Topped up Aviva

[tjh290633]

I had enough accumulated dividends to top up AV. by about 15% this afternoon at 422p. That pushed it up to 107% of the median holding value.

As a result my top-up ranking looks like this:

Top-up          Income                     Cost                
Rank     EPIC   Rank     EPIC   % Income   Rank   Epic   % Cost
     1   VOD         1   RIO       7.24%      1   MARS    5.05%
     2   WMH         2   TW.       5.60%      2   WMH     4.38%
     3   SSE         3   SSE       4.46%      3   GSK     4.32%
     4   KGF         4   MARS      4.42%      4   AV.     4.28%
     5   LLOY        5   VOD       4.39%      5   SSE     4.27%
     6   BT.A        6   AV.       4.13%      6   MKS     4.16%
     7   TW.         7   IMB       4.02%      7   PSON    3.94%
     8   BA.         8   RDSB      3.91%      8   RDSB    3.94%
     9   BLND        9   BATS      3.80%      9   LLOY    3.90%
    10   IMB        10   ADM       3.57%     10   BT.A    3.68%
    11   S32        11   BT.A      3.56%     11   BATS    3.50%
    12   IMI        12   BP.       3.54%     12   BHP     3.48%

As you may recall, I disqualify any share which, if topped up, would push its share of income, or of cost, above 5%. Consequently VOD, WMH, SSE and TW. are disqualified from that list. That makes KGF currently the favourite for topping up on the next occasion, which could be before Easter.

I mentioned KGF in another thread, because it is currently my lowest value holding, see below:

Value                           
Rank    EPIC   Weight   % Median
    1   RIO     4.22%     147.3%
    2   GSK     3.65%     127.6%
    3   CPG     3.57%     124.6%
    4   DGE     3.53%     123.1%
    5   RDSB    3.50%     122.2%
    6   SGRO    3.45%     120.3%
    7   BP.     3.38%     117.9%
    8   ADM     3.26%     113.9%
    9   UU.     3.24%     113.1%
   10   MARS    3.24%     113.0%
   11   BATS    3.12%     108.8%
   12   TW.     3.10%     108.3%
   13   AV.     3.08%     107.7%
   14   LGEN    3.07%     107.3%
   15   AZN     3.01%     105.2%
   16   IMB     2.97%     103.6%
   17   ULVR    2.89%     100.7%
   18   SSE     2.86%     100.0%
   19   BHP     2.86%     100.0%
   20   NG.     2.78%      97.2%
   21   BT.A    2.78%      97.0%
   22   PSON    2.75%      95.9%
   23   MKS     2.73%      95.3%
   24   TATE    2.68%      93.4%
   25   BLND    2.49%      86.8%
   26   VOD     2.48%      86.7%
   27   WMH     2.47%      86.4%
   28   RB.     2.39%      83.4%
   29   S32     2.37%      82.7%
   30   LLOY    2.23%      77.8%
   31   SMDS    2.20%      76.7%
   32   BA.     2.18%      76.1%
   33   IMI     2.17%      75.6%
   34   TSCO    1.69%      59.1%
   35   KGF     1.61%      56.1%

The KGF dividend has been held for the past year, after continued rises previously, and the current yield is acceptable at about 4.6%. Worries about the French and other overseas operations have depressed the share price. I have trimmed twice in the past, at 132p in October 2008 and at 139p in March 2009. The IRR is about 4.6%, because of the fall from its level of 430p in 2014 to its current level of about 240p. I first bought at 208p in 2007. It would have been topped up long ago had not other shares been more attractive from a yield point of view.

TJH

[idpickering]

Thanks for sharing this Terry. I would buy more AV., but I've invested enough there already, and they are not a share I'm happy to go over the top with.

Ian.

[tjh290633]

As you can see, Ian, Aviva have now reached the share of cost where a further top up is unlikely, but they might come into play again.

Incidentally, Kingfisher's rise yesterday moved LLOY into top place of eligible shares. Things are always fluid.

TJH

[monabri]

The KGF dividend has been held for the past year, after continued rises previously, and the current yield is acceptable at about 4.6%. Worries about the French and other overseas operations have depressed the share price. I have trimmed twice in the past, at 132p in October 2008 and at 139p in March 2009. The IRR is about 4.6%, because of the fall from its level of 430p in 2014 to its current level of about 240p. I first bought at 208p in 2007. It would have been topped up long ago had not other shares been more attractive from a yield point of view.
TJH

I read this to mean you trimmed at a capital loss at 132p and 139p in 08 and 09 having bought at 208p in 07? Was this a change of mind on the outlook for KGF?

(Or did you mean trimming at 312,319p with a transposition of the sell price?)

[tjh290633]

The KGF dividend has been held for the past year, after continued rises previously, and the current yield is acceptable at about 4.6%. Worries about the French and other overseas operations have depressed the share price. I have trimmed twice in the past, at 132p in October 2008 and at 139p in March 2009. The IRR is about 4.6%, because of the fall from its level of 430p in 2014 to its current level of about 240p. I first bought at 208p in 2007. It would have been topped up long ago had not other shares been more attractive from a yield point of view.
TJH

I read this to mean you trimmed at a capital loss at 132p and 139p in 08 and 09 having bought at 208p in 07? Was this a change of mind on the outlook for KGF?

(Or did you mean trimming at 312,319p with a transposition of the sell price?)

No, I wrote what I meant because at that time the market had fallen so far that KGF had become overweight, and did so again, despite being trimmed. There were some good opportunities for topping up other shares at the time. It was part of my strategy to restore my income level, after the considerable fall.

TJH

[moorfield]

I had enough accumulated dividends to top up AV.

Out of interest TJH (I'm sure it's been asked before) - what is enough accumulated dividends? Do you use an absolute (eg. £1000) or relative threshold here? I'm experimenting this year with a threshold of forecast annual income / 4 , the idea being to reduce my topping up onto - roughly - a quarterly basis.

[tjh290633]

I had enough accumulated dividends to top up AV.

Out of interest TJH (I'm sure it's been asked before) - what is enough accumulated dividends? Do you use an absolute (eg. £1000) or relative threshold here? I'm experimenting this year with a threshold of forecast annual income / 4 , the idea being to reduce my topping up onto - roughly - a quarterly basis.

Enough to keep the brokerage down to a suitable level, so that Brokerage and stamp duty together are less than 1%.

Once upon a time, brokerage was a percentage, so you could reinvest anything. Now with fixed fees, small amounts are not worth buying. Usually it is between 15% and 20% of the existing holding value.

If I get a larger windfall, as a result of trimming plus accumulated dividends, then I will do two or more top-ups depending on the amount available, all at about the same level.

TJH

[Breelander]

Out of interest TJH (I'm sure it's been asked before) - what is enough accumulated dividends? Do you use an absolute (eg. £1000) or relative threshold here?...

Enough to keep the brokerage down to a suitable level, so that Brokerage and stamp duty together are less than 1%...

My 'rule-of-thumb' is that a purchase isn't economical unless the dividends expected from the new shares over the next 12 months will be at least double the dealing costs and stamp duty. In other words, if it won't increase my income in the first year it isn't worth buying.

[Gengulphus]

I produced an answer to the question 'How much should cash be allowed to accumulate to before buying?' many years ago on TMF that allows for the fixed purchase costs (*) and the opportunity costs of leaving one's money in not-very-productive cash - it is:

SquareRoot(200CI/R)

where C is the commission (plus other fixed purchase costs, if any) per purchase in pounds, I is the amount in pounds that become available for purchases per year, and R is how much better one expects the equity return rate to be than the cash return rate in percentage points, on a long-term annualised basis. (If you think you have any idea what it is on a short-term basis and are confident enough about your thoughts to want to place your money on them, HYP is not the type of strategy you want!)

It's by no means critical to get any of those figures exactly right (good thing too for R in particular!). Nor is it critical to use the exact result of the formula - anything between about half of it and about twice it will have greater overall costs, but only a fairly small amount greater. Making purchases with amounts much smaller than the formula result will result in paying much more in extra commissions, etc, than you save in opportunity costs on the uninvested cash; only making them with amounts much greater than the formula result will result in losing much more in opportunity costs than you save by paying fewer commissions. Inbetween, there isn't a great imbalance between the extra costs and the costs saved - and in any case, the uncertainties in I and especially R mean that one isn't all that certain just what the formula result should really be.

So basically, I use the formula only as a sanity check that my chosen trigger level for a purchase isn't too badly wrong. The main way I pick my purchase amounts is just what's convenient for me - the formula simply tells me when it's fairly clear that I'm letting convenience cost me too much.

One final comment is that the square root is basically the most important aspect of the formula - it tells one for instance that if one shifts from an account with a £10 purchase commission to one with a £2 purchase commission, one's trigger level for a purchase shouldn't ideally come down to 1/5th = 20% of what it was, but to SquareRoot(1/5th) = about 45% of what it was.

(*) Note that percentage purchase costs like stamp duty will simply cost one that percentage of the total one invests, no matter how one splits that total between purchases, so they simply don't affect which is the best way to do that split at all (unless one cares about rounding effects that are generally under a penny per purchase).

Gengulphus