The Lemon Fool

Weighing up selling my shares in Sage (SGE) and swapping them for Imperial Brands (IMB) or maybe BAE Systems (BA.)
I don't own either of IMB or BA.

SGE currently (forward) yielding 2.9%, IMB 8.7% and BA. 5.1%.

Any thoughts?

absolutezero wrote:Weighing up selling my shares in Sage (SGE) and swapping them for Imperial Brands (IMB) or maybe BAE Systems (BA.)
I don't own either of IMB or BA.

SGE currently (forward) yielding 2.9%, IMB 8.7% and BA. 5.1%.

Any thoughts?

Morning absolutezero, I can see why you're toying with dropping Sage, seemingly due to it's low yield. As for your options, if you have no ethical view against tobacco shares, I'd say Imperial Brands are the best between those two, as the higher yielding share.

Ian.

sage is hardly a HYP pick with its average yield.

it is held by terry smith and nick train , which may encourage holding it elsewhere.

jackdaww wrote:sage is hardly a HYP pick with its average yield.

Agree. But the question was about selling, not buying. (Disclosure: I hold, happy to continue doing so.)

absolutezero wrote:SGE currently (forward) yielding 2.9%, IMB 8.7% and BA. 5.1%.

If absolutezero is minded to sell, which many in these parts do habitually, then the question answers itself I think.

If I held Sage as a HYP picked at appropriate yield I'd be delighted with its inflation beating income growth.
5 Yr - 8.19%
10 Yr - 8.63%
15 Yr - 16.59%

BAE systems has income growth less than half that, Imperial Brands does compete at around 11% annual for 5, 10 and 15 year periods so at a higher starting yield and good history might prove better if you're lucky.
At sub 3% yield today Sage doesn't cut it and eyeballing the yield graph it's not often at index beating levels so might be a keeper.

Bought in 2012 for 265p. Now 604p.

6.4% yield on cost. 2.9% current yield.

In a quandary on this one.

absolutezero wrote:In a quandary on this one.

This is the "Unilever Question" again. You will get different answers to this quandary, depending on which side chapel of the cathedral your readers choose to worship in. I'd suggest there are four, which can be framed, like our current politics, thus:

Remain
aka Buy and Hold. Self-explanatory. Outsource your trading decision to "the market" (cf. the ECJ).

Hard Exit
It's generally accepted (new) HYP buys must be above the FTSE 100 yield. If you're prepared to extend that argument to holds, then yields below the FTSE 100 should be sold.

Soft Exit
Use a different metric, such as yield relative to benchmark, eg. < 0.5x, or overall portfolio income relative to a target, to make the decision.

Bad Deal
aka Pickering. You like (or dislike) the "feel" or "smell" of SGE, and think you should be seen to be doing something, but aren't completely convincing (or unconvincing) anyone but yourself. Probably the best course of action is to do nothing.


FWIW, I'm a "Soft Exiteer" - I don't need to sell SGE, yet, so I'll leave it alone to carry on doing its stuff.

moorfield wrote:

absolutezero wrote:In a quandary on this one.

This is the "Unilever Question" again. You will get different answers to this quandary, depending on which side chapel of the cathedral your readers choose to worship in. I'd suggest there are four, which can be framed, like our current politics, thus:

Remain
aka Buy and Hold. Self-explanatory. Outsource your trading decision to "the market" (cf. the ECJ).

Hard Exit
It's generally accepted (new) HYP buys must be above the FTSE 100 yield. If you're prepared to extend that argument to holds, then yields below the FTSE 100 should be sold.

Soft Exit
Use a different metric, such as yield relative to benchmark, eg. < 0.5x, or overall portfolio income relative to a target, to make the decision.

Bad Deal
aka Pickering. You like (or dislike) the "feel" or "smell" of SGE, and think you should be seen to be doing something, but aren't completely convincing (or unconvincing) anyone but yourself. Probably the best course of action is to do nothing.


FWIW, I'm a "Soft Exiteer" - I don't need to sell SGE, yet, so I'll leave it alone to carry on doing its stuff.

That's genius.
In the political sense I am a Hard Exit (and don't believe any of the other types of exit exist)

On this I think I'm a Soft Exiteer.

absolutezero wrote:Bought in 2012 for 265p. Now 604p.

6.4% yield on cost. 2.9% current yield.

In a quandary on this one.

My personal criterion, for a complete disposal of a low yield share, is to think about it if the yield falls below half that of the main index and stays there. Roughly that is below 2%, but will vary.

I do not rush to disposal, because things can change relatively quickly, but a permanent or long term cessation of dividends helps me make up my mind quickly.

In your situation, I would hold onto Sage, which is not a share I have ever contemplated owning. Presumably if it went overweight you might trim it back and invest the proceeds in a higher yielding share.

TJH

tjh290633 wrote:

absolutezero wrote:Bought in 2012 for 265p. Now 604p.

6.4% yield on cost. 2.9% current yield.

In a quandary on this one.

My personal criterion, for a complete disposal of a low yield share, is to think about it if the yield falls below half that of the main index and stays there. Roughly that is below 2%, but will vary.

I do not rush to disposal, because things can change relatively quickly, but a permanent or long term cessation of dividends helps me make up my mind quickly.

In your situation, I would hold onto Sage, which is not a share I have ever contemplated owning. Presumably if it went overweight you might trim it back and invest the proceeds in a higher yielding share.

TJH

My quandary is I could get double the money in dividends from a company that is (probably) less risky.
Sage is an accounting software company. Who knows what other companies might come along and eat their lunch?
Fags on the other hand. Addictive.

absolutezero wrote:My quandary is I could get double the money in dividends from a company that is (probably) less risky.

Perhaps, but that's a gross misnomer I would suggest.

You should analyse such changes in context of your overall portfolio income. In my case, "doubling the money in dividends" by swapping my SGE holding would improve overall income by 2.4% (exclusive of trading and stamp costs). Not worth the pfaff, while I am reinvesting said income anyway.

Would be interested to know what your number is?

moorfield wrote:

absolutezero wrote:My quandary is I could get double the money in dividends from a company that is (probably) less risky.

Perhaps, but that's a gross misnomer I would suggest.

You should analyse such changes in context of your overall portfolio income. In my case, "doubling the money in dividends" by swapping my SGE holding would improve overall income by 2.4% (exclusive of trading and stamp costs). Not worth the pfaff, while I am reinvesting said income anyway.

Would be interested to know what your number is?

1.6% extra out of my total dividend income...

absolutezero wrote:Bought in 2012 for 265p. Now 604p.

6.4% yield on cost. 2.9% current yield.

In a quandary on this one.

As a new HYPer, I am perplexed by this; surely the yield relative to the original investment is more important than the yield relative to a moving target such as the FTSE yield? The current yield of 2.9% would preclude top-ups but the actual yield of 6.4% means a hold?

EssDeeAitch wrote:
As a new HYPer, I am perplexed by this; surely the yield relative to the original investment is more important than the yield relative to a moving target such as the FTSE yield? The current yield of 2.9% would preclude top-ups but the actual yield of 6.4% means a hold?

The current yield is useful to compare what income the same capital could get if redeployed. I don't see any real value in the yield on cost though. As you say 2.9% not a HYP candidate today, and as the HYP is a long term buy and hold strategy my default position is that it's a hold. Specifically with Sage they have had a pretty good history of increasing income well above inflation over 5, 10 and 15 years. Once I've bought a share I don't really care about its yield but what the actual income does year on year and I like to see it increase at faster than inflation.

EssDeeAitch wrote:As a new HYPer, I am perplexed by this; surely the yield relative to the original investment is more important than the yield relative to a moving target such as the FTSE yield? The current yield of 2.9% would preclude top-ups but the actual yield of 6.4% means a hold?

You need to look at the reason for the proposed tinker. Here it would be to increase income and it is the current yield and that of alternative shares which tells you by how much. Just from the math, on the current figures if you sell a share yielding 2% and reinvest in a 5% yielder, then you increase income by 3% of the amount concerned.

Whatever the cost yield is, it has no bearing on this decision.

Your comment is probably more applicable to a general discussion on whether tinkering in general is advisable or not but that is a whole other argument which is not germane to this thread. My view is well known but for those who do tinker, then as far as the yields are concerned the current levels alone matter.

EssDeeAitch wrote:

absolutezero wrote:Bought in 2012 for 265p. Now 604p.

6.4% yield on cost. 2.9% current yield.

In a quandary on this one.

As a new HYPer, I am perplexed by this; surely the yield relative to the original investment is more important than the yield relative to a moving target such as the FTSE yield? The current yield of 2.9% would preclude top-ups but the actual yield of 6.4% means a hold?

The concept of yield on cost is not usually taken into consideration once the purchase has been made. After that only the current or forward yield matters. Some might consider forward yield to be counting your chickens. My personal choice is current yield, using the mist recently declared dividends.

As you say, 2.9% would usually preclude topping up, but is not low enough to justify disposal, particularly if dividends are increasing at a reasonable rate. Usually the growth in share price which led to the low yield removes the need for topping up in any case.

TJH

EssDeeAitch wrote:
As a new HYPer, I am perplexed by this; surely the yield relative to the original investment is more important than the yield relative to a moving target such as the FTSE yield?

The current yield of 2.9% would preclude top-ups but the actual yield of 6.4% means a hold?

Yield-on-cost is nothing more than a investment 'comfort-blanket' - it has no real use once a purchase is made, and from that point on if any yield information is going to be used to potentially influence an investment-decision, then current-yield would be the appropriate figure to use, or even forecast-yields if a known 'dividend-event' might alter the future yield-landscape considerably.

To give a flavour as to why this is very important, I wrote a worked-example 18 months ago, which can be read here -

https://www.lemonfool.co.uk/viewtopic.php?t=5031&start=20#p54230

The linked post above gives an example where a HYP share can quite easily have a CURRENT yield of about 1.9%, but display a potential YIELD-ON-COST of 15% - hopefully this is useful in seeing how a yield-on-cost figure of something like that can really quite easily lull an income-investor into not making the most appropriate use of their investment capital....

Cheers,

Itsallaguess

Thanks for the feedback everyone, I do get it; the consensus is current or forward yield is appropriate for decision making aprapos hold or swap out. Whether to simply deploy LTBH or tinker is somewhat of a personal choice but not for debate here.

A few weeks later: I have still not sold.
The addition of an extra 1.6% of my dividend income, while nice, isn't exactly going to lead to early retirement or shopping at Waitrose.
I may change my mind at some later date though.