The Lemon Fool

monabri wrote:
11% of a p/f on companies at the lower end of the ftse100 is "brave/ reckless" -

VOD, however, is at the top end of the ftse100.

Does one see VOD going under anytime soon? ( I actually think they will recover ...and the yield will decrease)

The potential issue with building something like an 11% position in Vodafone, which has seen the share-price drop from a 12-month high of around 240p to a near 12-month low today of around 175p, is that any sort of large recovery in the share-price then potentially exposes you to having really quite a large amount of your HYP portfolio in a single share...

What I would suggest is that someone who might look to expose themselves to the above situation has a good think about what their tinkering strategy might be if the above were to occur, otherwise they could find themselves in the unenviable position of holding a HYP that begins to look and feel like HYP1 in terms of capital and income being delivered by a small number of very large holdings.

Personally, I wouldn't want to be exposed to any single HYP component at all that's around that level, unless there are good reasons for that, and sometimes there might be good reasons for that, which might mitigate the above view somewhat...

One of those situations might be to do with employee share-options, which often have a holding period of a minimum of 5-years before the full benefit of the options can be taken - if someone is saving quite a large amount into such a scheme, then I can imagine that a large position might easily be built up, so there's probably some situations where it's more difficult to mitigate against this type of thing happening, but where it is possible to mitigate, then I think some effort should be done to do so...

Cheers,

Itsallaguess

moorfield wrote:Well pyad's HYP1 (https://lemonfool.co.uk/viewtopic.php?f=15&t=8409) holds BATS (20% of income, 25% of capital) and PSN (19% and 16%). Unless you are a medianic tinkerer, I don't think HYP places any upper % limit on any holdings once bought does it? For me Vodafone currently accounts for 6.7% capital and 10.0% of income overall. At my limit currently, but which I'm quite comfortable with. As a builder for at least the next 12-15 years, I can reduce that weight simply by topping up other holdings over time.

The HYP1 comparison is very flawed. Whilst as you say the strategy places no limit on individual capital values in a no-tinker portfolio, that, as you also state, is "once bought". This means that you shouldn't go overweight on a share at purchase. That's not in the strategy at all. The approach is to invest equally at cost in each sector, or the then average for later additions, and to do so for income and not to gamble on price rises.

This reader states he is invested so as to be heavily overweight on VOD with the express intention of "trimming aggressively" later if the price rises. So whatever proportion he intends to sell is just a punt on capital gains. Nothing wrong with that but it certainly is not HYP strategy.

pyad wrote:
The HYP1 comparison is very flawed. Whilst as you say the strategy places no limit on individual capital values in a no-tinker portfolio, that, as you also state, is "once bought". This means that you shouldn't go overweight on a share at purchase. That's not in the strategy at all. The approach is to invest equally at cost in each sector, or the then average for later additions, and to do so for income and not to gamble on price rises.

This reader states he is invested so as to be heavily overweight on VOD with the express intention of "trimming aggressively" later if the price rises. So whatever proportion he intends to sell is just a punt on capital gains. Nothing wrong with that but it certainly is not HYP strategy.

Thank you for your input and the clarification Stephen.

Ian.

monabri wrote:.p.s. brokers disagree and can change their mind on a whim ( to suit themselves!).

I concur with that and add a note of warning from experience .... brokers have been known give a buy recommendation even as a company is getting into more trouble. As the price goes down, they have also been known to conclude that said company must therefore be a "strong buy".

I'd usggest having given a buy recommendation, they are very reluctant to reverse it and admit the were wrong. The desire not to lose face is very strong.

Arb.

If there is no question of being overweight (I have so many holdings that there is no danger of that; probably also non=HYP policy but let that pass) is there any other reason why one should not top up at this low price. With all the argument about being overweight, isn't there a danger of not seeing the wood for the trees? With so many unproductive former HYP shares in my p/fs, anything that produces a decent income appears attractive so long as that yield is sustainable, but is it? That is the question so far as I am concerned,

Bouleversee wrote:If there is no question of being overweight (I have so many holdings that there is no danger of that; probably also non=HYP policy but let that pass) is there any other reason why one should not top up at this low price. With all the argument about being overweight, isn't there a danger of not seeing the wood for the trees? With so many unproductive former HYP shares in my p/fs, anything that produces a decent income appears attractive so long as that yield is sustainable, but is it? That is the question so far as I am concerned,

If you are not overweight with VOD what's the problem? They are about 93% of my median weight, and stand behind MARS in my top-up rankings. MARS were disqualified by their share of the income, but that has now slipped thanks to Admiral's increase, so they might or might not be top when the time comes to make my next top-up, early in October, I expect.

There are probably worries about India and Italy, which may account for the SP being under pressure, and I first bought just over 10 years ago at 111p, at the time of the celebrated "I'll wait until VOD falls to £1 before I buy" saga. Dividends in the first year were 6.76p and have risen steadily ever since. I switched out before the demerger of Verizon and came back in again once that had passed. The dividend has now risen to 13.42p and I have had an IRR of just over 8%.

The starting yield was 6.1% and is now 7.6%. What's not to like about them?

TJH

tjh290633 wrote:The starting yield was 6.1% and is now 7.6%. What's not to like about them?

TJH

The answer is that the dividend is not covered, and hasn't been for some years. That could be why people are cautious. In my case I boycotted VOD for a long while but then eventually topped up in May this year.

I've asked before whether there is some rational reason why the stated cover is in some way misleading, but I'm not sure it's been answered. Is there some mitigating accounting issue which has to unwind? Dunno, but a company can only go on pulling on the string for so long before the brick flies off the table.

Arb.

Arborbridge wrote:
The answer is that the dividend is not covered, and hasn't been for some years. That could be why people are cautious. In my case I boycotted VOD for a long while but then eventually topped up in May this year.

I've asked before whether there is some rational reason why the stated cover is in some way misleading, but I'm not sure it's been answered. Is there some mitigating accounting issue which has to unwind? Dunno, but a company can only go on pulling on the string for so long before the brick flies off the table.

Arb.

You took the words out of my mouth with your first comment there Arb. I topped up my VOD holdings in April this year as part of my new £20k ISA dollop. At that time I had to put some of the money somewhere, and despite the screamingly high pe, and low cover with VOD, I decided to give them a break, and bought more. It's a bet I'm in no rush to repeat. They stand at 3.5% in capital value weighting in my HYP, and that yield is venturing into 'looks to good to be true' territory , so enough of them for me now.

Ian.

Arborbridge wrote:

tjh290633 wrote:The starting yield was 6.1% and is now 7.6%. What's not to like about them?

TJH

The answer is that the dividend is not covered, and hasn't been for some years. That could be why people are cautious. In my case I boycotted VOD for a long while but then eventually topped up in May this year.

I've asked before whether there is some rational reason why the stated cover is in some way misleading, but I'm not sure it's been answered. Is there some mitigating accounting issue which has to unwind? Dunno, but a company can only go on pulling on the string for so long before the brick flies off the table.

Arb.

Dividend looks comfortably covered with free cash flow unless I am mistaken. There are large non cash charges in the accounts for depreciation and amortization, of my holdings I think the short term risk to the dividend is actually towards the lower end.

I think if you believe telecommunications has a long term place in your portfolio, Vodafone is a decent my pick. I will be looking to top this up to my maximum 4 percent in short order.

Walrus wrote:
Dividend looks comfortably covered with free cash flow unless I am mistaken. There are large non cash charges in the accounts for depreciation and amortization, of my holdings I think the short term risk to the dividend is actually towards the lower end.

Doesn't this shift the question to "What are the likely Capex requirements to keep the cash flowing?"

TUK020 wrote:

Walrus wrote:
Dividend looks comfortably covered with free cash flow unless I am mistaken. There are large non cash charges in the accounts for depreciation and amortization, of my holdings I think the short term risk to the dividend is actually towards the lower end.

Doesn't this shift the question to "What are the likely Capex requirements to keep the cash flowing?"

Agreed, hence for me personally it's more of a sectoral question and a medium term what are the returns likely to be in the future, rather than a question on the short term dividend cover.

According to the LSE, the yield (31.3.18) is 6.81%, covered 1.05 times, and the P/E is 13.95. I look in my Sunday Times and it says y: 7.5%, P/E 12.7 and HL's website says y: 7.59%, P/E 17.03 so which is the one to go by and why the difference? HL says 4 out of 4 brokers say strong buy at the moment but I notice that on Friday afternoon there were a number of big sales, one over £28m for goodness sake, and buys were comparatively few and for relatively trivial sums. I know I am not supposed to worry about loss of value so long as the dividends keep rolling in (are you wavering, Ian P?) but there is that decision to be made as regards a top up. How I envy Doris, still tucked up in bed with another mug of tea and enjoying the lighter bits of her newspaper, and not even attempting to understand it all.

Bouleversee wrote:According to the LSE, the yield (31.3.18) is 6.81%, covered 1.05 times, and the P/E is 13.95. I look in my Sunday Times and it says y: 7.5%, P/E 12.7 and HL's website says y: 7.59%, P/E 17.03 so which is the one to go by and why the difference? HL says 4 out of 4 brokers say strong buy at the moment but I notice that on Friday afternoon there were a number of big sales, one over £28m for goodness sake, and buys were comparatively few and for relatively trivial sums. I know I am not supposed to worry about loss of value so long as the dividends keep rolling in (are you wavering, Ian P?) but there is that decision to be made as regards a top up. How I envy Doris, still tucked up in bed with another mug of tea and enjoying the lighter bits of her newspaper, and not even attempting to understand it all.

Dividends for the year ended 31 March 2018 were 15.07c (Eurocents) per share, which at the current exchange rate is 13.5p. 13.5/175.8 = 7.7%. P/E from continuing operations is about 12.4.

I find it's always best to look at the accounts rather than rely on data from websites.

https://www.vodafone.com/content/dam/vo ... _FINAL.pdf

Obviously the variability of exchange rates is a factor.

Thanks, SM, but life is far too short for that. I'm still trying to work out what the yield on my original purchase price is, complicated by the addition of my late husband's shares and various top ups. I'm not sure I really want to know as that will be "what's not to like?". Will have a go when I've finished gardening for the day.

pyad wrote:

moorfield wrote:Well pyad's HYP1 (https://lemonfool.co.uk/viewtopic.php?f=15&t=8409) holds BATS (20% of income, 25% of capital) and PSN (19% and 16%). Unless you are a medianic tinkerer, I don't think HYP places any upper % limit on any holdings once bought does it? For me Vodafone currently accounts for 6.7% capital and 10.0% of income overall. At my limit currently, but which I'm quite comfortable with. As a builder for at least the next 12-15 years, I can reduce that weight simply by topping up other holdings over time.

The HYP1 comparison is very flawed. Whilst as you say the strategy places no limit on individual capital values in a no-tinker portfolio, that, as you also state, is "once bought". This means that you shouldn't go overweight on a share at purchase. That's not in the strategy at all. The approach is to invest equally at cost in each sector, or the then average for later additions, and to do so for income and not to gamble on price rises.

HYP1 is flawed as an example of that approach. BATS was bought at about 10% of the then portfolio value, and BT (which was second to BATS on capital value and 3rd on dividend income in 2016, though it dropped to 5th and 4th respectively in 2017 at about 12% of the then portfolio value. Those are well above the then average single-holding values, which were 1/16th = 6.25% of the portfolio values at both of those purchase times. (For evidence of those purchase values, see https://web.archive.org/web/20170213040 ... sort=whole, https://web.archive.org/web/20070827032 ... rform.aspx and https://web.archive.org/web/20170213041 ... sort=whole.)

That does make HYP1 a rather exaggerated example of the imbalances that can develop in a HYP by that approach - in particular, the BATS holding would only be at about 2/3rds of the weightings moorfield gives if HYP1 had been run by that approach. That would however still make it about 13% by income, 17% by capital value, so still a decidedly large holding for the portfolio. (By the way, I haven't tried to do a similar check on Persimmon because it was bought as a takeover replacement in 2008, when you were not writing at all for TMF, and so I don't have details of the purchase or the total portfolio value at the time. Not a major problem as far as I am concerned, just an explanation of why I haven't followed up on one of the shares moorfield mentioned.)

What it does also point out is that there's more than one HYP approach: HYP1's approach is a bit different to the one you present in the above quote, in that later additions for reinvesting takeover proceeds spend the total proceeds on the purchase even if they're more than the then average single-holding value.

Last but not least, aren't you 'violently agreeing' with what moorfield said? You're certainly agreeing about HYP placing no % limit on holdings once bought, and what you seem to be arguing against is gambling on price rises - which as far as I can see others have suggested or at least hinted at, but moorfield hasn't.

Edit:

pyad wrote:This reader states he is invested so as to be heavily overweight on VOD with the express intention of "trimming aggressively" later if the price rises. So whatever proportion he intends to sell is just a punt on capital gains. Nothing wrong with that but it certainly is not HYP strategy.

Just to be clear, I agree with that - apart from the fact that "This reader" is not as far as I can see moorfield, who is the only reader mentioned specifically earlier in the post!

Gengulphus

moorfield wrote:Unless you are a medianic tinkerer....

love this turn of phrase.
Conjures up a man in midaeval garb, with mask and sonic screwdriver

Bouleversee wrote:Thanks, SM, but life is far too short for that. I'm still trying to work out what the yield on my original purchase price is, complicated by the addition of my late husband's shares and various top ups. I'm not sure I really want to know as that will be "what's not to like?". Will have a go when I've finished gardening for the day.

I tend to agree, assuming your opening remarks refers to company accounts. I've tried over the years to get to grips with reports at various times, but I'm always defeated. There are so many obfuscations, buts, ifs and maybes that in the end I could not trust my own ability reliably to penetrate the undergrowth. I know some people have the ability to go straight to the point in accounts, but I'd never be confident of it. Even working out free cash flow raises doubts, simple though it might be and it's not always clear how significant any coclusion might be given that it's a snapshot.

Life's too short to stuff a mushroom, so I rely on a good spread of shares and such insights as I can pick up outside company accounts which are always designed to make the management look good where possible, by hiding as much as possible. I would say I am the typical amateur investor for whom HYP was intended - buy big companies with a good history and in a wide diversity - then sit tight where possible. Trust in the portfolio system to limit one's failures caused by one's own lack of ability.

Arb.

Arborbridge wrote:I tend to agree, assuming your opening remarks refers to company accounts. I've tried over the years to get to grips with reports at various times, but I'm always defeated. There are so many obfuscations, buts, ifs and maybes that in the end I could not trust my own ability reliably to penetrate the undergrowth. I know some people have the ability to go straight to the point in accounts, but I'd never be confident of it. Even working out free cash flow raises doubts, simple though it might be and it's not always clear how significant any coclusion might be given that it's a snapshot.

The only real points I know of for working through the report with its obfuscations, buts, ifs and maybes are:

* Looking at what they're saying about the outlook for the company - an area where there are no actual facts.

* To work out what they're trying to obfuscate!

I'm not counting such things as finding the dividend announcement in that, by the way - that's much better done with CTRL-F, "dividend" and skimming through the search results than by working laboriously through the report.

And on the subject of the accounts, I would not describe working out free cash flow as "simple". The concept is simple - cash flow that's available beyond that needed to keep the company running at its current level, and that can therefore be used to benefit shareholders, whether by dividends, buybacks, company expansion or just stockpiling it against the possibility of a 'rainy day' or a good opportunity occurring. But determining it from the accounts is not, and I still haven't found a method I find satisfactory!

Gengulphus

Gengulphus wrote:
And on the subject of the accounts, I would not describe working out free cash flow as "simple". The concept is simple - cash flow that's available beyond that needed to keep the company running at its current level, and that can therefore be used to benefit shareholders, whether by dividends, buybacks, company expansion or just stockpiling it against the possibility of a 'rainy day' or a good opportunity occurring. But determining it from the accounts is not, and I still haven't found a method I find satisfactory!

Gengulphus

I'm glad you wrote that, for although I described it as "simple" I did so because that's what I had been told
Personally, I found when I tried, there were still questions about what it was "wise" to include or not depending whether the expenditure was maintenance or genuinely for investment which would yield a benefit in future. And as we know, some investments fall flat - such as expansion of floor space which then had to be retracted in the case of supermarkets.
Including all capex can be too pessimistic and give worrying results when nothing untoward is afoot.
Not only that, but cases of poor cash flow can be tolerated for years without ill effect, during which time cash flow can eventually be righted. So it isn't a silver bullet AFAIK, but an indication that caution is needed.

Neither am I too impressed with shorting as a silver bullet - it comes and goes. Sometimes it comes and disaster stikes, but one would be forever trading in and out if one took too much notice.

For those of us who are a "typical man in the street" we come back to Doris and a trust in the HYP system to give us some protection.


Arb.

Arborbridge wrote:
For those of us who are a "typical man in the street" we come back to Doris and a trust in the HYP system to give us some protection.


Arb.

Well said Arb. Spot on.

Ian.