the richest man in atherstone

The funds I am going to use for this venture are currently invested in Premium Bonds, but I will be cashing them in next month after the prize draw.

FTSE 100
I've spent this evening looking into the recent yields of shares in the FTSE 100 index. Companies in the FTSE 100 are the 100 largest UK registered companies in terms of their market capitalisation (value in the market).

I've chosen to base my investigation on the largest companies for a couple of reasons. Firstly, I am partway through reading "The Intelligent Investor" by Benjamin Graham (for those that don't know of him, he was Warren Buffet's mentor) and he advises:

"The defensive investor must confine himself to the shares of important companies with a long record of profitable operations and in strong financial condition."

"An investment operation is one which, upon thorough analysis promises safety of principal and adequate return."

Although not 100% secure, investing in larger companies increases the margin of safety. Secondly, I have been burned before, when I invested in a growth stock that didn't bring the returns I anticipated, so this time around I plan to be a lot more careful.

Yield
Profits from investing in stock come in two main forms. Firstly, shareholders are paid a proportion of the companies profits in the form of dividends usually, but not always, twice a year. The yield is the equivalent of a savings account interest rate and is represented as a percentage of the dividend in relation to the share price, using the following formula:

Dividend / Share Price * 100

Secondly, the value of the share itself can rise (and fall) due to various market influences, so shares can be sold at a higher (or lower) price than what they were bought at. Obviously, these losses and gains cannot be realised until the stock is sold.

I decided that the first thing I should do is find out the yield of each of the companies in the FTSE 100 to find out the kind of "interest rates" I could achieve and who were the top performers.

Data Collection
I found a list of the companies on the FTSE website and copied/pasted them into a spreadsheet, then went to work finding the current share price and recent dividend value for each of them. I recorded my results in my spreadsheet and used the formula above to calculate the yield

I began using Yahoo Finance to collect the data but later on I found ShareCrazy, which I found to be faster and display more company information.

The information on my spreadsheet is available here. Many of the figures are rounded and due to the nature of the stock market, the share prices will probably be different when it opens again. The data shown is only for example - please do not use it for your own research and analysis.

Royal Bank of Scotland Group
During my data collection, I calculated that The Royal Bank of Scotland Group had a yield of 14%! This was more than any other two stocks combined, so I figured I'd made a mistake somewhere. I checked and re-checked the share price and dividend and also the formula I was using but it kept adding up to 14%, so I searched the Internet for an answer. I came across this website, which informed me that RBOS shares had recently been consolidated 3 to 1, but this was after the dividends had been announced. As there were now three shares to every one, the yield needed to be divided by three making it a much more realistic 4.67%. This was confirmed on the RBOS website.

Analysis
I decided to shortlist the companies that had an annualised yield of 4.5% or above as potential share purchases. I chose this number because I am aiming for 4.7% profit per annum and the dividend profit does not include earnings that could be made by capital growth, so it's likely I would earn a little extra over the long term as share prices in general tend to go up.

Having whittled my list of potential investment companies from 100 to 8, I am left with this list of companies to analyse further:

1. Lloyds TSB Group (5.9%)
2. United Utilities (5.71%)
3. DSG Internation (4.82%)
4. Royal Bank of Scotland (4.67%)
5. BT Group (4.62%)
6. Alliance + Leicester (4.59%)
7. Bradford & Bingley (4.58%)
8. HSBC Holdings (4.51%)

I was pleased that the best yield came from Lloyds TSB because I have already got a small investment in it, that I made spur of the moment with very little research - I lucked out there

So should I increase my Lloyds holding or diversify by purchasing one of the other stocks in the shortlist? I need to do some more detailed research into the companies that are left before I make a decision.

I'll be publishing part 2 of this article soon...