Vodafone Results, including dividend cut.

[blobby]

This is disappointing.

I see telecoms companies as essential service providers and no matter what, we will be using them in the future. They would seem to be protected from nationalisation or from becoming outdated and there is a large barrier to entry. They also seem ethically sound and consequently, I’ve ended up with 3 Telco’s: Vodaphone, BT and TalkTalk making a total of about 10% of my portfolio. None of these have been great investments financially but I’m still happy to hold and hope for a better future.

[Arborbridge]

You read it here first! As Ian said I sold in January at 1.4781 and bought BAT at £25 and HFEL at 3.42 with the proceeds. That bit of tinkering has so far worked out OK. Gengulphus reminded me that in say 10 years time I will know if it was a good idea. So far though, (and I may not have 10 years anyway) it has worked out fine.

This cut will not come as a surprise to anyone though, as the market has been telling of this for a long while.

To monabri, brokers know nothing and it is best to ignore their views. That is, as MDW would say, mere speculation.

Dod

Hah..I was stating the bloomin' obvious! I'd convinced myself a long time ago regarding brokers views..one merely has to look at their "forecasts" v reality on any range of shares.

There isn't an icon for "cynicism " that I know of, else I'd have used it!

I don't entirely agree with this cynicism, based on my experience. It's true that analysts (as opposed to brokers) cannot predict the unknowns, but they are quite adept at forecasting dividends in normal circumstances.
Of course, they will not be accurate in every case, but overall for my HYP income the forecasts work out within a reasonable range - better than 8% most years, and my income forecast is better than 3% for most shares in my HYP, typically , each year. What I can be sure about, is that the informed guesstimates of these people will be closer than mine!

As for broker recommendations, (rather than dividend forecasts) if that was the comment was intended about - then I do agree. Hold, sell, buy - they should all be ignored because there is too much incentive to hang on to a recommendation, even if it is plainly wrong or dubious.

In short, my view is: forecast divis, give some credence to; but buy or sell reccs. are not really worth looking at (though for some reason, I still do - but then usually dismiss them!)

As I write, I see VOD is up, so "prudence", if that's what it is, counts for something. Or the triumph of hope over adversity, once more.

Arb.

[Arborbridge]

Would be interesting to hear how those who have been topping up / chasing the yield for the last year feel now ...

It was a recommendation as part of a recently selected portfolio. The recommendation was not without critics and those who defended the decision.

Even rebased (another word for cut) the dividend yield is still above the FTSE average.

As far as HYP rules are concerned aren't new selections supposed to exclude dividend cutters?

Quite right. VOD should strictly be excluded from now on, off limits!

Arb.

[Wizard]

...As I write, I see VOD is up, so "prudence", if that's what it is, counts for something. Or the triumph of hope over adversity, once more.

Arb.

Or the consensus view was that the cut would be a bit deeper than it has turned out to be.

[tjh290633]

As I said elsewhere, experience shows that if a company reduces its dividend, the immediate reaction of the share price is to rise, often quite sharply. On the other had, a 10% increase in dividend (as with IMB) leads to a fall in share price.

Never be surprised by what the market does.

TJH

[Arborbridge]

As I said elsewhere, experience shows that if a company reduces its dividend, the immediate reaction of the share price is to rise, often quite sharply. On the other had, a 10% increase in dividend (as with IMB) leads to a fall in share price.

Never be surprised by what the market does.

TJH

Yes. it's a running joke on the Today program. Good results : shares often down.

[Alaric]

Never be surprised by what the market does.

You could take the view that paying a dividend is an expense, similar in some respects to paying interest on a loan. From that perspective a dividend cut reduces expenses, thereby increasing the prospective "value" of the Company whilst an increase does the opposite.

[Itsallaguess]

As I said elsewhere, experience shows that if a company reduces its dividend, the immediate reaction of the share price is to rise, often quite sharply.

Hmmm....I think a wider view might sometimes be warranted too -



Source - https://uk.finance.yahoo.com/quote/VOD.L/chart?p=VOD.L

Cheers,

Itsallaguess

[Arborbridge]

A bit like "sell in May" !

[ElectronicFur]

You read it here first! As Ian said I sold in January at 1.4781 and bought BAT at £25 and HFEL at 3.42 with the proceeds. That bit of tinkering has so far worked out OK. Gengulphus reminded me that in say 10 years time I will know if it was a good idea. So far though, (and I may not have 10 years anyway) it has worked out fine.

And all you would know in 10 years time is that you guessed right this time. But what about all the shares you tinker away fearing a dividend cut, where you end up guessing wrong...

[Julian]

Going forward, is it reasonable to assume that any progressive dividend increase will be applied to the final dividend only - until it becomes bigger than the interim?

It's 9.00 in total. With a new financial year, would they not just reset the relationship between interim and final?

That would be my guess. Leaving the bulk of the payout to the final gives a company more wriggle room if the 2nd half of the financial year doesn't turn out as planned. I wouldn't be at all surprised to see the Feb interim declared at something like 0.03 Euros next year with the final at 0.06 plus whatever dividend progression (if any) VOD feels it can afford. A 1-third/2-thirds ratio is a reasonably common interim/final split and is about what VOD has operated in the past so I see this as the likely future with VOD's problems encouraging them to only apply any progressive increase to the final and not the interim next year. That's how I've just updated my dividend database which is what drives my HYP income forecast.

Today is a landmark day for me. For the first time since I started drawing income from my core HYP in 2009 it is now underwater as in generating less in divi income than I draw out. Oh well, such are the ups and downs of HYP investing but with things like GSK, HSBC etc having their fingers stuck on the dividend-increase pause button for so long the ups seem few and far between at the moment. I suppose that at least I can look forward to a reduced tax bill next year.

For someone with a balanced portfolio of say 20 shares at 5% of income each they've lost 2% of total portfolio income today. I suppose it is fairly conceivable that by this time next year the rest of the portfolio could generate a 2% increase to get back to the pre-VOD-cut level but ideally it should generate more like a 4% increase in a year to get back to an inflation-adjusted pre-VOD-cut level and, with all these frozen dividends kicking around, at least in my portfolio, the demands are higher than 4% on the shares in my portfolio that aren't in divi suspended animation.

I suspect it's going to take at least 2 or 3 years to recover in an inflation-adjusted manner from this one and in that time I'm quite worried that some of the utilities are going to add additional contributions to the malaise. I fear that the early 2020s are going to be a rather tough ride for some HYP portfolios, or at least for mine.

- Julian

[IanTHughes]

Would be interesting to hear how those who have been topping up / chasing the yield for the last year feel now ...

I can only speak for myself when I say that, as an HYPer, starting in February this year I took the calculated risk in making 4 monthly top-ups of Vodafone Group (VOD), now totalling about 3.27% of my portfolio value. Since then my HYP has performed as follows:

Date       |  Acc. Unit  |  Change  |  Div. Unit  |  Change  |  Unit Div. |  Change
08-Feb-19  |    17.4721  |          |    12.4156  |          |    0.7659  |        
14-May-19  |    17.9804  |   2.91%  |    12.6232  |   1.67%  |    0.7789  |   1.70%

Yes, I am happy with that progress

Ignoring for a moment that HYP is a Portfolio Strategy, my top-ups of VOD on their own have enabled me to increase my holding of VOD - a large multinational - by 168% at an average yield of 5.57%. So I for one am quite content. Of course, there was a chance that the yield and income would have been somewhat higher and there has been a small loss in capital. But as I said, it was a calculated risk

As I said, I can only speak for myself with regard to my HYP. If you want the view of someone "chasing yield", you will have to ask someone who is "chasing yield".


Ian

[Dod101]

For someone with a balanced portfolio of say 20 shares at 5% of income each they've lost 2% of total portfolio income today..

Of course of these 20 shares one would need to be Vodafone!

I agree though with your general sentiments that a HYP is getting ever more difficult, and that is why I have said that I have been drawn more to ITs than individual shares. That was illustrated when I sold my Vodafone in January and with half of the proceeds topped up HFEL. Of course for all I know they may hold some Vodafone but at least it will only be a small proportion of their total holdings.

I am at this stage in the year just ahead of last year but that does not mean much because of the timing of dividend payments.

Dod

[IanTHughes]

Oh well, such are the ups and downs of HYP investing but with things like GSK, HSBC etc having their fingers stuck on the dividend-increase pause button for so long the ups seem few and far between at the moment.

I have an HYP with 30 holdings. With regard to the last full year's dividend for each one there have been 4 Decreases, 19 Increases and 7 Holds (including HSBA which went up in GBP terms). I do not think that is so bad, not when one considers the current economic and political conditions. Are you seeing worse figures?


Ian

[StepOne]

Going forward, is it reasonable to assume that any progressive dividend increase will be applied to the final dividend only - until it becomes bigger than the interim?

It's 9.00 in total. With a new financial year, would they not just reset the relationship between interim and final?

Yes, I would imagine next year will something like 3 interim and 6 final for a total of 9 cents.

Reading Alphvaille this morning, it was full of broker comment about 'expected' dividend cut, and even stating the cut was not as bad as some had feared. So what I don't understand is why consensus forecasts yesterday for 2020 and 2021 were showing 12p or 13p dividends. Maybe one or two brokers had a cut in there, but it would seem that most didn't.

StepOne.

[vrdiver]

Anyone waiting for VOD at a £1 before jumping in?

VRD

[Gengulphus]

Am I right in thinking VOD is now no longer a HYP Practical pick - new or top-up - for the next few years at least ?

Not the answer I think you are looking for, but technically it is still a valid share to discuss here as a new purchase given the Guidelines only refer to...

Indeed, and in addition there is no such thing as a "HYP Practical pick" - this board doesn't pick shares, individual users pick them. The board doesn't even restrict the shares users can pick (which would of course be an impossible task) - it just restricts the picks that users can discuss here and tells those who want to discuss other picks to post on other boards... And in relation to this case, the board doesn't place a restriction on discussing picks that have cut their dividends.

Though if anyone does try to discuss Vodafone as a possible HYP purchase, they should not be surprised to find people saying it's unacceptable as a HYP share. That's fine as long as it's stated as an opinion - people who think it's now unacceptable are just as entitled to express their opinions here as people who think it's still acceptable. If it starts to become "you shouldn't be discussing Vodafone here", "you're not a HYPer" or such like, though, my advice is to either ignore it or report it, whichever you prefer.

Gengulphus

[Gengulphus]

You could take the view that paying a dividend is an expense ...

It's an expense for the business, yes - but it's not an expense for the owners of the business (i.e. us shareholders), any more than pulling some cash out of one of my pockets and putting it in another is for me.

Gengulphus

[Julian]

Oh well, such are the ups and downs of HYP investing but with things like GSK, HSBC etc having their fingers stuck on the dividend-increase pause button for so long the ups seem few and far between at the moment.

I have an HYP with 30 holdings. With regard to the last full year's dividend for each one there have been 4 Decreases, 19 Increases and 7 Holds (including HSBA which went up in GBP terms). I do not think that is so bad, not when one considers the current economic and political conditions. Are you seeing worse figures?


Ian

Hi Ian,

I confess that I don't keep good enough records to easily dig up that data. Out of curiosity I was going to try and count how many of my holdings are currently on a divi-freeze so that I know how many shares I have that are likely to be able to contribute to income growth assuming all my frozen ones (GSK, HSBA etc) stay frozen.

My monitoring tools are all strictly current-view and don't capture any history. I do try to copy down some numbers each year-end for some history but I see that I even forgot to do that last year so the most recent snapshot I have recorded for the income for my core HYP is from 31-Dec-2017. Even after the VOD cut I am showing growth in my income since then but it's a very modest 0.96%. I did actually have a forced sell when one of my shares wound up or went private or something, I forget what happened and don't care now (it was JLIF) but I never got round to reinvesting the cash for that so if I add it back in hypothetically invested at my HYP-average yield I would have a 2.13% growth in income over the last 16.5 months so not too terrible really.

I think I let my figures get distorted a bit because one thing I look at to measure the health of my HYP is the surplus at the end of each year in my income collection account, i.e. dividends-in minus payments-out = surplus at end of year. In theory if I keep my expenditure (payments out) constant year-on-year then an increasing surplus means increased divis from the portfolio as a whole and a decreasing surplus means decreased divis. The thing that I now realise has clouded my perception quite a bit is that one of the payments-out is a monthly standing order to a savings account where I accrue my annual tax liability and, with the fairly recent changes to divi taxation, that standing order had to be increased very significantly which wiped out almost all of my surplus and this VOD cut has just wiped out the remaining sliver of surplus and turned it into an annual deficit. Objectively though it's actually the tax changes that did probably 75% of the damage to my surplus, without that I would have shrugged this cut off without any issues.

- Julian