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too high?

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BullDog
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Re: too high?

#511339

Postby BullDog » July 2nd, 2022, 1:05 pm

IanTHughes wrote:
BullDog wrote:
IanTHughes wrote:
moorfield wrote:Funnily enough Moneyweek magazine also has a piece on dividend investing this week.

I can't find a URL link, but here is one line, page 15. My bold.

A high yield is often a warning sign - markets don't like to hand out free money, and if a yield is much higher than the market average, it often signifies scepticism about a company's ability to pay it.

Also from Moneyweek, an interesting article with regard to the 12.3% yield of Persimmon (PSN)

https://moneyweek.com/investments/stock ... mon-shares

The company’s growth suggests cash returns will continue

Based on these factors, I’m pretty confident that Persimmon can hit the City’s dividend targets for the next year or two at least. After that, it’s a bit harder to tell where the property market will go and if demand will fall. Nonetheless, for the time being at least, the fundamentals for the business appear strong.

I challenge you - If that yield is not a measure of risk, then please tell us on Monday morning you invested all your money into Persimmon shares. If you don't do this then I am afraid you blow your entire argument out of the water.

I never said there was no risk!

If you must respond to my posts, please respond to what I actually write!


Ian

Neither did I. The high yield at Persimmon is a measure of risk that the market feels is there in the business. You assert that the high yield is not a sign of high risk. You have written pages saying so.

If the market didn't see the higher risk at Persimmon then the share price would be far higher today and arbitrage that yield away. But according to you, the high yield at Persimmon is not a warning of heightened risk.

You can't have your cake and eat it. Either you put all your money into Persimmon shares or you think doing so it too risky. Which is it?

IanTHughes
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Re: too high?

#511341

Postby IanTHughes » July 2nd, 2022, 1:08 pm

BullDog wrote:
IanTHughes wrote:
BullDog wrote:Neither did I. The high yield at Persimmon is a measure of risk that the market feels is there in the business. You assert that the high yield is not a sign of high risk. You have written pages saying so.

If the market didn't see the higher risk at Persimmon then the share price would be far higher today and arbitrage that yield away. But according to you, the high yield at Persimmon is not a warning of heightened risk.

You can't have your cake and eat it. Either you put all your money into Persimmon shares or you think doing so it too risky. Which is it?

If you must respond to my posts, please respond to what I actually write!


Ian

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Re: too high?

#511368

Postby csearle » July 2nd, 2022, 2:52 pm

Moderator Message:
Well that was painful. I've tried to cull the personal, off-topic, and IMO sarcastic posts as well as those citing them. I feel there should be more agreement here than there appears to be. A dividend is clearly a reward for the shareholder. The dividend yield is a derivative of both that and the share price, which is affected by market sentiment. Part of that sentiment is the perceived risk. So I don't really think the two main protagonists here (both of whom I regard highly) are fundamentally in disagreement. So let's just agree to agree. Thanks - Chris

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Re: too high?

#511381

Postby Itsallaguess » July 2nd, 2022, 4:10 pm

I think the report linked to earlier is fairly clear on the risks of both a dividend cut in relation to very high yielding shares when compared to the broader market, and also, importantly, the risk to capital in terms of the danger of associated share price drops when dividend-shocks are seen in relation to those same very high yielding shares.

Here's the link again for anyone wanting to read the entire article, which is based on 35 years of collected market data -

https://www.brewin.co.uk/insights/dividend-risk

What's hopefully also clear, taking the above report into account, is that the existence of experienced investors who may still do well operating in such ultra-high-yield areas of the income-invesment market does not in the slightest deter from the actual point that I hope I have been consistent in trying to make on this thread, which is that the ultra-high-yield area of the market carries a lot of risk to the target-audience of the HYP strategy, given that it's likely that 'the man in the street' does not possess either the skills or the instructions to be able to navigate those ultra-high-yield waters with as much success as very experienced investors.

I stand by that position, and I think it's very important that such risks are not somehow underplayed simply because someone might have the investment experience that might reduce these ultra-high-yield risks for those individuals themselves...

Cheers,

Itsallaguess

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Re: too high?

#511567

Postby daveh » July 3rd, 2022, 7:29 pm

BullDog wrote:
IanTHughes wrote:
BullDog wrote:
IanTHughes wrote:
moorfield wrote:Funnily enough Moneyweek magazine also has a piece on dividend investing this week.

I can't find a URL link, but here is one line, page 15. My bold.


Also from Moneyweek, an interesting article with regard to the 12.3% yield of Persimmon (PSN)

https://moneyweek.com/investments/stock ... mon-shares

The company’s growth suggests cash returns will continue

Based on these factors, I’m pretty confident that Persimmon can hit the City’s dividend targets for the next year or two at least. After that, it’s a bit harder to tell where the property market will go and if demand will fall. Nonetheless, for the time being at least, the fundamentals for the business appear strong.

I challenge you - If that yield is not a measure of risk, then please tell us on Monday morning you invested all your money into Persimmon shares. If you don't do this then I am afraid you blow your entire argument out of the water.

I never said there was no risk!

If you must respond to my posts, please respond to what I actually write!


Ian

Neither did I. The high yield at Persimmon is a measure of risk that the market feels is there in the business. You assert that the high yield is not a sign of high risk. You have written pages saying so.

If the market didn't see the higher risk at Persimmon then the share price would be far higher today and arbitrage that yield away. But according to you, the high yield at Persimmon is not a warning of heightened risk.

You can't have your cake and eat it. Either you put all your money into Persimmon shares or you think doing so it too risky. Which is it?


Don't be stupid, investing all in a single company is daft, you'd be an idiot to do that and suggesting Ian does that is just a straw man argument. I don't agree with Ian that high yields don't indicate that companies might be higher risk and I look harder at companies with a very high yield, but suggesting he goes all in on Persimmon is not a useful point.

I do hold Persimmon, but wouldn't hold more than my standard max holding size (2xmedian is where I start thinking of top slicing and I wouldn't top up any share at that level no matter how good I thought it was).

Moderator Message:
Folks, this thread is getting very contentious. And consequently, in danger of being closed. ITH, especially, calm down [smiley]...

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Re: too high?

#511583

Postby miner1000 » July 4th, 2022, 5:57 am

You have to look at all the shares discussed here in terms of when you might have bought them, what market conditions may affect their ability to pay a dividend, and whether you would be happy to continue to hold, or even buy more at the current price, after looking at those aspects.

Take RIO for example, top of the list. Currently on a forecast yield of some 13%. I bought the bulk of my RIO holding in 2017 and 2018. After the next dividend, they will have returned to me about 75% of my original investment. The outlook for iron ore and copper is not as hot now as it was a year or so ago, so, yes, there may well be a dividend cut. But it will not be a forced cut, because RIO's dividend policy is to pay out an appropriate amount of "profit" as a dividend. this profit is, of course, a function of metal prices. RIO decided some years ago not to pursue a progressive dividend policy, because for a resources company, at the mercy of the commodity markets, that would be unsustainable.

So, RIO may well cut the dividend next time or next year. But, IMHO, they are a well run commodity company with an enormous asset base and a pool of exciting projects on the back burner, waiting to be brought into production. So I will certainly continue to hold them, and indeed, may buy more if the forthcoming "recession" makes the price look a bargain.

I believe this simple evaluative approach should be used for any of the high yield shares listed, and indeed, for any share you are considering for your HYP.

I also hold (and will continue to hold), ABDN, L&G, Phoenix, and Imperial. I have no plans to buy more of these just now.

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Re: too high?

#511586

Postby idpickering » July 4th, 2022, 7:32 am

miner1000 wrote:You have to look at all the shares discussed here in terms of when you might have bought them, what market conditions may affect their ability to pay a dividend, and whether you would be happy to continue to hold, or even buy more at the current price, after looking at those aspects.

Take RIO for example, top of the list. Currently on a forecast yield of some 13%. I bought the bulk of my RIO holding in 2017 and 2018. After the next dividend, they will have returned to me about 75% of my original investment. The outlook for iron ore and copper is not as hot now as it was a year or so ago, so, yes, there may well be a dividend cut. But it will not be a forced cut, because RIO's dividend policy is to pay out an appropriate amount of "profit" as a dividend. this profit is, of course, a function of metal prices. RIO decided some years ago not to pursue a progressive dividend policy, because for a resources company, at the mercy of the commodity markets, that would be unsustainable.

So, RIO may well cut the dividend next time or next year. But, IMHO, they are a well run commodity company with an enormous asset base and a pool of exciting projects on the back burner, waiting to be brought into production. So I will certainly continue to hold them, and indeed, may buy more if the forthcoming "recession" makes the price look a bargain.

I believe this simple evaluative approach should be used for any of the high yield shares listed, and indeed, for any share you are considering for your HYP.

I also hold (and will continue to hold), ABDN, L&G, Phoenix, and Imperial. I have no plans to buy more of these just now.


A great post miner100, thank you.

I agree with the gist of your post, and imho the oft mentioned quote (but not hereabouts perhaps?), to be "greedy when others are fearful" comes to mind. If one is happy to follow that Buffett comment/advice of course, which tbh I am.

Ian.

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Re: too high?

#511588

Postby Dod101 » July 4th, 2022, 7:46 am

Presumably citing an article from Brewin Dolphin that is 6 years old is intended to indicate that the points made do not change and that i think is largely true. However, if the point has not been made already, what would seem to be sensible would be to separate out those companies which make no claim to a progressive dividend (that point has already been made of the miners) from those that do aspire to a progressive dividend.

Personally I am not attracted to the more volatile miners even although that obviously means missing out on some good returns. Are house builders in the same camp?

If we look at those that do aspire to a progressive dividend, very high dividend yields do need to be looked at very carefully but it is not an easy or mechanical process and we will always be blind sided. I think it is particularly difficult at the moment as there are so many different factors at work.

I do not much like abrdn but I hold the other shares that miner cites. Long term the tobaccos are probably a dying industry but for the moment the dividends look reliable enough and the two life companies seem fine.

Dod

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Re: too high?

#511595

Postby daveh » July 4th, 2022, 8:50 am

miner1000 wrote:You have to look at all the shares discussed here in terms of when you might have bought them, what market conditions may affect their ability to pay a dividend, and whether you would be happy to continue to hold, or even buy more at the current price, after looking at those aspects.

Take RIO for example, top of the list. Currently on a forecast yield of some 13%. I bought the bulk of my RIO holding in 2017 and 2018. After the next dividend, they will have returned to me about 75% of my original investment. The outlook for iron ore and copper is not as hot now as it was a year or so ago, so, yes, there may well be a dividend cut. But it will not be a forced cut, because RIO's dividend policy is to pay out an appropriate amount of "profit" as a dividend. this profit is, of course, a function of metal prices. RIO decided some years ago not to pursue a progressive dividend policy, because for a resources company, at the mercy of the commodity markets, that would be unsustainable.

So, RIO may well cut the dividend next time or next year. But, IMHO, they are a well run commodity company with an enormous asset base and a pool of exciting projects on the back burner, waiting to be brought into production. So I will certainly continue to hold them, and indeed, may buy more if the forthcoming "recession" makes the price look a bargain.

I believe this simple evaluative approach should be used for any of the high yield shares listed, and indeed, for any share you are considering for your HYP.

I also hold (and will continue to hold), ABDN, L&G, Phoenix, and Imperial. I have no plans to buy more of these just now.


BHP has said the same - they will pay out a fixed % of profits as dividends, which means that dividends can go up and down over the cycle - it also means that it sensible that at times when dividends are high at the peak of the commodity cycle the yield is likely to be high as a dividend cut is expected. The best time to buy the miners may be at the bottom of the commodity cycle - but is that any easier to time than share prices?

S32, my second miner also pays out a minimum set % of profits (50% AFAIR) plus extra on top if it feels its sensible to do so ( which has been recently, but hasn't in the past (eg during covid lock downs).

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Re: too high?

#511611

Postby onslow » July 4th, 2022, 10:05 am

daveh wrote:
BHP has said the same - they will pay out a fixed % of profits as dividends, which means that dividends can go up and down over the cycle - it also means that it sensible that at times when dividends are high at the peak of the commodity cycle the yield is likely to be high as a dividend cut is expected. The best time to buy the miners may be at the bottom of the commodity cycle - but is that any easier to time than share prices?

S32, my second miner also pays out a minimum set % of profits (50% AFAIR) plus extra on top if it feels its sensible to do so ( which has been recently, but hasn't in the past (eg during covid lock downs).


Makes a nice change from BHP previously declaring a progressive dividend policy and when questioned about a potential cut, the then CEO remarked "over my dead body". Only to promptly cut the divi thereafter.

Of course mining is cyclical, and following the Australian mining giants for decades I think RIO is the better managed of the two but thats just relative - almost all of the returns are due to moves in commodity markets not management. In fact, given the destruction of shareholder wealth I'd argue that on balance mgmt of these two companies has no affect on the returns and perhaps even a slight negative.

These companies can be very good investments if commodity prices go your way, but slow and steady divi payers they are not!

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Re: too high?

#511625

Postby micrographia » July 4th, 2022, 11:33 am

Itsallaguess wrote:Why I wanted to try to wrap up my own contributions to this thread with the above is that I wanted to say that I think micrgraphia's approach is a really quite valid one to both *recognising* the higher-risk that ultra-high-yield investments bring, but also that it's got some valid methods of then trying to *cope* with those risks, and *mitigate* them where possible, given the particular circumstances of the investor and his appreciation *of* those risks...
Itsallaguess


Had a busy few days and see I missed some fun on this thread :lol: . Just clarifying that when I said I considered ULVR to be a "safer" buy all those years ago I wasn't basing that assessment on the yield of TATE, which I thought was quite safe. I was basing it on the market cap, company structure and probably dividend cover (too lazy to try and find this latter data) of ULVR. Given what had just happened to my HYP I was a bit preoccupied with worst case scenarios. I still am to some extent - the main reason I'm always on the lookout for an opportunity to buy the likes of ULVR, DGE and RKT, (all of of which I hold) on yields that are above their normal level is that they are really hard to kill :D . So there is definitely mitigation going on, but it is at a portfolio level and mainly concerned with making my HYP catastrophe-ready before I start taking income from it. Given that none of these companies has cut their divi yet during the recent shenanigans (albeit RKT has held theirs) I'm feeling pretty well disposed to past me for these specific decisions. I'd like a chat about a few of his others though.

There is absolutely no doubt that a side effect of having what is hopefully a resilient HYP is that it makes me less concerned about the occasional UHY buy though. I suspect this probably applies to anyone once their HYP gets past a certain size.

Regards, EEM

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Re: too high?

#511626

Postby Dod101 » July 4th, 2022, 11:46 am

micrographia wrote:
Itsallaguess wrote:Why I wanted to try to wrap up my own contributions to this thread with the above is that I wanted to say that I think micrgraphia's approach is a really quite valid one to both *recognising* the higher-risk that ultra-high-yield investments bring, but also that it's got some valid methods of then trying to *cope* with those risks, and *mitigate* them where possible, given the particular circumstances of the investor and his appreciation *of* those risks...
Itsallaguess


Had a busy few days and see I missed some fun on this thread :lol: . Just clarifying that when I said I considered ULVR to be a "safer" buy all those years ago I wasn't basing that assessment on the yield of TATE, which I thought was quite safe. I was basing it on the market cap, company structure and probably dividend cover (too lazy to try and find this latter data) of ULVR. Given what had just happened to my HYP I was a bit preoccupied with worst case scenarios. I still am to some extent - the main reason I'm always on the lookout for an opportunity to buy the likes of ULVR, DGE and RKT, (all of of which I hold) on yields that are above their normal level is that they are really hard to kill :D . So there is definitely mitigation going on, but it is at a portfolio level and mainly concerned with making my HYP catastrophe-ready before I start taking income from it. Given that none of these companies has cut their divi yet during the recent shenanigans (albeit RKT has held theirs) I'm feeling pretty well disposed to past me for these specific decisions. I'd like a chat about a few of his others though.

There is absolutely no doubt that a side effect of having what is hopefully a resilient HYP is that it makes me less concerned about the occasional UHY buy though. I suspect this probably applies to anyone once their HYP gets past a certain size.

Regards, EEM


Once your HYP (or in my case my income portfolio; there is a difference) gets past a certain size, I have found there is much less inclination to even consider going for a much higher yield, never mind an UHY. There is no need so why would I? It is the builders who seem to put themselves at greater risk I think, and in many ways they can afford it more than those like me who depend on their dividends to provide an income to live off, and frankly who are obtaining at least an adequate income without taking those extra risks.

Dod

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Re: too high?

#511776

Postby micrographia » July 5th, 2022, 10:13 am

Dod101 wrote:Once your HYP (or in my case my income portfolio; there is a difference) gets past a certain size, I have found there is much less inclination to even consider going for a much higher yield, never mind an UHY. There is no need so why would I? It is the builders who seem to put themselves at greater risk I think, and in many ways they can afford it more than those like me who depend on their dividends to provide an income to live off, and frankly who are obtaining at least an adequate income without taking those extra risks.

Dod


Yes, good point. I can see that happening when I eventually shift to drawing an income from my HYP.

EEM

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Re: too high?

#511801

Postby moorfield » July 5th, 2022, 11:13 am

micrographia wrote:
Dod101 wrote:Once your HYP (or in my case my income portfolio; there is a difference) gets past a certain size, I have found there is much less inclination to even consider going for a much higher yield, never mind an UHY. There is no need so why would I? It is the builders who seem to put themselves at greater risk I think, and in many ways they can afford it more than those like me who depend on their dividends to provide an income to live off, and frankly who are obtaining at least an adequate income without taking those extra risks.

Dod


Yes, good point. I can see that happening when I eventually shift to drawing an income from my HYP.

EEM



A well diversified HYP should be aiming for an overall yield somewhere between 5-6% or higher currently (imo), which gives folks room to blend higher and lower yielders according to their own penchants. Less than that suggests inefficient holdings (dividend cutters and/or lower yields) and begs the inevitable question - given the unspeakable alternatives that can be used just as effectively to construct a high yield income portfolio - what's the point of me running this HYP, really? Greater than 7% suggests a portfolio packed with those higher yielders folks should be wary of - see the OPs original list.

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Re: too high?

#512043

Postby Itsallaguess » July 6th, 2022, 7:26 am

Dod101 wrote:
Once your HYP (or in my case my income portfolio; there is a difference) gets past a certain size, I have found there is much less inclination to even consider going for a much higher yield, never mind an UHY. There is no need so why would I?

It is the builders who seem to put themselves at greater risk I think, and in many ways they can afford it more than those like me who depend on their dividends to provide an income to live off, and frankly who are obtaining at least an adequate income without taking those extra risks.


Thanks Dod - that resonates strongly with my position and view as well, although I'm still technically in the working and building stage and hopefully 'tapering' towards a point in time where I might start to think about needing to rely on the delivered income from my portfolio.

I have had a long term 'delivered income' goal that's been steadily worked towards over the years, and I definitely found that once the internal-compounding started to work it's magic from a large and growing income-portfolio, as well as the continued addition of regular new capital from working wages, that long term income-goal has been a broadly steady and hopefully achievable aim, without the need for me to feel I have to take undue risks with these types of ultra-high-yields, and by maintaining a focus on more moderate yields that have definitely proved, at least for me, to be much more dependable, with a generally steady rate of dividend growth, that means that I simply see no sense in inviting the type of ultra-high-yield roller-coaster ride that I've experienced in the past back into my current approach...

Cheers,

Itsallaguess

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Re: too high?

#512046

Postby Itsallaguess » July 6th, 2022, 7:38 am

moorfield wrote:
A well diversified HYP should be aiming for an overall yield somewhere between 5-6% or higher currently (imo), which gives folks room to blend higher and lower yielders according to their own penchants.

Less than that suggests inefficient holdings - dividend cutters and/or lower yields


It's always great to see HYP Portfolio reviews, but it often surprises me to see what I would certainly consider a 'moderate' overall 'HYP Portfolio Yield' from a set of rag-tag individual holdings that, to me at least, look to span the whole gamut of yield-related issues that can often come with running a long-term buy-and-hold income-strategy like this.

There's often a bunch of non-payers at the bottom of the list, and then a middle section that's probably more representative of the approach, and then towards the top there always seems to be a layer of yields similar to the table in the opening post of this thread, which we might describe as 'ultra-high-yields'.

My view has always been to look at that overall portfolio yield though, and ask if that's the way I'd be happy to generate such a portfolio-level 'moderate' yield, but holding that range of individual holdings to do so, over the long term, and since being in similar portfolio positions myself in the past, I am now firmly of the view that there are much less stressful ways of achieving long-term, low-trade investment income around that overall 'moderate yield' zone, than having to 'carry' a number of ultra-high-yielders to achieve it, coping as they have to, to carry the weight of those other regular zero-yielders...

Cheers,

Itsallaguess

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Re: too high?

#512382

Postby Itsallaguess » July 7th, 2022, 8:31 am

Just a quick heads-up for anyone looking for potential entry points for the type of ultra-high-yielders being discussed on this thread, that Persimmon is currently now 'yielding' around 13.4%, following today's RNS trading update and subsequent share price drop this morning of around 6%...

Cheers,

Itsallaguess

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Re: too high?

#512434

Postby kempiejon » July 7th, 2022, 10:24 am

Itsallaguess wrote:Just a quick heads-up for anyone looking for potential entry points for the type of ultra-high-yielders being discussed on this thread, that Persimmon is currently now 'yielding' around 13.4%, following today's RNS trading update and subsequent share price drop this morning of around 6%...

Cheers,

Itsallaguess


I know it's nit picking but PSN call some of the annual payment to share holders a return of capital.

The Board remains committed to its well-established strategy of returning capital that is surplus to the needs of the business to its shareholders. Given the successful trading result of the Group in 2021 and its strong financial position, the Board is pleased to confirm that it will return 110p per share surplus capital on 8 July 2022, to shareholders on the register on 17 June 2022. There will be no further dividend payments in relation to the year ended 31 December 2021.


https://www.londonstockexchange.com/new ... t/15426599

Even if we chose to treat the capital surpluses as dividends a quick look at the payments for the last decade or so shows they've had an erratic and lumpy income history. That'd fail my 5 year rising dividend test for inclusion in a HYP.
https://www.dividenddata.co.uk/dividend ... y?epic=PSN

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Re: too high?

#512480

Postby daveh » July 7th, 2022, 12:39 pm

Itsallaguess wrote:Just a quick heads-up for anyone looking for potential entry points for the type of ultra-high-yielders being discussed on this thread, that Persimmon is currently now 'yielding' around 13.4%, following today's RNS trading update and subsequent share price drop this morning of around 6%...

Cheers,

Itsallaguess


One of my best performing shares. Cost me x now worth 2.75x and has paid me 2.4x in "dividends" (PSN often calls them capital returns but they are treated as dividends). What's not to like.

I won't be topping up as they are too high a proportion of both the capital and the income of my portfolio. Would I buy at the point if I didn't already hold them? Possibly, though I might wait until the next results to see what they say about the capital return/ dividends going forward. If I recall correctly this year was the last year of their 5 year capital return plan (during which they've actually returned more than was initially promised) and I don't recall they've said what they plan in the future ( I've just skimmed the last AR and can't see anything on dividends/returns going forward). But they are already back to a net cash position even after paying this years two capital repayments. So if business continues as it has so far this year they should be in a position to pay a decent return this forthcoming year.

Itsallaguess
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Re: too high?

#512532

Postby Itsallaguess » July 7th, 2022, 4:37 pm

daveh wrote:
Itsallaguess wrote:
Just a quick heads-up for anyone looking for potential entry points for the type of ultra-high-yielders being discussed on this thread, that Persimmon is currently now 'yielding' around 13.4%, following today's RNS trading update and subsequent share price drop this morning of around 6%...


One of my best performing shares. Cost me x now worth 2.75x and has paid me 2.4x in "dividends" (PSN often calls them capital returns but they are treated as dividends).

What's not to like.


To be fair, I don't think historical performance is as relevant to a thread like this than performance from the date that the thread was initiated, given that the topic is specifically related to the potential risks associated 'going forwards' with the types of 'ultra high yield' shares listed in the table in the opening post...

I think what you're describing might well be labelled as 'anchoring' in personal-investment terms, and is probably something for a separate thread in terms of discussing the potential risks of that separate, but surprisingly common issue....

Cheers,

Itsallaguess
Last edited by Itsallaguess on July 7th, 2022, 4:43 pm, edited 3 times in total.


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