Saturday morning review

Two quick themes I want to look at again on this bright and cheerful Saturday morning

First up is the power of dividends and the old fashioned "buy and hold"
It has many detractors as a way to wealth but I was sitting here this morning watching the dividend notifications flow into the various portfolios we old and the passive portfolios holding the likes of Sasol, Discovery and FirstRand were nicely topped up this morning.

It is a theme I have repeated a couple of times - if you are getting into investing or simply trying to accumulate a nest-egg, then good old fashioned accumulation of good quality stocks with good dividend track records is hard to beat over the long run.

I was having a look at our old family trust account and it always amazes me in terms of return for us. It comprises 8 core stocks (ATN, PWK, SOL, NPN, MTN, BTI, REM, BVT and SBK) and every quarter I check back to it and I find that it has generated another R10000 in passive dividends.

I use R10k as a measure rather than percentage returns because for that portfolio, after it reaches R10k it will then begin to look at re-investing these funds.

Powerful stuff not to be understimated despite all the trading mumbo-jumpo that goes on.

Sasol and Impala
I exited my long position on Sasol yesterday on the back of a nice run up in the share and saw a handy profit. Could it go up more? Probably - but that's why we old the underlying shares in the portfolio to benefit from that upside. The leveraged position was there to give our portfolios a little something extra.

Anyone following my Twitter feed will know that after cashing out of Sasol I went long Impala Platinum after it was down about 2% on the day... didn't work out ideally after it got smacked down more than 4% in total but I remain long.

• Upfront let me emphasise that I have always prefered Implats (IMP) over Amplats (AMS)
• I maintain that IMP is run for the benefit of shareholders while AMS is run for the benefit of Anglo American and it is a subtle difference but an important one
• The premium I attach to IMP is that when it has its good years, it rewards shareholders with great dividends and special dividends
• From what I have read almost all of the IMP assets in Zimbabwe have been written down to zero

In the last couple of weeks AMS has out-performed IMP by a mile but watching some of the communication out of the various asset management houses there is definately a trend starting to develop where they are advising institutional clients to look at IMP again.

IMP had a very scratchy September with (correct me if I am wrong) but I think they had 3 fatalities - something which is being focused on by a lot by the industry and of course the media. But if you are pragmatic about these things then you also have to recognise that it re-focuses management on operational problems which in turn (one hopes) flows through to a better run platinum business.

I was reading some research out RMB Morgan Stanley released on Friday and this comment by one of their analysts jumped out at me:

"Marking to market, Implats looks more robust: Applying spot values for the rand, PGM and base metals, we estimate that AngloPlat’s NPV would fall 27% to R494, while Implats would fall by 24% to R174. Alternatively, we assess that AngloPlat is pricing in platinum of USD1520/oz or a rand of 8.15/USD. Implats appears more robust, with its NPV pricing in the current spot (R7.40/USD, platinum USD1345.)"

In other words, there is next to no upside being priced into IMP at the moment... which one would assume means its ripe for those cheesy brokers and analysts to start pumping up their "overweight" and "buy" recommendations.

Which brings me to what I think could be drivers for a focusing in on the platinum sector in the next 3 months which will boost the IMP share price:

• Important factor - South Africa dominates global platinum resources. Any sense that the politics or the operating environment (Electricity) - founded or unfounded - and you will see the platinum price move up
• Lonmin have a dispute with their workers who are looking for a 25% wage increase while the company is offering 5%
• Xstrata dumped its bid for Anglo-American which I would take to mean that something else better is on the table. Something in platinum (Lonmin rearing its head again?). If the platinum sector goes through another round of assets shuffles then this catches the imagination of traders and investors who start looking at the sector for opportunities.
  
• From the newsflow I get the sense that IMP seems to be coming into favour - and off a relatively undemanding base, it could be one to watch.