Centrica 13%

[Julian]

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.

... and probably feeling even bluer today after the VOD cut Arb.

I'm in the same boat as you with a tick against every single one of those utilities in my portfolio. Sadly for both of us in my opinion there is no "possibly" about it in terms of short-term income loss(*) unless the funds raised are invested in something also on an extremely high yield and, at least for me, the whole point of any project "dump utilities" would be to switch to stuff I felt had a more sustainable income stream and a utility-like yield (definitely at the CNA level) would be a red flag for me on any potential new investment.

I've been running my HYP on very Doris lines, I can't remember the last time I traded in my core portfolio at all and I don't really monitor stuff much either apart from recording dividend announcements. I confess that I hadn't even clicked into this thread until just now because I saw the "Centrica 13%" title and thought "I'm not interested in prefs". I had no idea it is actually the CNA ordinary shares that have got to that yield. Yikes!

I think I need to get my head out of the sand and run some what-if scenarios for a project "dump utilities" or at least some of them if not all, quantify just what the impact would be on my income, and see how I feel the balance of loss of income vs feeling on a more stable footing plays out for me. Off to my spreadsheets ... although not for too long right now, it would be a shame to miss the sunshine today. Maybe I'll just spend half an hour now pulling together my utility-specific income and current values to see the scale of my "problem" and then have a nice long walk in the park to mull things over.

- Julian

(*) Assuming one is aiming to get out while the yields are roughly at current levels i.e. before any divi cuts are announced.

[Arborbridge]

I think I need to get my head out of the sand and run some what-if scenarios for a project "dump utilities" or at least some of them if not all, quantify just what the impact would be on my income, and see how I feel the balance of loss of income vs feeling on a more stable footing plays out for me. Off to my spreadsheets ... although not for too long right now, it would be a shame to miss the sunshine today. Maybe I'll just spend half an hour now pulling together my utility-specific income and current values to see the scale of my "problem" and then have a nice long walk in the park to mull things over.

- Julian

(*) Assuming one is aiming to get out while the yields are roughly at current levels i.e. before any divi cuts are announced.

A quick back of the envelope on "dump some utes"... Take a partial dump: UU, CNA, SSE. That would raise about "two units" and reduce my exposure by roughly half to around 5%. But to replace the income, I'd need something like a 7.5% yield. However, sacrificing some income for perceived security I could achieve, say 5-5.5%. The resulting shortfall in income would not be a disaster, but naturally the growth of income from hereon in would be a known unknown!

One of those: "you pays yer money and takes yer pick" type situations.

Whatever I do, it doesn't look life threatening nor particularly a no brainer.

But thinking about Itsallaguess's approach: would it make me feel happier? Well, probably - until the next crisis with one or other share.

Arb.

[tjh290633]

A consideration, which has been ignored so far, is whether by selling a share, which has cut its dividend, one can improve one's income flow by reinvesting elsewhere for a higher yield.

Often when companies rebased their dividend for whatever reason, the subsequent dividends increase more rapidly than the alternative. It is often more beneficial to stay invested and enjoy the recovery, rather than to switch horses.

With VOD still yielding over 5% it may be such a case. Not a case for being a choice for a new portfolio, but a case for holding on and waiting for recovery.

TJH

[Julian]

A consideration, which has been ignored so far, is whether by selling a share, which has cut its dividend, one can improve one's income flow by reinvesting elsewhere for a higher yield.

Often when companies rebased their dividend for whatever reason, the subsequent dividends increase more rapidly than the alternative. It is often more beneficial to stay invested and enjoy the recovery, rather than to switch horses.

With VOD still yielding over 5% it may be such a case. Not a case for being a choice for a new portfolio, but a case for holding on and waiting for recovery.

TJH

I agree and I certainly intend to stay in VOD now that the rebasing(*) of the divi has happened for the reasons you mention.

Extrapolating your point though, which you maybe had in mind when typing the above but didn't say explicitly, how does that then roll back to decisions Arb and I are pondering about whether to sell out of CNA prior to a possible cut?

Arb just put up some numbers about yields needed but let's look at just CNA currently on a 12.5% yield when I looked about an hour ago. We could get out now and jump to something yielding say 5% and greater perceived security but the other option is to knowingly stay onboard and ride that barrel over the waterfall. If CNA cuts it's divi to 40% of what it is now then that is still a 5% yield on current share price and, as you say, it's quite possible that after the rebasing it might be a good grower.

There's a rationale for both. Selling before a cut could be an expensive mistake if the cut never happens or is far more modest than expected. Staying on board for the cut could be an expensive mistake if the cut is more severe than expected, perhaps even a complete suspension of divis for a number of years. And then there's the peace of mind factor that, at least for me, comes with getting out before a possible cut. I'm still leaning towards getting out of particularly CNA and possibly SSE fairly soon. If the cut did happen while I was dithering though and it was only bad enough to put the share on a 5% or even 4% yield I would change my mind and, as I am with VOD, stick with even CNA.

- Julian

(*) Google spellcheck offered "debasing of the divi" as a correction for my "rebasing of the divi". Rather appropriate I thought.

[tjh290633]

Regarding CNA, it is a share that I held for few days after it demerged from BG. then sold because initially it was not paying dividends. I have never been impressed by their service, especially their servicing contracts. I moved away from them for my gas supply because they were uncompetitive. I see that they are losing customer accounts at a fearful rate.

So my comments are that I would avoid them like the plague and if I had the misfortune to hold them, then I would look to get rid of them at the earliest opportunity.

What you two do is up to you.

TJH

[Arborbridge]

Arb just put up some numbers about yields needed but let's look at just CNA currently on a 12.5% yield when I looked about an hour ago. We could get out now and jump to something yielding say 5% and greater perceived security but the other option is to knowingly stay onboard and ride that barrel over the waterfall. If CNA cuts it's divi to 40% of what it is now then that is still a 5% yield on current share price and, as you say, it's quite possible that after the rebasing it might be a good grower.

There's a rationale for both. Selling before a cut could be an expensive mistake if the cut never happens or is far more modest than expected. Staying on board for the cut could be an expensive mistake if the cut is more severe than expected, perhaps even a complete suspension of divis for a number of years. And then there's the peace of mind factor that, at least for me, comes with getting out before a possible cut. I'm still leaning towards getting out of particularly CNA and possibly SSE fairly soon. If the cut did happen while I was dithering though and it was only bad enough to put the share on a 5% or even 4% yield I would change my mind and, as I am with VOD, stick with even CNA.

- Julian

(*) Google spellcheck offered "debasing of the divi" as a correction for my "rebasing of the divi". Rather appropriate I thought.

I'm more worried about the political risk of having my shares stolen from me and replaced by a bond paying a pittance. If there were only the business to consider, I would probably leave things as they are. I've also realised that I've shot myself in the foot with the "architecture" of my various accounts. Most HYP shares are in my SIPP with just a few ITs. Most ITs are in my ISA accounts with very few HYP shares. In other words, selling the shares we've considered in the SIPP gives me less freedom of choice than I could have. Not impossible, of course, but I may be hampered - however, that's a detailed discussion for another thread or board.

Arb.