course, this is all past performance but it gives us a sense of comfort.

Ben Temkin