Johannesburg — LAST week Metropolitan Holdings reported its annual results for the year ended December 31. Metropolitan is not a counter in the Private Investor portfolio but Jean and I have its shares in our main portfolio and the company was on the buy list when the portfolio began.

It may seem paradoxical to some readers that we have bought shares in a company in our main portfolio rather than in the Private Investor portfolio whose progress is the main focus of this column. Logic suggests the Private Investor portfolio should hold the shares we believe would provide the best return on investment.

When, however, we were building the portfolio we felt at the time that an investment in life insurance and asset management was less attractive, relative to environmental investment fundamentals, than those sectors in which we actually invested. You can correctly fault our judgement, but, in any case, the omission of Metropolitan was marginal. There are other companies we considered and rejected and have performed better than the counters in the portfolio.

The spread in our main portfolio is not as broad as that of the Private Investor portfolio and three of its heaviest weights were shares in Pick n Pay, Sasol and Afrox when we started the Private Investor portfolio.

We have reinvested the dividends from our South African shares for many years, and the dividend return, including capital distributions and dividends in specie, has steadily grown. We intend to follow this plan until we need the income.

It became clear to us a while back that our overall spread of assets was out of kilter. The cash element was too high and its return had fallen as interest rates had fallen. You may have noted that I had often commented on shares that offered attractive dividend yields. In several columns I mentioned that Jean and I were in the process of building an income-yielding portfolio. The aim of the portfolio would be achieve a current return comparable to or better than the aftertax return on interest income. In time, we would expect the dividend return to grow.

This High Yield portfolio was completed when we bought a second tranche of Metropolitan last month, shortly after I last wrote on the company. The shares were bought at R13,39.

When I wrote in February, its share price was R13,40. I reckoned that the company's bottom-line diluted core headline earnings would at best be maintained at 151c a share and dividends for the year would stick at 95c a share. On my surmise the price:earnings ratio was 8,9, the earnings yield was 11,2 and the dividend yield was 7%.

In tough conditions, Metropolitan performed solidly but its diluted core headline earnings per share were down to 141c. Based however on a more promising business outlook, the directors increased the final dividend to 60c a share from 55c in 2008, raising the full-year's dividends to 100c from 95c. Metropolitan's closing share price was R14,55 and its dividend yield of 6,9% remains attractive.

In due course, I intend to tell you more details on the High Yield portfolio and how it was constituted, starting off I hope, with Metropolitan tomorrow.