Tinker away Segro PLC (SGRO)

[Raptor]

Moderator Message:
Merging with original. Easier for those to understand the reasoning. Raptor.

[ZipserSir]

Like many here, my HYP is not a pyad model HYP. It is modified by me to suit what I feel comfortable with but I think it is sufficiently close that it fits here. I can be black and white to the point that it may sound pedantic. No matter. Retail is no place to be at the moment and neither are support services in all their many shades. That kept me clear of Mitie, G4S and Carillion to name but three. I do not get it right always of course but keep trying.

Hi Dod101, what is the skinny on G4S?

Sadly I fell for Mitie and Carillion, but wasn't aware of an issue with GFS.

Looking at the GFS chart they lost about a a quarter of their value between June last year and March this, but that is turbulence compared with Carillion and Capita to name but two. Do you anticipate worse to come?

The yield is a modest 3.5%, but if the share price continues to rise even that will be wiped out and they will be off the radar again. The sentiment among the Wise is that it is a Strong Buy according to the original Fool.

GFS gives me a little more variety, but coming from the Support Services sector, and given our collective recent experience of that, should it be out of bounds for investors / HYPers?

Any thoughts out there?

[Dod101]

Sorry, ZipserSir, I was really thinking about its past problems and I do not follow it now. So please do not take anything from my comments because I said, I simply do not go near the sector.

Dod

[kempiejon]

GFS - something like a 20 year history of rising dividends, yielding around 5% when I last added, rate of dividend increase has slowed right down recently, it was doubling every 5 years when I first bought them.

[Gengulphus]

Three general points about this thread:

First, on the OP question: in a HYP strategy, which is supposed to be LTBH, I personally would not regard the 2.5% yield as low enough to justify a complete sale of a Segro holding. The crucial point for me is that when a yield reduction is due to capital appreciation rather than dividend cuts, there hasn't been a matching income reduction.

On the other hand, the 165% capital gain since 2012 might well be enough to justify pruning a significantly overweight Segro holding back with a top-slicing sale of part of it - indeed, if it were my HYP I would do so unless the Segro holding started off sufficiently underweight in 2012 that the 165% capital rise has merely raised it to being fairly weighted or acceptably overweight. Indeed, I did a top-slicing sale of my own Segro holdings fairly recently for exactly that reason!

I'm not going to try to comment on whether New River Retail is a suitable share to buy for a HYP at present, because I haven't researched the company and am totally unfamiliar with it!

Secondly, on the general issue of capital appreciation as a portfolio aim, that seems to me to be a point more suited to the Investment Strategies or High Yield Shares & Strategies board than this one. But I will point out that the question isn't a straightforward capital appreciation vs income generation one, because (a) some investors believe that capital appreciation is best achieved by income generation plus reinvestment of the income; (b) even investors who don't believe that may well have capital appreciation as their aim now but income generation as their aim from an anticipated future date, most likely their retirement date. Selling their capital-appreciation portfolio and buying an income-generating portfolio such as a HYP when that date arrives may not be ideal, for at least two reasons: it might lead to a big CGT bill if they haven't managed to shelter their portfolio from tax, and buying their preferred type of income-generating portfolio all at once might not be all that easy in practice. In particular, while selecting and buying a 15-share HYP all at once is usually easy enough, doing the same for a 25- or 30-share HYP is not! If one wants such a larger HYP, one really needs to do the changeover over quite a number of years (5 absolute minimum IMHO, and I would much prefer 10+ years).

For clarity, I should say that I'm not arguing that people ought to believe income generation / reinvestment to be the best way to increase capital or want a larger portfolio - just that it's an observed fact that some people do indeed believe/want those things. There are multiple reasons why someone might want income generation now, and needing the income now is only one of them; others include wanting the income as a means towards capital appreciation and preparing for an anticipated future need for income, and there may well be yet others I haven't thought of. But they do have the aim of generating income in common with each other, even if it's the ultimate underlying aim for some and a derivative aim for others, and IMHO it's that common aim that underlies the design of HYP strategies. In particular, it's not at all clear to me that HYP strategies are a good choice for those whose ultimate aim is capital appreciation unless they have some sort of derivative income-generation aim that more directly drives their choice of strategy.

Thirdly, and following on from that, one notable difference between TMF's old guidance for their HYP Practical board and this board's guidance is that the TMF guidance did say that a HYP's aim is income (without saying anything about why the income is wanted) and this board's doesn't. That's a backwards step in my view rather than a forwards one, but it's what we've got...

Gengulphus

[moorfield]

That's a backwards step in my view rather than a forwards one, but it's what we've got...

Let's not forget the good work the Mods have done here compiling the HYP board guidance following that lengthy discussion of its purpose we all contributed to last summer.

[IanTHughes]

As promised here is the change to my Forecast Dividend per Unit as a result of my switching from Segro Group (SGRO) to New River Retail REIT (NRR), plus a small purchase of BT Group PLC (BT-A):

Before:

Dividend per Unit: 71.39p



After:

Dividend per Unit: 76.87p




Okay, I know that it is just a Forecast, time will tell


Ian

[Dod101]

That assumes I guess that BT does not cut its dividend! I must say I am at a loss to understand the enthusiasm for high and risky dividends. ITH certainly has a bigger appetite for risk than I do. I sold BT in January 2018 at £2.49, now £2.04 and the dividend well into the danger zone at 7.5%. I bought A & J Mucklow at £5.20 (now £5.57)with a yield of 3.9% currently.

IanTHughes is chasing yield and does not live off his dividends. I do and am spurning high dividends. Strange old world.

On a positive note, I would have thought unless he is allergic to tobaccos, BAT would have been the big yielder to buy. It looks very cheap at the moment.

Dod

[IanTHughes]

That assumes I guess that BT does not cut its dividend! I must say I am at a loss to understand the enthusiasm for high and risky dividends. You certainly have a bigger appetite for risk than I do. I sold BT in January 2018 at £2.49, now £2.04 and the dividend well into the danger zone at 7.5%. I bought A & J Mucklow at £5.20 (now £5.57)with a yield of 3.9% currently.

IanTHughes is chasing yield and does not live off his dividends. I do and am spurning high dividends. Strange old world.

Yes, you are right - I am concentrating on high yield. However, I do not understand your "Danger Zone", could you please elaborate?

Any of my shares might drop their dividends, yours too by the way, and in the past 6+ years some have. But overall my income, as measured by my Income per Dividend Unit, has marched upwards. I must have got something right although I fully accept that the past few years have been fairly good for Equities. What specifically is the danger with BT Group (BT-A)? What specifically is the danger with New River Retail REIT (NRR)? Is it just the high yield that you shy away from or do you base your fear on some analysis?

I am not going to claim that all my shares will never cut their dividends, that would be foolish in the extreme, I know that investing in equity, whether for capital growth or income, carries risk. Do you? I am reasonably confident that, overall, my portfolio should come through with a good level of income which may even increase over the next few years. As I said previously, time will tell.


Ian

[IanTHughes]

I bought A & J Mucklow at £5.20 (now £5.57)with a yield of 3.9% currently.

Is that all?

In April of this year, I bought Greene King (GNK) at 468.2697p, (now 623.60p) with a yield of 5.32% currently.

We can all point to individual successes but what really counts in HYP is the overall increase in dividend income.

On a positive note, I would have thought unless he is allergic to tobaccos, BAT would have been the big yielder to buy. It looks very cheap at the moment.

I already hold Imperial Brands PLC (IMB) and the yield is 6.74%. Why would you choose British American Tobacco (BATS) with a yield of 4.66%? Or do you believe that IMB's yield is in a "Danger Zone"?


Ian

[Dod101]

Danger Zone was an expression used by the well known contributor on TMF Luniversal for any shares he felt were in his danger zone and I have just picked up the expression. I would regard any share yielding more than around 50% more than the FTSE100 average as being worth looking at very carefully. Currently I guess (I have not checked) that that would be any share yielding more around 6%. Some I have held (Shell is of course the obvious one) and the tobaccos.

The worries with BT are well known and were well known when I sold in January. The huge pensions deficit, the problems with Open Reach and the regulators, the continuous restructuring and so on, at that time I was also concerned about governance after the Italian fraud and now that the CEO is being sent on his way, whether the new man will do a kitchen sinking. I was right to call time when I did judging by the fall in the share price. I have held it on and off since privatisation but have never ever been happy with it. and doubt that I will buy in again any time soon.

We have already discussed NRR with its exposure to retail, and the continuous culling of retailers with another today gone into admin. Funnily enough my daughter (52) volunteered to me today that she would not be surprised to see M & S going the same way. She is not interested in the investment angle but simply what she and her contemporaries are finding; that none of them can find what they want in M & S, and as she says she is pretty much of an age to be their traditional market, and her 18 year old daughter would not go near them. Retail is pretty much uninvestable unless you are at one extreme or the other (Primark or Burberry)

I am well aware of the possibility of any of my shares cutting their dividend and have had plenty cutters over the years. I would never ever chase yield though, nowadays, but it is as well that there are differences of views otherwise there would be no market. I know I do not have the answers but like you, no doubt, I keep trying.

Good grief you have come back again without giving me the opportunity to respond to your earlier response. ill do later.

Dod

[Dod101]

I bought A & J Mucklow at £5.20 (now £5.57)with a yield of 3.9% currently.

Is that all?

In April of this year, I bought Greene King (GNK) at 468.2697p, (now 623.60p) with a yield of 5.32% currently.

We can all point to individual successes but what really counts in HYP is the overall increase in dividend income.

On a positive note, I would have thought unless he is allergic to tobaccos, BAT would have been the big yielder to buy. It looks very cheap at the moment.

I already hold Imperial Brands PLC (IMB) and the yield is 6.74%. Why would you choose British American Tobacco (BATS) with a yield of 4.66%? Or do you believe that IMB's yield is in a "Danger Zone"?

I do not buy alcohol related shares, not because I have signed the pledge but simply because I think that like gambling it is a social evil if not properly controlled and since the Blair years it has not. I therefore no nothing about Greene King.

I think neither of the tobacco companies are anywhere near a danger zone but that BAT is the better managed of the two remaining UK ones. It is undeniable that Imperial Brands' dividend is very attractive and they have confirmed a 10% increase yet again, and yet I wonder? Nothing more complicated than that. I hold both and have done for upwards of 20 years I think. (I would need to check)

Dod

[IanTHughes]

I would regard any share yielding more than around 50% more than the FTSE100 average as being worth looking at very carefully. Currently I guess (I have not checked) that that would be any share yielding more around 6%. Some I have held (Shell is of course the obvious one) and the tobaccos.

Interesting. I think that every share I am considering purchasing must be looked at very carefully, whatever the yield.

The worries with BT are well known and were well known when I sold in January. The huge pensions deficit, the problems with Open Reach and the regulators, the continuous restructuring and so on, at that time I was also concerned about governance after the Italian fraud and now that the CEO is being sent on his way, whether the new man will do a kitchen sinking. I was right to call time when I did judging by the fall in the share price. I have held it on and off since privatisation but have never ever been happy with it. and doubt that I will buy in again any time soon.

Yes, I see all those issues with BT too but, in my opinion, the dividend will be maintained, Probably not increased I grant you but we can't have everything. But in any case, for now, my investment into BT-A is small, just accrued dividends, it is currently less that 0.5% of my portfolio by value. Time will tell.

We have already discussed NRR with its exposure to retail, and the continuous culling of retailers with another today gone into admin. Funnily enough my daughter (52) volunteered to me today that she would not be surprised to see M & S going the same way. She is not interested in the investment angle but simply what she and her contemporaries are finding; that none of them can find what they want in M & S, and as she says she is pretty much of an age to be their traditional market, and her 18 year old daughter would not go near them. Retail is pretty much uninvestable unless you are at one extreme or the other (Primark or Burberry)

Yes we have discussed those issues and I do see them clearly. Again, in my opinion, the management of this very new company appears to have a good enough handle on these potential problems and are well aware of the need to avoid an over-reliance on the "Dinosaurs" of retail - the big department stores that are for the most part running around like headless chickens! Again, you are right, my appetite for risk is greater than yours and, as I have said before, that may well be due to the fact that I am not yet living on my dividends and still contributing fairly substantial amounts into my portfolio.

I would never ever chase yield though, nowadays, but it is as well that there are differences of views otherwise there would be no market. I know I do not have the answers but like you, no doubt, I keep trying.

Well, I do not think that I am "chasing" yield. I am making all purchase decisions after as much thought and analysis as I can muster. Yes, there will no doubt be a casualty or two. That is the nature of investing in equities as opposed to buying Gilts for example. I do believe that my well diversified portfolio will survive and maybe survive well.



Ian

[Dod101]

Fine, Ian. I wish you well. No reason to do otherwise.

Dod

[IanTHughes]

I do not buy alcohol related shares, not because I have signed the pledge but simply because I think that like gambling it is a social evil if not properly controlled and since the Blair years it has not. I therefore no nothing about Greene King.

So what? My point was that the results of your selection of the lower yielding Mucklow (A J) (MKLW) were much inferior to the returns that I have achieved in just two months with the higher yielding - even "Danger Zone - Greene King (GNK). Why did you bring up MKLW? If you were trying to show the that lower yields give better or safer returns I do not think that you succeeded.

Of course, as I said before, one success is irrelevant, the overall dividend generation of the portfolio is what counts.


Ian

[Raptor]

Moderator Message:
Although interesting we have moved a long way from OPs post (unless Ian wishes to continue, of course). Can we either create a new thread or keep to the original subject. Much appreciated. Raptor.