The Lemon Fool

moorfield wrote:As you may know Arb I already use twice x City of London IT (CTY) yield (which I find is a very good proxy for FTSE100) ...

Why use a proxy - even a very good one - when the real thing is readily available???

Gengulphus

Gengulphus wrote:Why use a proxy - even a very good one - when the real thing is readily available???

Yield is dividend divided by price. Is there anything that just plots dividend? I suppose you would have to use the dividends on a FTSE 100 ETF or OIECs tracker as a proxy, bearing in mind that these are net of charges.

Lootman wrote:In the late 1980s you could have bought a basket of gilts for an average yield of 12% with minimal risk to capital. Such a portfolio would have done spectacularly well. So a HY approach can work. But after it working for 35 years and political turmoil swirling around, I'd be less sure now. My own personal red flag is the number of sectors I find to be uninvestible right now - banks, support services, utilities, retail, phones . .

Could you? I was looking after my mother-in-law's investments at the time, and shares with high coupons were usually at a premium. You could buy some gilts with lower yields which were at a discount, 8.75% T97 being a case in point. In 1980 I see that E12.25% 92 was at £86.25 and T13.75% 1993 was at £94.875 when bought, so yes, it was possible for a short period to buy below par with a guaranteed capital profit and a high income, buy later in the 1980s they were at a premium.

TJH

Lootman wrote:A quick check indicates that CTY is currently yielding 4.5% The FTSE-100 itself yields about 4%.

That means that your danger zone starts at 9%. If that is what works for you then fine, but it seems awfully high to me. If anyone could get a 9% income with little risk then he should take it. Even if you bought a basket of shares yielding 8% I would not be confident of positive cashflows over time, and certainly not of doing better than a simple index fund yielding 4%.

Gengulphus wrote:Why use a proxy - even a very good one - when the real thing is readily available???

Gengulphus posted the link I use, which shows 4.45% today. I use CTY as a proxy because that is what I would buy if I couldn’t find a suitable higher yielding candidate from FTSE100. Twice its yield may seem high but I wanted to start somewhere with the notion of a yield ceiling for (non) selection, and not averse to reducing the multiple in future. What I didn’t mention is that twice its yield is also my threshold for buying preference shares, in other words I’m happy to take a little risk of buying higher yield income provided that I’m ahead of ordinary shareholders in the queue (RE.B currently priced sub-par is one example I hold) – but prefs are O/T here of course.

FWIW

Vodafone's yield on Monday, immediately before its dividend cut announced, was 10.1% (dividend 13.3192p / close 131.78p), or 2.2x that of CTY (City of London IT) yield.

Compare to my previous cutter - Carillion - whose yield immediately before its dividend cut was 9.6% (dividend 18.45p / close 192.3p) - unfortunately I omitted to record what the multiple of CTY was at the time. (viewtopic.php?f=15&t=8302&p=103748&hilit=immediately#p103748)

Food for thought.

moorfield wrote:Food for thought.

The canary for Vodafone is its Corporate Bonds. These still stand above par despite having a relatively modest coupon. Bond market makers think Vodafone can service its debt.

Alaric wrote: Bond market makers think Vodafone can service its debt.

Perhaps why the yield was pushed so high - the bond market doesn't really care about us ordinary shareholders does it.