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Diageo plc share repurchase programme

Practical discussions about equity High-Yield Portfolios (HYP) for income
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idpickering
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Diageo plc share repurchase programme

#158420

Postby idpickering » August 10th, 2018, 7:19 am

Not the highest of yielders I grant you, but I, along with others here, hold them in my HYP.

On 26 July 2018, the Board of Diageo plc approved a share buyback programme to return up to £2.0 billion to shareholders during the financial year ending 30 June 2019 ("the F19 Programme").

Diageo today announces that it has entered into a non-discretionary agreement with Citigroup Global Markets Limited ("Citi") to execute the first tranche of the F19 Programme to enable the company to buy back shares. This agreement will commence 10 August 2018 and is expected to end no later than 31 January 2019. This initial tranche will be for a value of up to £1.4 billion with further tranche(s) to be announced during the financial year ending 30 June 2019.

Citi will make its trading decisions in relation to the company's securities independently of, and uninfluenced by, the company. Any purchase of shares by Diageo contemplated by this announcement will be carried out on the London Stock Exchange or another recognised investment exchange.

The purpose of the buyback programme is to reduce the share capital of Diageo plc. All shares purchased will be cancelled.

https://www.investegate.co.uk/diageo-pl ... 07254406X/

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Re: Diageo plc share repurchase programme

#158428

Postby Walrus » August 10th, 2018, 8:11 am

As do I Ian. Another one of those.......... :o :mrgreen:

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Re: Diageo plc share repurchase programme

#158431

Postby idpickering » August 10th, 2018, 8:53 am

Walrus wrote:As do I Ian. Another one of those.......... :o :mrgreen:


Thank you Walrus. I've got my old Army helmet on waiting for the flak from some quarters. ;)

Ian.

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Re: Diageo plc share repurchase programme

#158442

Postby vrdiver » August 10th, 2018, 9:56 am

No flack coming from this quarter!

I hold quite a few of these: would be holding even more except that I sold a few to pay off my mortgage :)

More seriously, they are a premium brand company who's business model focuses on the increasing spending power of the emerging middle class around the world. A "sin" company, so not everyone's preferred holding, but for those of us who do, they have a history of rising dividend matched with rising capital value that keeps the yield below the ususal HYP filters. Every now and again the yield rises and for anybody into long-term HYP I'd recommend keeping Diageo on the candidate list, as they do come up for sale every now and again.

To check whether the current yield represents a purchasing opportunity (I don't think it does!) look at https://www.dividenddata.co.uk/dividend ... y?epic=DGE

To review the dividend growth history, https://www.dividenddata.co.uk/dividend ... y?epic=DGE

VRD

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Re: Diageo plc share repurchase programme

#158630

Postby Arborbridge » August 10th, 2018, 8:08 pm

No flak at all, it seems, Ian. I'm another happy long term holder.

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Re: Diageo plc share repurchase programme

#158633

Postby Bouleversee » August 10th, 2018, 8:21 pm

I don't hold and feel that I should but whenever I have looked at it it, it has looked just too expensive, certainly by HYP standards. Perhaps I should ignore that, at least for my children's portfolios if not my own.

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Re: Diageo plc share repurchase programme

#158641

Postby Arborbridge » August 10th, 2018, 9:29 pm

Bouleversee wrote:I don't hold and feel that I should but whenever I have looked at it it, it has looked just too expensive, certainly by HYP standards. Perhaps I should ignore that, at least for my children's portfolios if not my own.

It is certainly not a HYP type purchase at the moment: but I suppose there's nothing to prevent anyone buying a share simply because they believe it's a jolly good company. Just don't call it a HYP share;)...... alternatively, wait until it has a torrid time, then buy.
At present, it's not far above the yield at which some of us might consider selling.
However, if the yield went below 2% I might turn the telescope to my blind eye for a while (assuming dividends were still increasing.).

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Re: Diageo plc share repurchase programme

#158646

Postby Breelander » August 10th, 2018, 9:45 pm

Bouleversee wrote:I don't hold and feel that I should but whenever I have looked at it it, it has looked just too expensive, certainly by HYP standards. Perhaps I should ignore that, at least for my children's portfolios if not my own.


Diageo is one of those shares that fits all the HYP hallmarks, except for yield (at present). Sometimes the market is 'unkind' to the share price and the yield becomes 'HYPable'. At the start of 2011...
Luniversal (2011) wrote:The FTSE 100 yields 2.9%...

...and Diageo was included in...
Luniversal (2011) wrote:... Luni's Doughty Dozen.
https://web.archive.org/web/20170120010 ... 53965.aspx

I picked up Diageo on 11th March 2011...
Name                              price (p)   Yield at Purchase
...
Diageo (DGE) 1181.88 3.3%
https://web.archive.org/web/20161104222 ... 40506.aspx

By the end of 2011 the share price has risen to a level that put the yield too low for a new HYP purchase. I don't think it has drifted back into HYP territory since.

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Re: Diageo plc share repurchase programme

#158653

Postby kempiejon » August 10th, 2018, 10:04 pm

March 2010 for me, 1088p per share with yield of ≈3.5%, a good share at a historic high yield. I have modified my HYP guidelines since to only add money to shares yielding at or above my portfolio level and at that time, nor anytime since it would not have made it in as my HYP as that has never yielded below 4% and DGE has not broken that level since 2009ish.The 6% CAGR dividend growth over a decade isn't that great a rate of increase, good enough but not special.

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Re: Diageo plc share repurchase programme

#158659

Postby Breelander » August 10th, 2018, 10:26 pm

kempiejon wrote:March 2010 for me, 1088p ...The 6% CAGR dividend growth over a decade isn't that great a rate of increase, good enough but not special.


Console yourself with the 161% rise in the share price since you bought it, then ;)

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Re: Diageo plc share repurchase programme

#158660

Postby IanTHughes » August 10th, 2018, 10:28 pm

Investor A purchases a share yielding 2.5% which increases its dividend by 10% each year
Investor B purchases a share yielding 5.0% which never increases its dividend

It will be 9 years before Investor A enjoys a higher annual dividend than Investor B
It will be 15 years before Investor A's accumulated dividend overtakes that of Investor B

And that is assuming that Investor A's selection never stumbles and Investor B's never picks up


For an Income Strategy like HYP, there are currently many better candidates available than Diageo Plc (DGEO)


Ian

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Re: Diageo plc share repurchase programme

#158688

Postby Breelander » August 11th, 2018, 5:25 am

IanTHughes wrote:For an Income Strategy like HYP, there are currently many better candidates available than Diageo Plc (DGEO)


Quite possibly there are - now. But if you had bought Diagio plc back when it was a reasonable candidate (and you were of the tinkering persuasion) a 100% (and then some) increase in its value would give you plenty of capital to buy them today ;)

How about after a few years your investor A found their '2.5% a year increasing at 10%' share had doubled in value, so they sold it and bought the same share as B?

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Re: Diageo plc share repurchase programme

#158693

Postby IanTHughes » August 11th, 2018, 7:31 am

Breelander wrote:
IanTHughes wrote:For an Income Strategy like HYP, there are currently many better candidates available than Diageo Plc (DGEO)


Quite possibly there are - now. But if you had bought Diagio plc back when it was a reasonable candidate (and you were of the tinkering persuasion) a 100% (and then some) increase in its value would give you plenty of capital to buy them today ;)

How about after a few years your investor A found their '2.5% a year increasing at 10%' share had doubled in value, so they sold it and bought the same share as B?

You are right of course that, in my extremely hypothetical example, over time, Investor A's selection would have increased in capital value by about 10% per year whereas Investor B's share, with no dividend growth, would, over time, not have moved up at all. Assuming a perfect market etc etc.

But to be fair, Investor B could decide to only take half the dividend (2.5%) and re-invest the other half. That would give him the same income over the years as Investor A and the same increase in capital. As I said, this is extremely hypothetical and I am of course ignoring the extra stamp duty and commissions Investor B would incur over the years.

The point I was attempting to make was that when some people say that a lower but faster growing dividend yield can be a better income outcome in the long run, as has been said on this board a few times, that "long run" can be ... well ... rather long.

I have not looked at the company accounts, but from its past performance with regard to an increasing dividend year on year, DGEO is undoubtedly an excellent company to invest in. However, I would not recommend it for an Income strategy like HYP, unless the yield was at least in touching distance of that offered by other also solid FTSE100 companies. A difference of 0.5% would be recovered pretty smartly, 1.0% ..... well ... maybe. But 2.5% or greater, then no.

In short, DGEO is one of those shares, like Unilever PLC (ULVR) and there are a few others, that I would love to have in my portfolio, but only if the yield rises to an appropriate level, close enough to a higher yield that I would of course be rejecting, to make up the shortfall in only a few years


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Re: Diageo plc share repurchase programme

#158702

Postby Breelander » August 11th, 2018, 8:09 am

IanTHughes wrote:In short, DGEO is one of those shares, like Unilever PLC (ULVR) and there are a few others, that I would love to have in my portfolio, but only if the yield rises to an appropriate level...


It's not the yield you want to rise, it's the share price you want to see fall. The aftermath of the financial crisis was a bad time for the share price of both DGE and ULVR, so I was lucky enough to pick them both up with yields at or slightly above the ftse yield at that time. Doesn't happen often, but such shares are worth putting on your watchlist for the next time it does...

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Re: Diageo plc share repurchase programme

#159028

Postby Gengulphus » August 12th, 2018, 5:08 pm

Breelander wrote:
IanTHughes wrote:In short, DGEO is one of those shares, like Unilever PLC (ULVR) and there are a few others, that I would love to have in my portfolio, but only if the yield rises to an appropriate level...

It's not the yield you want to rise, it's the share price you want to see fall. ...

They're (usually quite minor) variants of the same thing! In normal circumstances, the yield rises as the share price falls and falls as it rises. That's by the simple operation of arithmetic: the yield = dividend/price calculation will have that effect as long as the dividend remains unchanged, as it does on about 99% or more of the days in a year. And when the dividend does change, it normally does so only by a small percentage, smaller than typical price fluctuations over a few months, so that price effect on the yield is normally very much the dominant factor in how the yield changes over anything but the long term.

And on the rare occasions that the dividend does change by a lot - dividend cuts or unusually big dividend rises - I think you'll find that the direction that the yield goes is typically a better guide to what you want to do. For example, if the dividend is cancelled completely, the yield drops to zero and the price typically falls - an indicator that one doesn't want to buy by Ian's criterion and that one does by yours... Though one does have to watch out in such cases - it can for instance be quite clear from a trading statement that the dividend is going to fall but the fall won't actually happen until the next results, so that both your indicator and Ian's say you want to buy when you don't! Which is one of the reasons why a high yield should always be used to draw one's attention to a share for further investigation, not to mechanically choose a purchase...

All of that is about historical dividends and yields, by the way, and needs adjusting for forecast ones. But the conclusion is similar: on the quite rare occasions that they differ, the yield rising is a better indicator than the price falling that a share is becoming a more attractive HYP purchase - but neither is perfect.

Gengulphus

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Re: Diageo plc share repurchase programme

#159035

Postby ADrunkenMarcus » August 12th, 2018, 5:22 pm

I'd rather Diageo buy back shares at lower prices. Ah, well.

Best wishes

Mark.

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Re: Diageo plc share repurchase programme

#159037

Postby Breelander » August 12th, 2018, 5:25 pm

Gengulphus wrote:
Breelander wrote:
IanTHughes wrote:In short, DGEO is one of those shares, like Unilever PLC (ULVR) and there are a few others, that I would love to have in my portfolio, but only if the yield rises to an appropriate level...

It's not the yield you want to rise, it's the share price you want to see fall. ...

They're (usually quite minor) variants of the same thing! In normal circumstances, the yield rises as the share price falls and falls as it rises...


In the specific case of these two shares, the rare occasions the market looses confidence in the ability to continue increasing the dividends (but you don't) then that's the time to buy. Markets make mistakes, it seems a shame not to take advantage when they do so.

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Re: Diageo plc share repurchase programme

#159041

Postby Arborbridge » August 12th, 2018, 5:46 pm

When the yield on DGE becomes as low as it is now - or one might even say "as low as it usually is" - I begin to have self doubts. Would I better off topping up some of my ITs with a similar or higher yield? Why invest in an admittedly excellent company when I can spread the risk over 40 or 50 companies?

Well, one answer is that you'd have to buy an IT with a really low yield to get a similar capital performanace, say, one of Nick Train's or Law Debenture or SMT.

Not only that, I'm one for leaving something alone if it has been working well, so I'm not inclined to overthink it!

Arb.

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Re: Diageo plc share repurchase programme

#159043

Postby Walrus » August 12th, 2018, 5:52 pm

Arborbridge wrote:When the yield on DGE becomes as low as it is now - or one might even say "as low as it usually is" - I begin to have self doubts. Would I better off topping up some of my ITs with a similar or higher yield? Why invest in an admittedly excellent company when I can spread the risk over 40 or 50 companies?

Well, one answer is that you'd have to buy an IT with a really low yield to get a similar capital performanace, say, one of Nick Train's or Law Debenture or SMT.

Not only that, I'm one for leaving something alone if it has been working well, so I'm not inclined to overthink it!

Arb.


You could probably construct a similar argument when looking at any share in isolation, that you'd be better off with an investment trust no?. Whereas the reality it is forming part of a portfolio, and I'm guessing providing a decent anount of diversification

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Re: Diageo plc share repurchase programme

#159044

Postby Bouleversee » August 12th, 2018, 5:54 pm

Arb -

Try working out what the current dividend equates to in terms of yield on your original purchase price and you'll feel a lot better. I can understand your not wanting to top up at today's price but can't see any reason to sell.


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