Tinker away Segro PLC (SGRO)

[IanTHughes]

Strict HYPers look away now. And please don’t point those crucifixes at me!

Yes, I am thinking of tinkering away one of my most successful holdings - Segro PLC (SGRO) - and re-investing the proceeds into a new holding – New River Retail (NRR). The reason of course is to increase the yield and hopefully over time, the actual income received.

SGRO has been a magnificent share for my HYP. Capital Value up 165% since purchase in 2012 and an ever increasing dividend. I am even fairly comfortable that the dividend is set to increase again this year but, thanks to the remarkable price increase, the historic dividend yield is now barely over 2.5%. My portfolio’s overall historic dividend yield is just over 5% and there are many HYP candidates that have much better dividend yields, even in excess of 6%, presenting many tempting opportunities to re-deploy the capital currently tied up in SGRO and gain an immediate boost to the portfolio’s forecast income

I am not by nature a tinkerer and in general I agree whole-heartedly with the recommendation that trading within an HYP should be kept to a minimum, even to only that forced upon us by corporate events. However, I am coming to the realisation that some sort of re-deployment of capital, from low to higher yield, on an occasional basis, may be beneficial to the overall performance of my HYP, especially during this pre-retirement phase. Yes, there are risks in selling a great share like SGRO without knowing whether the replacement will match up. But as I am still adding fairly substantial funds to my portfolio on an annual basis, I feel I am in a position to take that risk.

So to the replacement share, New River Retail (NRR)

Chosen because of its yield obviously (7.2%+) but also because it will maintain my diversification and a holding in the Property Sector, rather than over concentrate in other Sectors or Industries. Not a major issue with my portfolio, only Oil and Gas is over limit, but why not diversify as much as possible.

Downsides:

UK-centred – SGRO is Europe-wide

Retail-centred – NRR owns and manages shopping centres and various leisure-style properties – leasing out to Shops, Pubs, Clubs and Restaurants etc. SGRO on the other hand, is into light industrial and warehousing properties. More boring for sure, but probably safer, especially at this time when our whole shopping habit is apparently changing thanks to online possibilities and what I believe is a greater demand for value for money.

Debt level in NRR is higher than within SGRO, but appears manageable to me. I am going to investigate further this evening

Market Capitalisation – NRR is £865 Million while SGRO, in the FTSE 100, is £6.6 Billion

Upsides:

Yield, obviously. NRR’s forecast dividends will, if realised, increase the income on this slice of capital more than 2.5 times.


Going forward, I am probably going to keep a keener eye on the low yielders with a view to possibly taking action. I am not yet sold on an automatic disposal or top slice a la TJH. Although I am impressed with his HYP results and do feel that some of that success must come from his “updating” of the portfolio from time to time.

Anyway, all thought welcome

Ian

[idpickering]

Strict HYPers look away now. And please don’t point those crucifixes at me!

Yes, I am thinking of tinkering away one of my most successful holdings - Segro PLC (SGRO) - and re-investing the proceeds into a new holding – New River Retail (NRR). The reason of course is to increase the yield and hopefully over time, the actual income received.

SGRO has been a magnificent share for my HYP. Capital Value up 165% since purchase in 2012 and an ever increasing dividend. I am even fairly comfortable that the dividend is set to increase again this year but, thanks to the remarkable price increase, the historic dividend yield is now barely over 2.5%. My portfolio’s overall historic dividend yield is just over 5% and there are many HYP candidates that have much better dividend yields, even in excess of 6%, presenting many tempting opportunities to re-deploy the capital currently tied up in SGRO and gain an immediate boost to the portfolio’s forecast income

I am not by nature a tinkerer and in general I agree whole-heartedly with the recommendation that trading within an HYP should be kept to a minimum, even to only that forced upon us by corporate events. However, I am coming to the realisation that some sort of re-deployment of capital, from low to higher yield, on an occasional basis, may be beneficial to the overall performance of my HYP, especially during this pre-retirement phase. Yes, there are risks in selling a great share like SGRO without knowing whether the replacement will match up. But as I am still adding fairly substantial funds to my portfolio on an annual basis, I feel I am in a position to take that risk.

So to the replacement share, New River Retail (NRR)

Chosen because of its yield obviously (7.2%+) but also because it will maintain my diversification and a holding in the Property Sector, rather than over concentrate in other Sectors or Industries. Not a major issue with my portfolio, only Oil and Gas is over limit, but why not diversify as much as possible.

Downsides:

UK-centred – SGRO is Europe-wide

Retail-centred – NRR owns and manages shopping centres and various leisure-style properties – leasing out to Shops, Pubs, Clubs and Restaurants etc. SGRO on the other hand, is into light industrial and warehousing properties. More boring for sure, but probably safer, especially at this time when our whole shopping habit is apparently changing thanks to online possibilities and what I believe is a greater demand for value for money.

Debt level in NRR is higher than within SGRO, but appears manageable to me. I am going to investigate further this evening

Market Capitalisation – NRR is £865 Million while SGRO, in the FTSE 100, is £6.6 Billion

Upsides:

Yield, obviously. NRR’s forecast dividends will, if realised, increase the income on this slice of capital more than 2.5 times.


Going forward, I am probably going to keep a keener eye on the low yielders with a view to possibly taking action. I am not yet sold on an automatic disposal or top slice a la TJH. Although I am impressed with his HYP results and do feel that some of that success must come from his “updating” of the portfolio from time to time.

Anyway, all thought welcome

Ian

Hello Ian, there's no need to feel remotely guilty. It's your HYP, to deal with however you see fit, but thanks for sharing this event here. I do get your reasoning, after all, HYP is about high yield, not low yield. I've never held Segro, and I've never heard of New River Retail, but good luck with whatever you decide to do. I do tend to let my winners run tbh.

Ian.

[tjh290633]

IanTHughes

You have probably read my criteria in the past, Ian, and know that I only sell if the yield has fallen to less than half that of the market, because of SP growth. On that basis, selling SGRO is a bit premature. When I do sell, the replacement ought to provide at least twice the income of that sold.

Combined with strategic reinvestment of accumulated dividends, the effect is to ratchet up income, the main objective off an HYP.

TJH

[IanTHughes]

IanTHughes
You have probably read my criteria in the past, Ian, and know that I only sell if the yield has fallen to less than half that of the market, because of SP growth. On that basis, selling SGRO is a bit premature. When I do sell, the replacement ought to provide at least twice the income of that sold

Yes I have read your criteria in the past but thanks for coming by and reminding me that you compare a low yielder with the market, not the HYP Portfolio as a whole as I have done so far. Hardly surprising that this gives a higher yield figure which is more likely to be twice that of the low-yielder under investigation. Maybe I should re-think this

Can I ask which market yield? FTSE 100? FTSE 350? FTSE All share?

Also where do you find the market figure? I am sure it will be staring at me in my face but I cannot seem to find it right now?


Ian

[Itsallaguess]

Upsides:

Yield, obviously. NRR’s forecast dividends will, if realised, increase the income on this slice of capital more than 2.5 times.


Going forward, I am probably going to keep a keener eye on the low yielders with a view to possibly taking action. I am not yet sold on an automatic disposal or top slice a la TJH. Although I am impressed with his HYP results and do feel that some of that success must come from his “updating” of the portfolio from time to time.

Anyway, all thought welcome

If you're definitely feeling the need to 'do something', then even top-slicing the SGRO holding is likely to increase your overall portfolio income if the released capital is invested in something much higher-yielding like NRR.

With a forecast yield of 2.7% for SGRO (https://uk.webfg.com/equity/SEGRO), and if the company is likely to continue doing well and paying out increasing dividends, I'd be very wary of rotating the lot into any investment with a 7.6% forecast yield like NRR (https://uk.webfg.com/equity/NewRiver_REIT).

7.6% yield territory would be telling me something about the market's view of that stock, and whilst you may have a different view and may be correct, are you willing to risk a lump of capital from one of your better-performing shares to go 'all-in' with that view?

Personally, if I absolutely had to do 'something', then I'd top-slice rather than sell completely. The result will hopefully still be a useful portfolio-level increase in dividend income (you've not disclosed how large a capital-holding SGRO is now, compared to your normal portfolio 'full-unit', so you'd have to confirm any potential income-increase from top-slicing yourself before deciding if this is worthwhile...), whilst removing some of the risk of a full rotation into a really-high-yield alternative.

I've never seen my HYP as being a pure 'income machine', and quite often over the years you'll find some HYP holdings (similar to DS Smith, being discussed on another HYP thread recently...), that become 'capital-and-income machines' in their own little corner of our HYP portfolio's, which, if nurtured correctly, can be a real driver of capital over many years. I don't know too much about SGRO as I've never held it, but if it's got any chance of being like DS Smith for your particular HYP, then selling the lot isn't going to be the best way to take advantage of that...

Income-producing shares that develop 'growth-like tendencies' and continue to throw off cash whilst rapidly appreciating their dividends over many years can be one of the special situations where it might be best to allow slightly lower-yielding holdings to remain in our HYP's, even if we choose to remove some capital-risk by top-slicing sometimes.....

They are the HYP-pearls we really should be looking for, not the ones we should throw out once we've found one....

Cheers,

Itsallaguess

[Dod101]

If the OP is still in the pre retirement phase, why the emphasis on increasing the income(possibly even at the expense of capital growth)? It is surely total return he is looking for and then when drawing an income change the emphasis to income. I do not understand.

I hold Segro and in the same way my yield from it has dropped but I am not that bothered because the capital has more than made up the shortfall. I expect I will at some time probably sell for a higher yield (I have no hang ups about selling a HYP share or any other for that matter). I live off my dividends so income does matter to me although I have a dedicated High Yield portfolio and a Growth portfolio and if Segro does fit in the one it will the other. I keep them separate only in my record keeping because I then know what I am expecting form the different shares.

Dod

[OLTB]

IanTHughes
You have probably read my criteria in the past, Ian, and know that I only sell if the yield has fallen to less than half that of the market, because of SP growth. On that basis, selling SGRO is a bit premature. When I do sell, the replacement ought to provide at least twice the income of that sold

Yes I have read your criteria in the past but thanks for coming by and reminding me that you compare a low yielder with the market, not the HYP Portfolio as a whole as I have done so far. Hardly surprising that this gives a higher yield figure which is more likely to be twice that of the low-yielder under investigation. Maybe I should re-think this

Can I ask which market yield? FTSE 100? FTSE 350? FTSE All share?

Also where do you find the market figure? I am sure it will be staring at me in my face but I cannot seem to find it right now?


Ian

Hi Ian - the Dividend Data site here https://www.dividenddata.co.uk/dividend ... et=ftse100 gives you the FTSE100 yield if that's any help?

Cheers, OLTB.

[robbelg]

You should also note that New River is 5.1% shorted.

https://www.shorttracker.co.uk/companies/


Rob

[Raptor]

Can I ask which market yield? FTSE 100? FTSE 350? FTSE All share?

Also where do you find the market figure? I am sure it will be staring at me in my face but I cannot seem to find it right now?


Ian

I used to have a link to all the Yields but seem to have mislaid them but these are for the FTSE All Share and FTSE 250.


FTSEAll Share
FTSE 250

Never bothered with FTSE 100 as it appears on my Yahoo Portfolio...

Raptor.

[MDW1954]

IanTHughes

Also where do you find the market figure? I am sure it will be staring at me in my face but I cannot seem to find it right now?

Ian

I get it from the FT's "market data" pages. I think this is the source that all TMF writers use. (That always used to be the case.)

FTSE 100 is currently 3.83%, I see.

Moderator Message:
Link removed as it is behind a paywall. Mel

Moderator Message:
Scroll down for a link that works -- MDW1954

MDW1954

[IanTHughes]

If the OP is still in the pre retirement phase, why the emphasis on increasing the income(possibly even at the expense of capital growth)? It is surely total return he is looking for and then when drawing an income change the emphasis to income. I do not understand.

I put the emphasis firmly on the level of income being generated for a couple of reasons:

1) I am not overly confident in my ability to locate "Capital Growth".
2) I am even less confident in my ability to know when a holding has finished growing and should be replaced by another with higher growth potential
3) Even if I were able to better manage 1) and 2) above, at the age of retirement, which I hope is only years away not decades, I would have to move capital from Growth to Income providers.

All in all I feel that buying the high yield now and re-investing the dividends until I need to receive them as a pension, is the easiest way to buy and manage and increase an income until it is needed.


Ian

[Dod101]

Ian

But you have found growth plus some income in Segro and as Itsallaguess has said these shares should be nurtured. Do you know what your XIRR is with Segro? It is as you know in a different market segment than say B Land or Land Securities and one that IO think has a fair chance of maintaining its growth. The only thing that your replacement seems to have going for it is yield.

Anyway it is your HYP but I just find it a bit odd.

Good luck

Dod

[tjh290633]

Can I ask which market yield? FTSE 100? FTSE 350? FTSE All share?

Also where do you find the market figure? I am sure it will be staring at me in my face but I cannot seem to find it right now?


Ian

Usually FTSE100, as most of my holdings are there.

I used to get it from the FT Market Research pages, but they have gone behind a paywall, using "World Markets at a Glance". If you Google that you can still find the latest PDF file, which tells me that the yield as of Friday night was 3.82%. You can also get the other indices and the TR versions from that page. Look under FTSE Actuaries Share Indices.

TJH

[Breelander]

Also where do you find the market figure? I am sure it will be staring at me in my face but I cannot seem to find it right now?

Ian

Usually FTSE100, as most of my holdings are there.

I used to get it from the FT Market Research pages, but they have gone behind a paywall...

It's just the historic data that's behind a paywall, the current ftse 100 dividend % yield is available from the FT here.

3.82 ... as of Jun 04 2018 17:31 BST

https://markets.ft.com/data/indices/tea ... =UKX.D:FSI

[tjh290633]

Thank you, Bree. Always useful to know another source.

TJH

[Breelander]

Thank you, Bree. Always useful to know another source.

TJH

It's my source for the TR figures too...
https://markets.ft.com/data/indices/tea ... =UKX.T:FSI

...for which an alternative source (with historic data) is: https://uk.investing.com/indices/ftse-1 ... rical-data

[moorfield]

Going forward, I am probably going to keep a keener eye on the low yielders with a view to possibly taking action. I am not yet sold on an automatic disposal or top slice a la TJH. Although I am impressed with his HYP results and do feel that some of that success must come from his “updating” of the portfolio from time to time.

Anyway, all thought welcome

My lowest yielder, Matthey (JMAT) is very nearly under 1/2 of my benchmark yield (City of London IT, 4.0%) tonight, so I am minded to dispose and recycle through my cheap dealing day next week but like you I don't feel the need to do it automatically - it's been a great dividend payer for me and my overall portfolio income remains on target. Certainly it's not a top up candidate for the forseeable future.

[daveh]

For me Segro was sitting at >2x my median (and mean) holding size so I top sliced 25% last month. I used the cash that was freed up in the ISA to do a bit of tax engineering and bought BT in the ISA and sold BT outside the ISA so I now have the cash sitting outside the ISA, and have moved quite a lot of income into the ISA due to the much higher yield of BT compared to Segro. However I haven't decided yet what to do with the cash sitting in my unsheltered account. I'm trying to keep my dividends not tax sheltered under £2k so it may get invested in something short term prior to being moved into the ISA next tax year and I might use some to take up SMDS's rights, but I'll need to look at the details when the shareholder circular is released.

[pyad]

If the OP is still in the pre retirement phase, why the emphasis on increasing the income(possibly even at the expense of capital growth)? It is surely total return he is looking for and then when drawing an income change the emphasis to income. I do not understand...
Dod

The HYP method is the same whether reinvesting dividends or drawing them. Apart from that fact there is no distinction which is why it suits everyone from age 0 up. What's not to understand?

[Dod101]

If the OP is still in the pre retirement phase, why the emphasis on increasing the income(possibly even at the expense of capital growth)? It is surely total return he is looking for and then when drawing an income change the emphasis to income. I do not understand...
Dod

The HYP method is the same whether reinvesting dividends or drawing them. Apart from that fact there is no distinction which is why it suits everyone from age 0 up. What's not to understand?

As you well know I am not a particular disciple of the pyad method for a HYP. I understand it perfectly well but the point is that for someone in the pre retirement phase, he is using the HYP as a long term saving vehicle and whether the gains come from capital or income or a combination he surely does not care. So to have a perfectly good share like Segro which I know has given a very good total return and then sell in favour of a higher yielder (maybe at the expense of capital growth) seems perverse. That is what I do not understand.

However I understood that one of your mantras was 'never sell' and I would have thought that if you were moved to comment it would have been on that score.

Dod