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Seeking advice on HYP construction

For discussion of the practicalities of setting up and operating income-portfolios which follow the HYP Group Guidelines. READ Guidelines before posting
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idpickering
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Re: Seeking advice on HYP construction

#168518

Postby idpickering » September 24th, 2018, 8:42 am

EssDeeAitch wrote:
Thanks Ian, just checked out the yield on Galliford and it is overstated in the StepOne spreadsheet but still high at 8.3 with both WebFG and Fidelity. The forward yield is consistent and from what I can see, looks OK.
As to Corbyn, oh God, I would rather not think about it actually :shock:
Thanks for the input.


You're welcome. Thanks for coming back on your investigations. Others here may hold Gailliford Try, and be able to offer more thoughts on them. As for Corbyn, I dread to even think about it. :shock:

Ian.

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Re: Seeking advice on HYP construction

#168534

Postby Alaric » September 24th, 2018, 10:21 am

idpickering wrote:You are most certainly on the right track. As regards the two shares, I've never held Gailllford Try, not that that matters, but that high yield does look rather lofty for me.


Isn't Galliford Try in a similar line of business to Carillion? With that experience a filter of the accounts for creativity might be advisable.

The share price is about the same as it was five years ago. That can be symptomatic of a Company paying dividends out of capital rather than profits.

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Re: Seeking advice on HYP construction

#168541

Postby monabri » September 24th, 2018, 10:49 am

Recent discussions on GFRD

latest Sep 18
viewtopic.php?f=15&t=13655#p165779


May 18
viewtopic.php?f=15&t=11814&p=140533&hilit=GFRD#p140528

viewtopic.php?f=15&t=11637&hilit=GFRD

Mar 18
viewtopic.php?f=15&t=10862&hilit=GFRD#p128194


Although I hold GFRD I think there are better/safer options out there. Debt has been increasing and is reported (SimplyWallSt) as not being covered by cash flow! I would not make it a core holding, personally.
Last edited by monabri on September 24th, 2018, 10:55 am, edited 1 time in total.

EssDeeAitch
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Re: Seeking advice on HYP construction

#168542

Postby EssDeeAitch » September 24th, 2018, 10:50 am

Alaric wrote:
Isn't Galliford Try in a similar line of business to Carillion? With that experience a filter of the accounts for creativity might be advisable.

The share price is about the same as it was five years ago. That can be symptomatic of a Company paying dividends out of capital rather than profits.


There is some cross over but they are not like for like companies. GT owns Linden Homes, a new-build contractor and Carillion (who were the worst customer my last employer had on the books) were never involved in that housing. GT did have a JV with Carillion for the Aberdeen bypass which resulted in a £45m provision last year. They are targeting 5% dividend growth over the next five years with a cover of 2 with this years cover being 1.6

At the end of the day, I don't really know if this, or any other stock is good/bad or indifferent but the numbers and statements seem to hold up - but you will know better than me (as I am a rank novice) than the proof is somewhere in the future.

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Re: Seeking advice on HYP construction

#168545

Postby monabri » September 24th, 2018, 11:00 am

Would a well run business go cap in hand in the manner it did to cover off the overrun costs on the Aberdeen route?

"Dear investor, we've screwed up on our programme management of a road building programme (a core business), please send money, love & kisses"

Well, that's what I thought at the time!

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Re: Seeking advice on HYP construction

#168548

Postby EssDeeAitch » September 24th, 2018, 11:09 am

monabri wrote:Would a well run business go cap in hand in the manner it did to cover off the overrun costs on the Aberdeen route?

"Dear investor, we've screwed up on our programme management of a road building programme (a core business), please send money, love & kisses"

Well, that's what I thought at the time!


I am not disputing what you say, but I do have a question; at what point does one accept a company as a fair investment? If an organisation makes no mistakes, is it because that take no risk or because they are simply perfect? I am really struggling with this whole investment issue as every company gets it wrong on occasion, overestimates future profitability, is subject to "events". So at what point do we, as investors with only data and company reports to rely on, take the plunge?

I am really not being anything other than inquiring, I need to work this out before committing hard earned money.

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Re: Seeking advice on HYP construction

#168554

Postby kempiejon » September 24th, 2018, 11:20 am

EssDeeAitch wrote:I am considering building an HYP and would like to ask if there are any hints, tips and advice experienced investors can/will share with me.

I have read a number of articles on the matter but would like to flesh this out with some real world experiences.
Any help will be much appreciated.


I see you've set a filter of £500M if I was starting from scratch I wouldn't start that low, there are plently of £10B bluechip FTSE100s offering a yield of over 4% (about FTSE1200 average) see this list https://www.dividenddata.co.uk/dividend ... et=ftse100
Another reminder for any new starters it's a portfolio you're after, diversification is key, until you have a good handful of picks the hit from any one stuffing up can be felt hard. This might be enough to discourage a protoHYP investor.

As for SSE specifically it is going to perform a corporate action and the new company will be different from the current http://sse.com/newsandviews/allarticles ... -circular/ I also think utilities are a special case so need a slightly different set of filters. Some of them have committed to increasing their dividend at least in line with inflation for a number of years and they often carry a lot of debt or have lowly covered dividends.

Galiford Try I hold but I didn't look into the sub £1bmark until I had a couple of dozen picks, GFRD had a rights issue and have reduced their dividend.

Those facts, the pending corporate action/demerger and lower cap, right issue and reduced dividend would put me off both your initial sifts for a brand new HYP. I am often wrong when I try to predict the future of dividends though.

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Re: Seeking advice on HYP construction

#168560

Postby EssDeeAitch » September 24th, 2018, 11:33 am

kempiejon wrote: Those facts, the pending corporate action/demerger and lower cap, right issue and reduced dividend would put me off both your initial sifts for a brand new HYP. I am often wrong when I try to predict the future of dividends though.


That's very helpful, many thanks. I will lift the market cap to £1b as you suggest, and then I suppose that more background work needs to be done on any potential. As far as the diversification goes, I plan to hold no more than 10% in any one sector, I think that will provide some cover.

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Re: Seeking advice on HYP construction

#168580

Postby moorfield » September 24th, 2018, 12:42 pm

Hi EssDeeAitch, I would exclude these two as candidates for now.

EssDeeAitch wrote:Galliford Try - Buy
Market Cap 1.18b | PE 19.2 | Divi Yield >9.3% | EPS Growth >158% | Divi Cover > 2 | Increasing Divs Yes | Fair Value 1.11


Too high yield. Not often discussed here but IMO an upper yield limit should also be considered during screening, eg. I would use Divi Yield <8.4% (that being roughly twice the FTSE 100 yield currently).

(Above such yields I think the divis from preference shares are likely to be more reliable, albeit fixed, and certainly O/T here. Don't tell anyone.)

SSE - Buy
Market Cap 11.46b | PE 12.9 | Divi Yield >8.1% | EPS Growth >33% | Divi Cover > 1.2 | Increasing Divs Yes | Fair Value 1.14


SSE has just paid its final dividend before it is expected to spit itself up next year, ie. you will end up with a new share (part-SSE, part-Npower) which may or may not start paying a divi immediately. I would hold off until the new company's policy becomes clearer.

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Re: Seeking advice on HYP construction

#168601

Postby PaulBullet » September 24th, 2018, 1:56 pm

EssDeeAitch

You have not said if this is a one time purchase of a HYP or a gradual building HYP

if gradual then I would set my screener to size >10B, Yield >5% until you have exhausted these and need more sectors

Paul

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Re: Seeking advice on HYP construction

#168607

Postby Gengulphus » September 24th, 2018, 2:05 pm

EssDeeAitch wrote:I have looked at the resources and suggestions provided by members (many thanks) and have settled (more or less) on the following screening data for HYP stock

Selection Criteria
Market Cap >500m | PE <20 | Divi Yield >3.5% | EPS Growth >5% | Divi Cover > 1 | Increasing Divs Yes | Fair Value >1

Sorry, but I don't have any real idea what you mean by "Fair Value", beyond it looking likely to be some sort of share valuation divided by the share price. The other criteria are reasonably clear, though it would be interesting to know whether you're using historical or forecast versions of P/E, dividend yield and dividend cover, how many years you're looking for dividend increases over, and whether you're looking for strict increases (i.e. each dividend greater than the previous year's) or non-strict increases (i.e. each dividend greater than or equal to the previous year's).

One other point that I think is relevant to your two choices below is that while decent EPS growth is good, that doesn't mean that really high EPS growth is outstanding. It can be, but only if it indicates that the company as a whole is growing very rapidly, and that's very rare in HYP companies, because companies that are growing very rapidly generally need all or most of their cash to keep that growth going, and that leaves little or none to pay dividends from. Furthermore, the market usually (and practically always for companies of any significant size) spots rapidly-growing companies and drives their price up, and so their combination of low/zero dividends and high prices mean that their yields are not high.

Instead, what a very high EPS growth rate usually means in a HYP candidate is that the company had quite badly depressed earnings the previous year, but is recovering / has recovered from whatever problem caused them. That's somewhat mixed news (good that the company is capable of recovering from such things, not so good that it can suffer from them in the first place) rather than outstanding...

The net result is that while I think that your "EPS Growth >5%" criterion is a good one, it needs a health warning about passes by big margins probably not being especially good...

EssDeeAitch wrote:Having filtered through the data and looking at other resources I have arrived at these two candidates and would appreciate any feedback.

Galliford Try - Buy
Market Cap 1.18b | PE 19.2 | Divi Yield >9.3% | EPS Growth >158% | Divi Cover > 2 | Increasing Divs Yes | Fair Value 1.11

SSE - Buy
Market Cap 11.46b | PE 12.9 | Divi Yield >8.1% | EPS Growth >33% | Divi Cover > 1.2 | Increasing Divs Yes | Fair Value 1.14

Do these selections make sense? Am I on the right track?

Well, really I would need some general context to give a clear opinion. In particular, are you starting from scratch, or do you already have some shares in your HYP? If you already have some shares in it, which are they? And are you anticipating further additions to your HYP, and if so, roughly how often?

But in general, I would have significant doubts about adding either of those two to a HYP right now. For SSE, there's a very practical reason for that: it's in the process of demerging part of itself - about 15-20% of the company judging by what they're doing with the dividend. The issue with that is that if you buy it before it completes the demerger, you're likely to end up with two holdings, one of which is a lot smaller than you'd planned on and whose dividend policy isn't known (it's only expected to be published shortly before the demerger completes, which is expected in the first quarter of next year). So especially if the amount I were putting into the holding was fairly small (say £1-2k), I would avoid the possible complication of being left with a small holding in a company I might well decide I didn't want and that would be relatively expensive to sell...

SSE also has the political issue hanging over it of being a utility and so very much in the focus of Labour's nationalisation ideas - I won't try to discuss how much to make of that, as I've not really decided that question even for myself! But on the practical issue alone, I would at least wait until the demerger is close to completing before deciding whether to buy it as a new holding.

Galliford Try has generally struck me as a reasonable 'middling' HYP share - the sort of share one might pick for a HYP's ~10th selection or later, but very likely to be outclassed for earlier selections. As examples of that, for the two HYPs I linked to in my last post, it was my ninth choice for UHYP15 in 2015, and didn't get into the 15 choices I made in 2011 for the other. I'll add that it didn't get into the 16 choices I made for UHYP13 in 2013 and was number 16 of the 16 choices I made for UHYP14 in 2014.

Obviously, numbers have changed and company histories have lengthened since any of those HYPs were selected, so that doesn't say anything definite about Galliford Try as a HYP candidate now. But my general impression of the company is that while it can score well on yield and diversification (it has quite a nice mix of housebuilding, non-house construction and infrastructure operations in my view), its fairly small size, sector and typical debt levels mean that it tends to score less well on dividend safety, the third of the "three legs of the HYP stool" I suggested aiming for. That doesn't rule it out from HYPs, but one can usually find at least a few shares that score well on all three.

So if you're starting from scratch and these are your first two selections, I'm very doubtful that Galliford Try is one to go for. If you've already got a few holdings in your HYP, I might feel differently...

Edit: I see that others have said many of the same things I have while I was writing this - including breaking off for lunch in the middle of it. I'll let it stand, though - editing it down to the new points looks to be more work than it's worth!

Gengulphus

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Re: Seeking advice on HYP construction

#168633

Postby EssDeeAitch » September 24th, 2018, 3:15 pm

Terrific input, thanks to:

@moorfield - As you suggest (and others), SSE is not a candidate due to restructure and I have discounted them as an option. Setting an upper limit is also a good tip.

@PaulBullet - I am developing a HYP with funds due to drop into play in the next two to three weeks, this is my preparatory stage. So my task is to select an appropriate number of stocks, probably 12 or 15 tops so that I can press the button when funds are in. I do not expect to be topping up in the future but I will be reinvesting dividends for the next four to five years.

@ Gengulphus - Fair Value is a Morningstar tool, their explanation of it is 'The Morningstar Fair Value Estimate tells investors what the long-term, intrinsic value of a stock is, helping them see beyond the present market price. Morningstar calculates the fair value estimate of a company based on how much cash we think the company will generate in the future. When determining the fair value estimate, Morningstar also takes into account the predictability of a company’s future cash flows - the uncertainty rating. A stock with a higher uncertainty rating, requires a larger margin of safety before earning a 4 or 5 star rating. The Morningstar Fair Value Estimate is a measuring stick for determining long-term, intrinsic value'. Now, this may be accurate to one degree or another but I trust that the measure will be consistent and on that basis I am happy to use it as a point of comparison.

As I said above, I have discounted SSE, I get that and thanks for your input. I take Galliford under caution and will think on after making selections based on what you and others have said. I will see how it comes in against others. I shall post up selections once made and get ready for the comments that come my way.

But thanks all of you, your help is appreciated.

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Re: Seeking advice on HYP construction

#168665

Postby monabri » September 24th, 2018, 6:08 pm

Any reason why you are not going for a starting selection from these typical HYP favourites?



I think you'd be "safer" with these than the likes (mkt cap, stewardship (see earlier comments)) of GFRD.

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Re: Seeking advice on HYP construction

#168703

Postby TUK020 » September 24th, 2018, 9:34 pm

monabri wrote:Any reason why you are not going for a starting selection from these typical HYP favourites?



I think you'd be "safer" with these than the likes (mkt cap, stewardship (see earlier comments)) of GFRD.


Monabri,
If you had limited funds and intended to start a portfolio now, which 3 shares would you pick from the above?
tuk020

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Re: Seeking advice on HYP construction

#168705

Postby EssDeeAitch » September 24th, 2018, 10:23 pm

TUK020 wrote:
monabri wrote:Any reason why you are not going for a starting selection from these typical HYP favourites?



I think you'd be "safer" with these than the likes (mkt cap, stewardship (see earlier comments)) of GFRD.


Monabri,
If you had limited funds and intended to start a portfolio now, which 3 shares would you pick from the above?
tuk020


MONRABI - I have been looking through the HYP posts and seen the ones you list mentioned several times in members portfolio's so yes, this is a great place to start, many thanks.
TUKO20 - A very good question, but I would ask for six shares.

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Re: Seeking advice on HYP construction

#168709

Postby monabri » September 24th, 2018, 10:55 pm

The first 3 and the last 3 in the table.

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Re: Seeking advice on HYP construction

#168711

Postby monabri » September 24th, 2018, 11:23 pm

Tuk020..with limited funds (which is what we all have but I know what you mean!) I'd go for...an investment trust rather than placing all funds in 3 individual companies.

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Re: Seeking advice on HYP construction

#168714

Postby EssDeeAitch » September 25th, 2018, 6:40 am

monabri wrote:The first 3 and the last 3 in the table.


Thanks monabri, a very good place to start

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Re: Seeking advice on HYP construction

#168724

Postby TUK020 » September 25th, 2018, 7:14 am

monabri wrote:The first 3 and the last 3 in the table.


I think these would be good conservative choices, looking at each individually.
Would worry that for a starter portfolio it is a bit skewed towards financials.

idpickering
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Re: Seeking advice on HYP construction

#168731

Postby idpickering » September 25th, 2018, 7:41 am

TUK020 wrote:
monabri wrote:The first 3 and the last 3 in the table.


I think these would be good conservative choices, looking at each individually.
Would worry that for a starter portfolio it is a bit skewed towards financials.


3 shares. A very mini HYP, but you've got to start somewhere. ;)

Ian.


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