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Centrica 13%

Practical discussions about equity High-Yield Portfolios (HYP) for income
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moorfield
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Centrica 13%

#220778

Postby moorfield » May 10th, 2019, 11:40 pm

Now that CNA's final has just gone ex-div, a cut next year looks inevitable.

But by how much? A hypothetical cut from 12p to 6p still yields 6.5% for the brave buyer, perhaps more after Monday's trading update.

Does anyone have the cojones ....?

mike
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Re: Centrica 13%

#220781

Postby mike » May 10th, 2019, 11:53 pm

moorfield wrote:Now that CNA's final has just gone ex-div, a cut next year looks inevitable.

But by how much? A hypothetical cut from 12p to 6p still yields 6.5% for the brave buyer, perhaps more after Monday's trading update.

Does anyone have the cojones ....?

Si, los cojones de perro estan aqui https://www.lemonfool.co.uk/viewtopic.php?p=210313#p210313

Granted, the yield was a little lower back in March !

Gersemi
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Re: Centrica 13%

#220797

Postby Gersemi » May 11th, 2019, 7:49 am

moorfield wrote:Now that CNA's final has just gone ex-div, a cut next year looks inevitable.

But by how much? A hypothetical cut from 12p to 6p still yields 6.5% for the brave buyer, perhaps more after Monday's trading update.

Does anyone have the cojones ....?


Ah, this question has been posed about many faltering shares in the past here & on TMF. Sadly it's very rare for the dividend to be cut by half, more often it is cancelled completely.

I hold, no intention of topping up!

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Re: Centrica 13%

#220798

Postby idpickering » May 11th, 2019, 8:13 am

Their trading announcement is out next Monday. I dropped them ages ago and have no intention of buying back in.

Ian.

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Re: Centrica 13%

#220872

Postby Gengulphus » May 11th, 2019, 2:38 pm

Gersemi wrote:... Sadly it's very rare for the dividend to be cut by half, more often it is cancelled completely.

What's your source for that, please?

I ask because I'm fairly certain it doesn't match my 15+ years of experience with HYPs, at least if "cut by half" is interpreted reasonably non-pedantically (cuts by exactly 50% are doubtless pretty rare, but cuts by e.g. 40-60% could all be loosely described as "cut by half" IMHO). Only fairly certain, because it is a subjective impression (*), but I don't think the number of total cancellations I've seen is big enough.

(*) I've never gathered the statistics - might do that some day if I'm feeling bored... ;-)

Gengulphus

moorfield
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Re: Centrica 13%

#220894

Postby moorfield » May 11th, 2019, 4:14 pm

Several of "The Wise" I read (one source below) are touting a dividend of 8p (-33%) next year, which offers the brave buyer a "rebased" or "forecast" (take your pick) yield of 8.6%. Going further, a hypothetical cut to 4.2p (-65%) offers 4.5%, coincidentally the same as FTSE100.

https://www.proactiveinvestors.co.uk/co ... 14078.html

Were it not for the looming spectre of John McDonnell, CNA may now be a bargain for the long term income thinker regardless of cut size. Monday's trading statement to come.

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Re: Centrica 13%

#220898

Postby kempiejon » May 11th, 2019, 4:24 pm

moorfield wrote:Several of "The Wise" I read (one source below) are touting a dividend of 8p (-33%) next year, which offers the brave buyer a "rebased" or "forecast" (take your pick) yield of 8.6%. Going further, a hypothetical cut to 4.2p (-65%) offers 4.5%, coincidentally the same as FTSE100.

https://www.proactiveinvestors.co.uk/co ... 14078.html

Were it not for the looming spectre of John McDonnell, CNA may now be a bargain for the long term income thinker regardless of cut size. Monday's trading statement to come.


But for a HYP we look for a sustainable and growing dividend amount - a predicted cut would probably eliminate them as a prospect - if they'd not already cut in 2013 again in 2014 and been static since 2015 so not a pick. It's not a question of cojones to put it in a HYP it breaks the guidelines - well mine at least.

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Re: Centrica 13%

#220900

Postby SlickMongoose » May 11th, 2019, 4:29 pm

You'd have to be mad.

moorfield
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Re: Centrica 13%

#220912

Postby moorfield » May 11th, 2019, 5:02 pm

kempiejon wrote:
But for a HYP we look for a sustainable and growing dividend amount - a predicted cut would probably eliminate them as a prospect - if they'd not already cut in 2013 again in 2014 and been static since 2015 so not a pick. It's not a question of cojones to put it in a HYP it breaks the guidelines - well mine at least.


We also look for a sustainable and growing income from the whole portfolio (well, I do) and therein lies a conundrum. I appreciate "drawers" may not want to touch it, but "builders" reinvesting for retirement 10-20 years hence may want to ask themselves - look in Centrica's rear view mirror first, and be ignorant of the bumps in the road ahead; or don't bother with the mirror?

FWIW I hold but not buying more until the smell of nationalization emanating from the Labour party has subsided.

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Re: Centrica 13%

#220919

Postby kempiejon » May 11th, 2019, 5:15 pm

moorfield wrote:
We also look for a sustainable and growing income from the whole portfolio (well, I do) and therein lies a conundrum. I appreciate "drawers" may not want to touch it, but "builders" reinvesting for retirement 10-20 years hence may want to ask themselves - look in Centrica's rear view mirror first, and be ignorant of the bumps in the road ahead; or don't bother with the mirror?

FWIW I hold but not buying more until the smell of nationalization emanating from the Labour party has subsided.


Nope, I will not buy cutters for my HYP or those predicted or likely to cut, that's one of my safety factors. Pretty sure that's the received wisdom for a HYP and I'm not sure I can square that with your idea at a portfolio level either, buying shares expected to reduce income payout as a way of increasing portfolio payout seems a bit lopsided. But as you say in 10 years time who's to say this wouldn't have been a great opportunity, we can say that of any investment.

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Re: Centrica 13%

#220928

Postby Itsallaguess » May 11th, 2019, 5:58 pm

moorfield wrote:
Several of "The Wise" I read (one source below) are touting a dividend of 8p (-33%) next year, which offers the brave buyer a "rebased" or "forecast" (take your pick) yield of 8.6%.

Going further, a hypothetical cut to 4.2p (-65%) offers 4.5%, coincidentally the same as FTSE100.


That assumes that any potential bad news that might help to justify a potential dividend cut doesn't affect the share price.....

I've fallen foul of the 'even if they halve their dividend, it's still x%....' thinking in the distant past, and I now think it's far too risky a view to assume a static share price.

Of course it's possible that an 'update the market with the situation and why a dividend-rebase is necessary' process might even benefit the price of a given share, but I now see these types of situations as often being far too difficult to call, and so tend to just stay away until the dust settles....

Cheers,

Itsallaguess

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Re: Centrica 13%

#220964

Postby moorfield » May 11th, 2019, 8:28 pm

kempiejon wrote:
Nope, I will not buy cutters for my HYP or those predicted or likely to cut, that's one of my safety factors. Pretty sure that's the received wisdom for a HYP and I'm not sure I can square that with your idea at a portfolio level either, buying shares expected to reduce income payout as a way of increasing portfolio payout seems a bit lopsided. But as you say in 10 years time who's to say this wouldn't have been a great opportunity, we can say that of any investment.


This is where I think differently to the purists. I extrapolate the income I want my whole portfolio to be producing each year out to 2031, that is my principal measure of "safety", and a forward rather than backward looking one to boot. While that remains on target (comfortably) and the whole portfolio yields more than the FTSE100, it creates room to float sinful thoughts like buying more CNA. Or ULVR. :twisted: It doesn't surprise me that pov is Marmite to many here, so you'll be pleased to know that's the end of my brief revisit here!

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Re: Centrica 13%

#221212

Postby daveh » May 13th, 2019, 8:52 am

Itsallaguess wrote:
moorfield wrote:
Several of "The Wise" I read (one source below) are touting a dividend of 8p (-33%) next year, which offers the brave buyer a "rebased" or "forecast" (take your pick) yield of 8.6%.

Going further, a hypothetical cut to 4.2p (-65%) offers 4.5%, coincidentally the same as FTSE100.


That assumes that any potential bad news that might help to justify a potential dividend cut doesn't affect the share price.....

I've fallen foul of the 'even if they halve their dividend, it's still x%....' thinking in the distant past, and I now think it's far too risky a view to assume a static share price.

Of course it's possible that an 'update the market with the situation and why a dividend-rebase is necessary' process might even benefit the price of a given share, but I now see these types of situations as often being far too difficult to call, and so tend to just stay away until the dust settles....

Cheers,

Itsallaguess



I will occassionally buy cutters/ predicted cutters. I bought PFC when it's share price fell below 400. I actually bought them when the price had started rising again and they seemed to have bottomed out. After the fall their dividend was in double figures (afair), but was predicted to be cut (it was) but the predicted cut still placed them on a high yield well above the market and looked sustainable into the future. The price fall was due to the SFO investigation over bribery allegations and looked to be overdone. The finances of the company looked sound, and they were still winning new contracts so it looked to be a good chance to lock in a decent yield that could be maintained into the future, with the possibilty of price appreciations if and when the consequences of the bribery investigation were known.

Its not something I do very often for new shares (once so far), though have topped up sahres I already hold that have a less than perfect dividend record (Lloyds, AV., DC.). The first two have done OK since I topped them up, the jury is still out on the latter.

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Re: Centrica 13%

#221224

Postby Arborbridge » May 13th, 2019, 9:26 am

CNA is now the runt of my litter. No way will I be adding, but the current political situation makes me think that I should serios re-think holding on until the death. Market forces are one thing, but a promise of losing one's shares and being given bonds at some pittance yield: is it worth hanging around to find out?

With CNA,PNN,NG,SSE,UU in my portfolio, I can think of better homes that would cut my risk - but possibly also my income, short term. Pickering a lot over this one. Hold to HYP beliefs or chuck in the towel on utes until the dust settles?

I'm feeling blue today.

Arb.

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Re: Centrica 13%

#221229

Postby Darka » May 13th, 2019, 10:00 am

Personally, I've moving more towards a IT approach (off topic I know) however I shall be keeping my HYP.

What I will be doing however, is getting rid of any shares that I would not be happy holding forever, CNA and UU have already gone - PNN might go too but I will probably keep NG.

regards,
Darka

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Re: Centrica 13%

#221234

Postby idpickering » May 13th, 2019, 10:17 am

Arborbridge wrote:CNA is now the runt of my litter. No way will I be adding, but the current political situation makes me think that I should serios re-think holding on until the death. Market forces are one thing, but a promise of losing one's shares and being given bonds at some pittance yield: is it worth hanging around to find out?

With CNA,PNN,NG,SSE,UU in my portfolio, I can think of better homes that would cut my risk - but possibly also my income, short term. Pickering a lot over this one. Hold to HYP beliefs or chuck in the towel on utes until the dust settles?

I'm feeling blue today.

Arb.


I feel your pain Arb, but save for the ITs you favour, where should on place one's bets? I very nearly dumped Vodafone and ITV ten minutes ago, but held off. I reminded myself that I'd bought them for the income, and the dire capital returns (both down 20% in my HYP) are immaterial. It's hard being a HYPer methinks. I'm feeling down too, with regards to this matter, and the slow death of this board.

Ian.

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Re: Centrica 13%

#221238

Postby Alaric » May 13th, 2019, 10:34 am

idpickering wrote: I reminded myself that I'd bought them for the income, and the dire capital returns (both down 20% in my HYP) are immaterial.


In the case of Vodafone anyway, the majority of shareholders could well decide that they would prefer the Company's cash to be invested in growing the business such as purchasing licences rather than just being returned to shareholders.

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Re: Centrica 13%

#221244

Postby Arborbridge » May 13th, 2019, 10:56 am

Alaric wrote:
idpickering wrote: I reminded myself that I'd bought them for the income, and the dire capital returns (both down 20% in my HYP) are immaterial.


In the case of Vodafone anyway, the majority of shareholders could well decide that they would prefer the Company's cash to be invested in growing the business such as purchasing licences rather than just being returned to shareholders.


That's fair enough - if it leads to a prosperous business with a sustainable and rising dividend. I don't believe it is sensible to ask for more: it's just prudent business sense. I've never wished any company I invest in to over-pay or borrow to put a sticking plaster on the lack of dividend cover to make shareholders feel better.

Arb.

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Re: Centrica 13%

#221552

Postby Gengulphus » May 14th, 2019, 12:17 pm

Itsallaguess wrote:I've fallen foul of the 'even if they halve their dividend, it's still x%....' thinking in the distant past, and I now think it's far too risky a view to assume a static share price.

I'm not clear why you think a share price assumption of any type is involved in such a purchase decision (or indeed any HYP purchase decision at all). A share price fact is involved, of course, namely the current share price at the time that the HYPer buys (or sells), but IMHO part of the point of a strategy being a dividend-based LTBH strategy is that you neither make nor need to make share price assumptions.

I agree though that 'even if they halve their dividend, it will still be a satisfactory income for the capital I'm investing" thinking (*) is risky, and probably a lot more risky than most HYPers will want. The reason for that risk is basically that what you want from a HYP share is a reliable and hopefully growing dividend - so anything that poses a question mark over that increases the risk level. So the very fact that one is contemplating the possibility that the dividend will be halved indicates a higher level of risk than usual for a HYP share - it's much easier to feel confident that a company is not going to cut its dividend than to feel confident that although it might halve its dividend, it won't cut it more than that and won't cut it again. In that context, one thing to bear in mind is that a very common reason for cutting the dividend is that a company's directors have become uncomfortable with its level of debt and want to reduce it: that typically occurs when the debt is many times the company's available cash flow, so that even putting all of that available cash flow into reducing debt is only going to reduce it by a fairly small percentage. The difference between halving the dividend and not cutting it at all, and the equal difference between cancelling it entirely and halving it, will reduce it by even smaller percentages - so once a company is close enough to the point of wanting to halve its dividend, it typically doesn't require a great deal more to get it to the point of wanting to cancel it entirely...

So basically, I think the assumption behind 'even if they halve their dividend, it will still be a satisfactory income for the capital I'm investing" thinking that makes it too risky is the assumption that one can be seriously contemplating the possibility of a company halving its dividend and yet feel confident that it won't do anything worse - nothing to do with any share price assumption.

(*) Reworded to make it clearer that there isn't a share price assumption involved. E.g. if I invest in a share priced at 100p with a 10p dividend, so a 10% yield, what the thinking means is that even if they halve the dividend to 5p in the future, I'll find the income satisfactory - not that I'm assuming that the share price will still be 100p: it might be, so that the yield is 5%, but it might also be 125p (4% yield) or 80p (6.25% yield) or many other possibilities. The phrase "it's still 5%" is rather misleading shorthand for "I'll find a 5p dividend on these shares for which I'm now paying 100p satisfactory"...

Gengulphus

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Re: Centrica 13%

#221558

Postby Itsallaguess » May 14th, 2019, 12:44 pm

Gengulphus wrote:
Itsallaguess wrote:
I've fallen foul of the 'even if they halve their dividend, it's still x%....' thinking in the distant past, and I now think it's far too risky a view to assume a static share price.


I'm not clear why you think a share price assumption of any type is involved in such a purchase decision (or indeed any HYP purchase decision at all).

A share price fact is involved, of course, namely the current share price at the time that the HYPer buys (or sells), but IMHO part of the point of a strategy being a dividend-based LTBH strategy is that you neither make nor need to make share price assumptions.


I think it simply lowers my confidence level in a particular share that might find itself in this situation to a level where I find the near-term capital risk simply unacceptable now, in terms of seeing such shares as serious considerations...

I have in the past failed to consider post-dividend-cut share-price action too often, and that has led me to the situation where I now choose to stay well clear of such shares during their 'will they / won't they / and if they do, by how much...' shenanigans, and very much prefer to stay on the sidelines during such periods.

Whilst we might not be able to prove any type of worthwhile correlation between such events that actually do lead to subsequent near-term capital loss, I simply find that there are often less 'troublesome' places for my investment-capital to get parked than these types of 'dividend reorganisation' events....

Most of the time that I see short-term price-hikes on the days around an actual dividend-cut, if and when they arrive, I find myself checking the previous 12-month chart and being generally happy to live with this approach....

Cheers,

Itsallaguess


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