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A HYP shopping list?

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Arborbridge
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A HYP shopping list?

#10539

Postby Arborbridge » November 30th, 2016, 6:28 pm

I'm posting here a list of shares held in UKDV - that is, UK Dividend Aristocrats. Please chase me away to another board if you think this is inappropriate, but I think it might prove a useful footnote to HYPers. These are "aristocrat" dividend payers who have either held or raised dividends over the past ten years so in effect could be a potential shopping list for us.
Originally I bought an investment in UKDV as a benchmark for my HYP: since it's yielding around 4.4% at present, it has some merit in its own right as a pension contributor.
The portfolio is rebalanced according to various rules - sustaining the dividend, capital weight, etc - and the next occasion will be on the 3rd Friday of December. The reason for posting now, is that if you are interested, I'll post the rebalanced version in December for comparison purposes.

The second column gives the current percentage weight.

Code: Select all

GlaxoSmithKline plc                  5.09
Aberdeen Asset Management PLC        5.08
SSE plc                              4.97
G4S plc                              4.85
Carillion plc                        4.57
Tate & Lyle PLC                      4.56
AstraZeneca PLC                      4.36
Pearson PLC                          4.32
BAE Systems plc                      3.93
Burberry Group plc                   3.79
Meggitt PLC                          3.41
Close Brothers Group plc             3.39
Imperial Brands PLC                  3.33
British American Tobacco p.l.c.      3.30
UBM PLC                              3.25
Victrex plc                          3.24
Pennon Group Plc                     3.13
IMI plc                              3.07
Diageo plc                           2.95
Schroders PLC                        2.82
MITIE Group PLC                      2.71
St. James's Place Plc                2.65
WPP Plc                              2.57
Sky plc                              2.53
Prudential plc                       2.39
Greene King plc                      2.35
RELX PLC                             2.27
Next plc                             2.04
Berendsen plc                        1.72
Capita plc                           1.36

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Re: A HYP shopping list?

#10542

Postby Lootman » November 30th, 2016, 6:35 pm

Do you know how UKDV decides how to weight these holdings?

There is a US index that has been around a good number of years that has the same idea and it has done well. But from memory, it requires a much longer series of years of increasing dividends to be on the list. Ten years isn't that long and in fact barely takes us back in time earlier than the big financial crisis of 2007-2009, although that was of course a very good test of the idea.

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Re: A HYP shopping list?

#10548

Postby Arborbridge » November 30th, 2016, 6:51 pm

I know they had to soften the criteria of longevity for the UK market - there were not enough companies in play.

Off hand, I've forgotten the weighting scheme, but it may be in proportion to current yield. I would have to chase down the data sheet on line - but as it's nearly time for the Archers.....

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Re: A HYP shopping list?

#10608

Postby Gengulphus » November 30th, 2016, 9:25 pm

I wonder why Vodafone is not in the list? It has increased its payout every year for at least the last 15 years...

I suspect some reason to do with the Verizon deal - the 6-for-11 consolidation that accompanied it will have reduced the payout to shareholders who simply let matters take their course. But that's really no different to saying that shareholders who sold 5/11ths of their holding would have seen a reduction in payout even without the deal!

Gengulphus

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Re: A HYP shopping list?

#10615

Postby dspp » November 30th, 2016, 9:55 pm

That is 30 shares so is also something of an indicator that going too far above that in #shares terms tends to require fairly active management.

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Re: A HYP shopping list?

#10624

Postby 77ss » November 30th, 2016, 10:20 pm

Gengulphus wrote:I wonder why Vodafone is not in the list? It has increased its payout every year for at least the last 15 years...

I suspect some reason to do with the Verizon deal


Not the only quirk. Provident Financial is also missing - due to the 2007 IPF demerger?

HSBC and ULVR - currency effects? I think that the $ and Euro amounts have been held or raised.

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Re: A HYP shopping list?

#10659

Postby Gengulphus » December 1st, 2016, 1:59 am

dspp wrote:That is 30 shares so is also something of an indicator that going too far above that in #shares terms tends to require fairly active management.


If it were such an indicator, it would indicate that a FTSE 100 tracker tends to require very active management!

Personally, I'd reckon it just indicates that their particular filter happens to end up with 30 shares...

Gengulphus

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Re: A HYP shopping list?

#10793

Postby dspp » December 1st, 2016, 12:35 pm

- That is 30 shares so is also something of an indicator that going too far above that in #shares terms tends to require fairly active management.

If it were such an indicator, it would indicate that a FTSE 100 tracker tends to require very active management!

Personally, I'd reckon it just indicates that their particular filter happens to end up with 30 shares...


If you think about a typical filter at any one moment a section of FTSE-100 will fail either a dividend yield test, or a dividend cover test, or a growth test (whether of market cap or dividends, with the latter test being most relevant on this board). That doesn't necessarily make them poor investment candidates, it just means that they will not get included in a investment portfolio with this sort of filter. They might be interesting contrarian plays, but that's not what the filter that interests this board is interested in. Since individual businesses suffer the normal random walks then individual businesses will tend to come in or out of such a filter's output. I rather suspect that there is a natural upper limit if fishing in a pool of the FTSE-100. So no I don't think it is an accident that a portfolio ends up with >7 and <50 after a number of years of running such a mechanical filter.

A FTSE-100 tracker is a very different beast.

regards, dspp

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Re: A HYP shopping list?

#10796

Postby Arborbridge » December 1st, 2016, 12:40 pm

So no I don't think it is an accident that a portfolio ends up with >7 and <50 after a number of years of running such a mechanical filter.


I don't think the number of years makes any difference since rebalancing takes place several times a year, and at each point the chances of qualifying would roughly be the same - unless the FTSE is changing, of course. Whether it's running one year or ten, there would always be a natural limit, as you say, on the number which pass.

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Re: A HYP shopping list?

#10833

Postby Dod1010 » December 1st, 2016, 1:55 pm

77ss wrote:
HSBC and ULVR - currency effects? I think that the $ and Euro amounts have been held or raised.


I do not know about Unilever but HSBC reduced its dividend in US Dollar terms 2009 and it has never reached its previous level again.

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Re: A HYP shopping list?

#11891

Postby ADrunkenMarcus » December 4th, 2016, 9:40 pm

Gadge wrote:Victrex is a share I have held in the past and one that is still showing up today on my quality share filters (market cap >£1000m, high ROCE/ROE, no/low debt, low P/E and some yield).


I bought Victrex in 2015, when the share price had taken a tumble. There's a lot to like about it.

The operating margin on an unadjusted profit basis rose from 27.1% in 2000 to 40.3% in 2015, averaging 36.2% for the period and about the highest of any of the companies I am invested in.

The return on capital employed (ROCE) on an unadjusted profit basis was 36.2% in 2000, although it has fallen under 30% since 2012 and averaged 31.9% from 2000 to 2015.

Best wishes

Mark.

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Re: A HYP shopping list?

#11929

Postby Gengulphus » December 5th, 2016, 3:34 am

ADrunkenMarcus wrote:I bought Victrex in 2015, when the share price had taken a tumble. There's a lot to like about it.


Symbol VCT for those unfamiliar with it - which I suspect many HYPers will be, given that its yield is 2.7%.

Grew its dividend strongly from 2004 to 2013 - assuming the ADVFN Financials page dividend record is to be believed (I don't see anything that looks wrong with it, but would always check before relying on it!), a bit more than a sixfold increase in 9 years, which is a CAGR of a bit over 22%. But 2014's increase was 5.0%, 2015's was 3.7% and this year's interim was held, so that rapid growth seems to have come to an end...

According to their interim results http://www.investegate.co.uk/victrex-plc--vct-/rns/half-year-report/201605160700082791Y/:

"The policy for our regular dividend remains unchanged, with dividend growth expected to be in line with earnings growth and cover maintained at around 2x. After this, Victrex will return around 50% of the net cash balance to shareholders, via a special dividend, subject to a 50p/share de minimis level." (Such special dividends were paid for 2010 and 2014 - I've not included them in the figures above, as they're only happening occasionally and they would distort the growth rates in a major way.)

The DigitalLook forecast is for a dividend of 52.48p for the year that ended on September 30th, which would be a yield of 3.1% and an increase of 12.1% on last year's 46.82p. But it also forecasts EPS of 93.83p, down somewhat on the previous year, which would imply a dividend of 46.92p at a cover of 2x. Given that the company has had cover of 2x or more for the last four years and has already held the interim, I suspect some rather over-enthusiastic dividend forecasting!

Looking at the 'pre-close' (*) trading statement http://www.investegate.co.uk/victrex-plc--vct-/rns/trading-statement/201610110700051617M/, the headline is "Improved second half; good finish to 2016", but a look at the detail and at previous statements says that's against the background of a poor first half, and:

"Despite a positive finish to 2016, full year Group revenue declined by 4% to £252.3m (FY2015: £263.5m), reflecting the year on year fall in Consumer Electronics volumes, which were more than 30% down. Full year Group sales volume was down 6% at 3,952 tonnes (FY 2015: 4,217 tonnes).

which gives some extra reason to believe the EPS forecasting more than the dividend forecasting.

And the outlook part of the statement says

"As we start our new financial year, our core business remains robust. However, we remain mindful, as previously communicated, that our early planning assumption suggests Consumer Electronics volumes will be significantly lower in 2017, compared to 2016. ...
...
With a differentiated strategy, a strong pipeline and a highly cash generative business model, Victrex remains in a good position to drive shareholder value for the medium to longer term.
"

That doesn't look all that promising for the short term - and I don't put all that much credence in what it says about the medium to longer term, as it's a pretty standard type of try-to-soften-poor-short-term-news phrasing! Not saying there's anything definitely wrong, and it could well be that the company's growth will pick up again, but the declining growth in 2014 and 2015, signs of it having become negative in 2016 and discouraging words about 2017 are rather disquieting.

Given it also has a significantly below-market-average yield, I really cannot regard it as a HYP share. It's low enough that I'm not certain I would even if it had superb short-to-medium term dividend growth prospects - but it's nowhere near having those! (I should emphasise that that's not a comment on whether it's a good share to invest in - it might well be - just that it's not a good fit to a HYP strategy.)

Finally, it won't take long to learn more: Victrex's final results for the year to September 30th are due on Tuesday according to the trading statement.

(*) In quotes because it's actually issued 11 days after the end of the period!

Gengulphus

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Re: A HYP shopping list?

#12357

Postby ADrunkenMarcus » December 6th, 2016, 7:46 am


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Re: A HYP shopping list?

#12424

Postby Gengulphus » December 6th, 2016, 10:54 am



Two important sections (at least from a HYPer point of view) from near the end of that:

"Dividends

Our Capital Allocation framework states that growth investment is our top priority. The policy for our regular dividend is to grow in line with earnings, with cover maintained at around 2x. After this, and subject to no additional growth investment, Victrex will return around 50% of the net cash balance to shareholders, via a special dividend, subject to a 50p/share minimum level. For the full year, with profit before tax falling by 6%, the Group is holding the final dividend at 35.09p per share. Total dividends for the year are 46.82p (2015: 46.82p).

Outlook

For 2017, our core business is in growth, we remain focused on cost efficiency and we are operating in a more favourable currency environment. Our assumptions for a continuation of Consumer Electronics volumes, but at a significantly lower level, are unchanged, with an expected second half weighting. At this early stage of the year, we are comfortable with current expectations.
"

So a held dividend for this year, as had been signalled by the interim. On the plus side, EPS is 96.8p, about 3% up on the DigitalLook forecast of 93.83p in my last post in this topic; combined with the held dividend, that makes their dividend cover 2.07, very much in keeping with their historical record of it being 2 or a bit over.

On the minus side, their assumptions about 2017 are unchanged, and as I said in that last post, I didn't find them very encouraging...

The market likes these results - not surprising as earnings are noticeably above forecasts - and the resulting price rise has caused the yield to drop to 2.6%. At that level, I would require outstandingly good foreseeable dividend growth to consider it for my HYP - and Victrex is nowhere near having that. Might be a good fit to some other strategy that attempts to look ahead on growth some more and is less income-focused, but not HYP.

Gengulphus

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Re: A HYP shopping list?

#12735

Postby ADrunkenMarcus » December 6th, 2016, 8:07 pm

Gengulphus wrote:The market likes these results - not surprising as earnings are noticeably above forecasts - and the resulting price rise has caused the yield to drop to 2.6%. At that level, I would require outstandingly good foreseeable dividend growth to consider it for my HYP - and Victrex is nowhere near having that. Might be a good fit to some other strategy that attempts to look ahead on growth some more and is less income-focused, but not HYP.


At these levels, absolutely. If it pays a special dividend (minimum 50p a share) every couple of years, it would send the dividend yield for those years well above 5%; however I am sure the HYP focus would be on the regular dividend and not special dividend payments which, as the clue is in the name, are 'special' and can't be routinely counted upon.

Best wishes


Mark.

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Re: A HYP shopping list?

#12747

Postby Lootman » December 6th, 2016, 8:32 pm

ADrunkenMarcus wrote: If it pays a special dividend (minimum 50p a share) every couple of years, it would send the dividend yield for those years well above 5%; however I am sure the HYP focus would be on the regular dividend and not special dividend payments which, as the clue is in the name, are 'special' and can't be routinely counted upon.

I've held Victrex for a few years and so am a happy camper. But I see special dividends a little differently. To my mind they reflect two things, both positive:

1) They are awash with cash and have the confidence to reward shareholders with at least some of it. Buying back shares sends a similar signal in theory but is often accompanied by borrowing - I've not heard of any company borrowing to pay a special dividends (willing to be corrected).

2) I've had good experiences with companies that issue specials. In fact sometimes they are so good at it that I start to get annoyed. Example - Melrose that basically disgorged most of itself a little while ago, leaving my holding pitifully small. They then engaged in a rights issue to rebuild capital for their next deal, and this was one of the few times I have taken up a rights issue.

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Re: A HYP shopping list?

#12790

Postby Gengulphus » December 6th, 2016, 10:08 pm

ADrunkenMarcus wrote:If it pays a special dividend (minimum 50p a share) every couple of years, it would send the dividend yield for those years well above 5%; ...


But it doesn't pay such a dividend every couple of years, does it? According to the ADVFN financials page, it's only paid two such specials since 1999, in February 2011 and February 2015, and for 2007 onwards, that's confirmed from the horse's mouth by the company itself in http://www.victrexplc.com/dividend-performance. Also, we've essentially just had it confirmed by the final results that the next one won't be paid in February 2017, two years after the last one.

Furthermore, for a long term income-seeker, what matters is the long-term average income, not the peaks and troughs produced by the idiosyncrasies of a company's dividend policy. A company that is paying (in very round number terms) an ordinary dividend of 45p per year and a special of 50p every other year is paying a total of 140p per two years, which the HYPer can take at 70p/year by sticking 95p/share in a 'buffer' bank account in the special-dividend years, 45p/share in the account in the non-special-dividend years, and withdrawing a steady 70p/share each year.

In the light of those two points combined, a somewhat optimistic assessment of Victrex's special dividends is that it's paying a special of 50p every 3-4 years, which are worth an average of 12.5-16.7p extra per year. At the current share price of 1758p, that's worth about 0.7-0.95 percentage points extra effective yield, taking it to about 3.3-3.6%. That's an improvement on the raw yield, and with good foreseeable dividend growth, I would definitely be interested. But as things stand, with short-term foreseeable dividend growth essentially non-existent and medium-to-longer-term dividend growth more a hope than anything clearly foreseeable, no, it's still not a HYP share for me.

ADrunkenMarcus wrote:... however I am sure the HYP focus would be on the regular dividend and not special dividend payments which, as the clue is in the name, are 'special' and can't be routinely counted upon.


Well, some 'special' dividends are predictable enough that they can arguably be counted on almost as much as the ordinary dividends - Admiral's are an example. I've taken to calling them 'not-so-specials', for obvious reasons, and certainly some HYPers do count them in assessing their reasonably reliable income. I would however generally want evidence that they really can be counted upon, both in terms of what the company has done in practice and what its stated policy is: Victrex is fine on the latter but with only two payments so far, a bit lacking on the former - which is why I say "somewhat optimistically" above.

One specific point I will note is that one really needs to be consistent about which dividend measure one uses, specifically with regard to dividend yield and cover. Some years back, for example (I haven't bothered to check out recent figure, partly because I know that Admiral have complicated matters further with a return-of-capital element to their dividend), Admiral had a very high yield and a cover a bit above 1 if calculated on their ordinary plus 'not-so-special' dividends, or a cover in the region of 2 and a roughly-market average yield if calculated on the ordinary dividends alone. The problem was that it wasn't all that difficult to pick up the combination of a cover in the region of 2 and a very high yield from various data sources if one wasn't careful - and relying on that combination was definitely a case of wanting to have one's cake and eat it!

Gengulphus

Arborbridge
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Re: A HYP shopping list?

#40871

Postby Arborbridge » March 23rd, 2017, 5:55 pm

Here's the latest potential shopping list from UKDV. There has been no change in the shares held, only some small change to the percent of fund weight, presumably mostly owing to price changes. I rank in alphabetical order:-



This table was updated at today's date, which I assume takes account of the portfolio review due last friday.

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Re: A HYP shopping list?

#41141

Postby tjh290633 » March 24th, 2017, 4:08 pm

Arborbridge wrote:Here's the latest potential shopping list from UKDV. There has been no change in the shares held, only some small change to the percent of fund weight, presumably mostly owing to price changes. I rank in alphabetical order:-

This table was updated at today's date, which I assume takes account of the portfolio review due last friday.


That may time some time to come into effect. They have three things to do, first rebalance as required, second dispose of any unwanted holdings and finally buy any new holdings.

You may see this if you look at it daily.

TJH

Arborbridge
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Re: A HYP shopping list?

#41222

Postby Arborbridge » March 25th, 2017, 6:52 am

That may time some time to come into effect


Good point, Terry, and I'll take a look in a few weeks. I have copies of the portfolio in Nov, Jan and now March, and there are no significant changes in proportion, and no changes at all in the holdings.

Arb.


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