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When we dumped Vodafone (LSE: VOD) back in December, we made quite a nice profit.
The sale raised £724.32, and we currently have a total of £319.51 in dividends. So we now have a cash pot of £1,043.83p — and that needs to be invested!
We have enough to make a single investment, or to split it two ways and make two investments of around £500 each. I do want to keep our total holding to 10 shares, so I’m leaning towards making one new investment and topping up one of our existing holdings.
A bank?
For some time I’ve been wondering about buying a bank, as they do seem to be mainly out of the woods these days, but which one?
The recoveries at the bailed-out pair, Lloyds Banking Group and Royal Bank of Scotland, are tempting. But we’re not beyond the possibilities of further shocks. In fact, we’ve just learned that RBS needs a further £3.1bn to cover claims relating to the financial crisis and we could be looking at full-year losses of up to £8bn, with chief executive Ross McEwan saying “The scale of the bad decisions during that period means that some problems are still just emerging.“
My belief that Barclays (LSE: BARC) (NYSE: BCS.US) was one of our best managed banks has been somewhat dented over the past few years, but forecasts are looking strong now. Earnings per share should fall for the year just ended, but a rebound over the next two years should take the P/E down to around 7.5. And dividends should be growing strongly too.
Standard Chartered (LSE: STAN) also appeals to me. By being widely diversified and doing much of its business in Asia, it largely escaped our Western woes. Of late, the shares have been depressed by fears of overheating in the Chinese credit and property markets. But after a 12-month fall of more than 20%, they look cheap to me on similar forward valuations to Barclays.
Top-up
What about a top-up candidate? I think all of our holdings are still worth buying — otherwise I wouldn’t hold them. But the most attractive to me right now is Rio Tinto (LSE: RIO). We’ve had broker upgrades for the mining sector in recent weeks, and Rio reported record production of iron ore, bauxite and thermal coal in its fourth-quarter operations update this month.
The shares have fallen 10% over the past 12 months, and with the forward P/E dropping and dividend yields rising, all the signs are telling me Rio is ready for turning.
Vodafone
Before we go, it’s worth a quick look at what’s happened to Vodafone since we sold.
At 224p today, the price is unchanged overall. Most of the Vodafone talk these days is just speculation over who might want to take it over and who Vodafone might want to acquire. To me that’s all just hot air and doesn’t materially affect the valuation at all. And with earnings set to fall and a forward P/E of more than 20, I still think selling was the right thing to do at the right time.
Anyway, what will we buy with the cash? I’ll decide soon.
