Tinker away Segro PLC (SGRO)

[kempiejon]

I bought Segro in 2007 when it had a 5+ year record of healthy dividend increases and was offering me 23p per share, the following year only 13p per share and then the dividend only crawled up comparatively slowly to 16p this year.
over 5 and 10 and 15 years the dividend Compound Annual Growth Rate has been 3.17%, -6.50% and -1.16% respectively. https://www.dividenddata.co.uk/dividend ... ?epic=SGRO
There's been a special and a couple of corporate actions but I see from the adjusted figures every year of my 11 year history they have paid me less than in my first year of dividends.

[IanTHughes]

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.

Disciple or not if you truly believe that, then you really do know next to nothing about HYP and less than nothing about my investment goals.

I am not using this strategy as a long-term savings vehicle and find it curious that you would think that I am. All I have ever talked of, both on these boards and before on TMF, was the need to purchase an income stream. Until that income stream is required to actually provide an income, it is of course used to purchase more income. It has never been my intention to build up a particular capital sum, which is fortunate of course because HYP is not designed for the building up of a capital sum, as anyone who understands HYP will tell you.

As PYAD says, “What’s not to understand?”


Ian

[Dod101]

Well now Ian, I think I know as much about HYP as anyone on these Boards. I of course know nothing of your investment goals and it is none of my business but I am interested to read that you are reinvesting your income stream to buy a larger one, hopefully. That is just another way of investing capital and to get that increased income stream you are of course accumulating more capital. You may not be consciously setting out to create a savings vehicle but that would be a reasonable definition of one. I have an income stream off which I live fairly comfortably by most people's standards but I would not say that it is a priority once it has reached a satisfactory level. I need to guard against inflation and so hope and expect an increase in the capital as well.

Anyway I am not here to argue with you and wish you well in your endeavours.

Dod

[Itsallaguess]

It has never been my intention to build up a particular capital sum, which is fortunate of course because HYP is not designed for the building up of a capital sum, as anyone who understands HYP will tell you.

To be fair though Ian, your opening words on this thread were 'Strict HYPers look away now', so if people (including myself in hindsight, and hence this post...) pop up with slightly off-piste thoughts that are ultimately meant to be helpful, then hopefully you might forgive them given your above opening gambit on this thread.

In my own defence, I was trying to point out that over time, we might find that some HYP companies tend to have more 'growthy' characteristics than many of the other more usual 'ex-growth, but throwing off cash' HYP candidates, and whilst on paper these great companies can sometimes look to be 'low-yield' on a 'snapshot basis', if you look at their history in your HYP, then you might find that the growthy aspect of their development has led to persistently large dividend increases that often go in lock-step with a consistently rising share price, and sometimes these types of companies can pop up looking both overweight in your HYP on capital terms, and also in snapshot-terms might look to be only offering a low-yield, even though sometimes they might well go on to grow both for many years to come.....

I should add that over the years I've had a few of these types of shares in my HYP, and without a shadow of a doubt I now look after them as valued holdings in my HYP, and take advantage of their long-term, multi-faceted benefits to my income-portfolio.

This is why I recommended to perhaps take a look at SGRO in that light, to see if it rang any bells, and to perhaps look to nurture the share (whilst perhaps still top-slicing some to maintain an acceptable level of portfolio diversification), rather than sell it outright.

I of course now apologise if this goes against your 'income-only' approach, and it's obvious from your response to Dod above that I clearly mis-read your opening sentence in terms of you perhaps wanting some off-piste views, so sorry if this noise was an unwanted distraction in your thread.

Cheers,

Itsallaguess

[IanTHughes]

Well now Ian, I think I know as much about HYP as anyone on these Boards. I of course know nothing of your investment goals and it is none of my business but I am interested to read that you are reinvesting your income stream to buy a larger one, hopefully. That is just another way of investing capital and to get that increased income stream you are of course accumulating more capital. You may not be consciously setting out to create a savings vehicle but that would be a reasonable definition of one.

I am sure that you do know about HYP, it is just different to my understanding. For example I would not sell 10% of a holding because the price was “a bit toppy” and then leave the funds in cash. And I have just told you my Investment Goal, an ever-increasing annual income. Hence my use of HYP as a strategy.

Personally I do not consider putting one’s capital at risk by buying equities anything like a “Long Term Savings Vehicle”. My Financial Adviser friends also concur with me. Still each to their own I say

But to get back to the original subject, the switch of capital from Segro Plc (SGRO) to New River Retail REIT (NRR) …..

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.

I keep copious records of all my investments so yes, I do know precisely how good SGRO has been. Out of curiosity, I have now calculated how a holding in NRR would have done assuming the same funds had been invested, on the same date, 13 March 2012. Here is a comparison:


Obviously SGRO has outperformed overall but when you look at the accumulated dividends, cash that would have been invested, together with the Annual Dividend Increases over 3 and 5 years, which was the best HYP share over the period? Whatever one’s answer, one must surely agree that NRR would have performed admirably so far. So, no, the high yield is not the only thing that NRR has going for it.

Of course, the success of any switch is dependent on future dividend receipts which are of course unknowable and even unguessable when more than a year out.

NRR does have debt - £457M (2018) – on which it paid out £15M in interest out of a Profit after Taxation, of £59M. Ordinary Dividends accounted for £55M and they also paid a Special Dividend of £7M, after re-financing released some cash.

I believe that that the business is solid, at least as solid as one can tell, and that the dividends will continue. Already this year the first Quarter dividend has been increased from 5.25p to 5.40p (2.86%).

Am I missing something here?


Ian

[IanTHughes]

It has never been my intention to build up a particular capital sum, which is fortunate of course because HYP is not designed for the building up of a capital sum, as anyone who understands HYP will tell you.

To be fair though Ian, your opening words on this thread were 'Strict HYPers look away now', so if people (including myself in hindsight, and hence this post...) pop up with slightly off-piste thoughts that are ultimately meant to be helpful, then hopefully you might forgive them given your above opening gambit on this thread.

LOL I was merely warning that I was about to discuss a possible "Tinker", something 'Strict HYPers' would deplore. Indeed I count myself as a fairly 'Strict HYPer'.

In my own defence, I was trying to point out that over time, we might find that some HYP companies tend to have more 'growthy' characteristics than many of the other more usual 'ex-growth, but throwing off cash' HYP candidates, and whilst on paper these great companies can sometimes look to be 'low-yield' on a 'snapshot basis', if you look at their history in your HYP, then you might find that the growthy aspect of their development has led to persistently large dividend increases that often go in lock-step with a consistently rising share price, and sometimes these types of companies can pop up looking both overweight in your HYP on capital terms, and also in snapshot-terms might look to be only offering a low-yield, even though sometimes they might well go on to grow both for many years to come.....

I should add that over the years I've had a few of these types of shares in my HYP, and without a shadow of a doubt I now look after them as valued holdings in my HYP, and take advantage of their long-term, multi-faceted benefits to my income-portfolio.

This is why I recommended to perhaps take a look at SGRO in that light, to see if it rang any bells, and to perhaps look to nurture the share (whilst perhaps still top-slicing some to maintain an acceptable level of portfolio diversification), rather than sell it outright.

No need to defend yourself, your response was appreciated. However SGRO is not overweight in my HYP and while I know that I could "hedge my bets" by selling of a percentage, I really don't see the point in that. If a share is to be sold because it is low yield the whole holding is low yield, not just a part of it

I of course now apologise if this goes against your 'income-only' approach, and it's obvious from your response to Dod above that I clearly mis-read your opening sentence in terms of you perhaps wanting some off-piste views, so sorry if this noise was an unwanted distraction in your thread.

No need to apologise, all comments are welcome. I was in fact responding to Dod's rather odd claim that an HYP was akin to a "Long Term Savings Vehicle", which I do not see at all. Not much saving involved with the money invested in Carillion last year


Ian

[moorfield]

And I have just told you my Investment Goal, an ever-increasing annual income. Hence my use of HYP as a strategy.

I'm with you on that Ian. By "ever-increasing" do you have any specific rate of growth of overall income you are trying to achieve and/or measure against ?
(Mine is minimum 7.2% p/a reinvesting dividends until I need them, then the inflation rate of the day thereafter).

[Itsallaguess]

However SGRO is not overweight in my HYP and while I know that I could "hedge my bets" by selling of a percentage, I really don't see the point in that. If a share is to be sold because it is low yield the whole holding is low yield, not just a part of it.

That's a fair view Ian, and thanks for the reply.

I tend to take a more 'portfolio-income' view nowadays, and will quite happily balance out a few 'high-high-yielders' with a few lower-yielding bed-fellows, and would always much prefer to do that than to chase a whole portfolio full of 'high-high-yielders'.

I've got a few holdings around the 3% yield mark that I intend to keep for the very long term to be honest, so I don't see that level of yield as anything that particularly needs some attention.

I've top-sliced some similar holdings in the past, and perhaps rotated some of the released capital into relatively higher-yielding alternatives, and so long as my overall portfolio income rises to some extent following such manouevres, then I tend to be happy with that as a portfolio-management process, but I can understand why you see things differently if SGRO isn't in an 'overweight' position, and would prefer to sell the whole lower-yielding holding.

Cheers,

Itsallaguess

[IanTHughes]

And I have just told you my Investment Goal, an ever-increasing annual income. Hence my use of HYP as a strategy.

I'm with you on that Ian. By "ever-increasing" do you have any specific rate of growth of overall income you are trying to achieve and/or measure against?
(Mine is minimum 7.2% p/a reinvesting dividends until I need them, then the inflation rate of the day thereafter).

Well, I am of course adding funds into my ISA and SIPP each year so of course the income is going up in leaps and bounds

By the process of unitisation I can see that my Dividend Per Unit has been increasing annually by about 5.25%, but that is after less than 7 years and without going through a market downturn or a period of economic recession. I do not have a specific goal but like you would like see income increasing at least in line with inflation. In fact I do believe that an HYP should do better than inflation, we shall see.


Ian

[Dod101]

I have in fact just added to my holding in Segro as I like the business model and I think that substituting New River for Segro has more than an element of 'chasing yield' about it. That often means going down market a bit and I think that is the case here. Likewise I hold Unilever, in fact it s my biggest holding in terms of capital. I am happy to sacrifice some income for quality- and I never held Carillion!

Dod

[IanTHughes]

I have in fact just added to my holding in Segro as I like the business model and I think that substituting New River for Segro has more than an element of 'chasing yield' about it. That often means going down market a bit and I think that is the case here.

Could you expand on that? Why do you think New River Retail (NRR) is inferior to Segro PLC (SGRO)?


Ian

[IanTHughes]

I tend to take a more 'portfolio-income' view nowadays, and will quite happily balance out a few 'high-high-yielders' with a few lower-yielding bed-fellows, and would always much prefer to do that than to chase a whole portfolio full of 'high-high-yielders'.

Can I ask you, are you currently living of your dividends? The reason I ask is that if I were retired and spending my dividends, I would most likely be more cautious. I mean if the "Retirement Income" including HYP dividends is sufficient for one's needs, why rock the boat? What I am getting at is that while I am still adding, quite substantially, to my HYP each year, and of course not yet dependent on the dividends for my income, I can be a bit more aggressive in my search for increasing income. If things go awry I still have some years and more funds to help put things right.

I've got a few holdings around the 3% yield mark that I intend to keep for the very long term to be honest, so I don't see that level of yield as anything that particularly needs some attention.

Well yes, and as TJH noted in a previous post, SGRO's yield is not that low when compared to the FTSE100 or All Share yield. I was measuring it against my HYP yield which unsurprisingly is rather higher.

Anyway, thanks for your input and as you can no doubt surmise, this is a tough decision for me to make. I have been mulling it over for a month now and all the while SGRO grows in value


Ian

[Dod101]

Ian

Well Segro is very much bigger for a start. It is also I think in a more stable environment. In fact in many ways it sits on the other side of the property dilemma. Whereas Segro is in the main supporting e commerce, NRR is in the bricks and mortar commerce of retail parks, pubs and so on. I have not been invested in retail for a long while now, whilst the revolution caused by the rise of e commerce is disrupting much of the market of NRR. So call it prejudice if you like because I do not really know anything of the culture for instance of NRR.

In your response to Itsallaguess though you have explained your thinking more clearer and appear to be acknowledging the rather more aggressive nature of your investing so good luck to you and I wish you well. I live off my dividends and so far have managed to avoid the recent disasters, but I am I think fairly conservative. With the yields of the likes of HSBC, Shell, and Glaxo available at the moment, admittedly with no increase, that allows me to be much less demanding of my portfolio, so I have a big holding in Unilever and now Segro, but I also hold inter alia Chesnara and Phoenix. From my HYP for 2017 I had a yield of 4.79% based on dividends received against year end values. That is good enough for me.

Dod

[tjh290633]

https://www.investegate.co.uk/newriver- ... 00065750Q/

I see that NRR are on the acquisition trail. They also own a chunk of the centre of Burgess Hill, about to be redeveloped.

TJH

[IanTHughes]

Well Segro is very much bigger for a start. It is also I think in a more stable environment. In fact in many ways it sits on the other side of the property dilemma. Whereas Segro is in the main supporting e commerce, NRR is in the bricks and mortar commerce of retail parks, pubs and so on.

Well I agree entirely about New River Retail (NRR), it is entirely about providing space for retail activities whether that be for shopping or entertainment. Not quite sure what you mean about Segro Plc (SGRO) e.Commerce. As I understand it they are mostly into light industrial and warehousing. But yes, currently NRR is in the more volatile space not least because of our apparently changing shopping habits, moving online and so on

I have not been invested in retail for a long while now, whilst the revolution caused by the rise of e commerce is disrupting much of the market of NRR.

Well, NRR make a big play of their client list containing a number of the discount retailers – Poundland and the like – so whilst I agree they have an issue to address vis a vis footfall onto their properties, I do not think their market is being majorly disrupted, at least not yet, and they are keenly aware of the issue. But yes, it is more volatile than SGRO’s market.

In your response to Itsallaguess though you have explained your thinking more clearer and appear to be acknowledging the rather more aggressive nature of your investing so good luck to you and I wish you well. I live off my dividends and so far have managed to avoid the recent disasters, but I am I think fairly conservative.

Yes, I am pursuing a more aggressive search for income because I want to get to be in your position as soon as possible . But in the search I do not consider the value of my holdings, other than to ensure that no purchase would make me overweight in a particular share. On retirement I expect simply to divert income stream that is already in place to my bank account. I do not envisage a re-jig of my holdings to create that income stream, rather I expect it to be there already. For that reason I am quietly ignoring capital values and concentrating on the income being produced, which is why I am now considering this “tinker”.


Ian

[Dod101]

It seems that Ian and I are not that far apart after all. Segro in its Annual Report stresses the supply of big sheds to support e commerce distributors.

NRR is supporting bricks and mortar retailers and as Ian says entertainment. The news on the World at One of House of Fraser closing half its stores and Pound Stretcher (was it?) going into administration neatly illustrates my nervousness over the traditional retailers. Retail is no place to be at the moment, whether supermarkets or others. I still hold ABF (which is not a HYP share) but it owns Primark which seems to be the only retailer doing any more than holding its own.

Dod

[Itsallaguess]

Can I ask you, are you currently living of your dividends?

The reason I ask is that if I were retired and spending my dividends, I would most likely be more cautious. I mean if the "Retirement Income" including HYP dividends is sufficient for one's needs, why rock the boat?

What I am getting at is that while I am still adding, quite substantially, to my HYP each year, and of course not yet dependent on the dividends for my income, I can be a bit more aggressive in my search for increasing income. If things go awry I still have some years and more funds to help put things right.

Hi Ian,

No, I'm still working and adding capital and accrued dividends to my HYP (Investment Trusts and individual shares..), so not too different to you in that regard, and I'm especially aligned with your view of simply 'flicking the switch' when the time comes, and just taking the dividends as part of my retirement income, rather than think at all about an overall switch in the strategy itself at that time..

I think the HYP idea is wonderful in this specific aspect, as we can 'get used to the idea' as we grow the HYP, and there's no more worrying about a potentially different strategy not 'suiting us' later down the road...We've seen the dividends go 'somewhere' for a number of years at that point, growing as they tend to do, and all we're going to do then is simply pivot the valve so that it flows somewhere near to our pockets....

I think, following recent posts and also some of the ones between yourself and Dod, that the difference between us is really down to the level of aggressiveness in pursuing these high-yields, and not much more.

I'm not overly fussed about chasing additional 7% yields in this market too much, although if I were in your position with SGRO and if it were overweight in my HYP, and I'd 'found' a new 7% yield that I was happy with in terms of the underlying company (a lot of 'if's's, I'll grant you...) then I might well have considered selling some SGRO and balancing out some of that capital into the 7% yielding share, but it would be a balancing out, and I'd personally be wary of committing large amounts of capital to that high a yield with a full new purchase, even though I should say that some of my current long-term holdings are in that yield-territory at the moment.

If I tell you, having just checked my HYP spreadsheet, that the whole portfolio forward yield is expected to be around the 4.3% mark, then this might well explain to you why our position might differ.

Do you have a portfolio-level figure of your own yield, either current or forecast?

Cheers,

Itsallaguess

[IanTHughes]

It seems that Ian and I are not that far apart after all.

However, we are still some distance apart in our use of HYP as a strategy. I mean, I can understand anyone shying away from New River Retail REIT (NRR), there are some very identifiable risks with it which are not so evident Segro Group PLC (SGRO). But rejecting NRR does not mean SGRO is a suitable candidate for top-up. At less than 3.00% yield SGRO is not High Yield in my view. But, if you do not need the extra income why not go for such a good solid dividend payer?

Your recent top slice of Royal Dutch Shell ‘b’ (RDSB) was also hardly HYP inspired, in my view. Still its your portfolio an dyou have to live of the dividends so I wish you all the best.

Segro in its Annual Report stresses the supply of big sheds to support e commerce distributors.

Ah thanks for that, I now understand your reference to eCommerce

Retail is no place to be at the moment, whether supermarkets or others.

Another difference, you are so black and white. I know that Retail is under pressure at the moment but there may well be some HYP stars in the Sector. You just have to tread warily and examine carefully each opportunity that presents itself. I will not dismiss a whole sector just like that, based on what is a broad-brush opinion about the economy as a whole.


Ian

[Dod101]

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.

I agree that Segro is not high yield but as I said in an earlier post if it does not fit my HYP it will my Growth portfolio and I am fairly flexible when I want to be.

Dod

[IanTHughes]

Well, I have gone and done it!

SGRO has been sold and New River Retail REIT (NRR) has been purchased

SGRO sold at 673.4465p
NRR bought at 288.4000p

My Forecast Income has jumped, but of course it is only a forecast. A year from now I shall start to see the actual results of this "Tinker"

Anyway, I have a Bulk Buying day on Monday, 11 June, I will be buying British Telecom PLC (BT-A), a new holding for me. Once that purchase has been done I shall publish my portfolio, showing off the increased Forecast Income


Ian