The Lemon Fool

I have held BKG shares in my HYP since December 2014. At the time, the shares were around £25 each, and the dividend paid for the 2014/15 year was 180p/share. For 2015/16, the dividend increased to 200p/share, with the share price moving up to around £30.

For the 2016/17 year, BKG stopped talking about 'Dividends' and talked about 'Shareholder Returns' - the total amounts paid out by the company were in line with the previous year's 200p/share, but this was split between share buy-backs and dividends - as the amount spent on buy-backs increased, the amount spent on dividends was reduced. In that first year, the company spent just under £90m on buy-backs (at prices between £28 - £36 per share) , and the dividend fell to 137p.

In 2017/18, a further £158m was spent on buybacks (price range £35 - £38 per share), and as a result the dividend was reduced to 90p/share.

For 2018/19, the company has so far spent £207m on buybacks, at between £33 - £38/share. The interim dividend was slashed to 7.12p/share, and if no further share purchases are made between now and the announcement of the final dividend on 15th August, the final dividend will be around 50p/share, giving a dividend for the year of 57p. There is of course no guarantee that we have seen the end of this year's buybacks - after all, there are still 15 days to go......

So, in five years, the yield will have gone from over 7% to 1.5%, taking BKG well out of my HYP comfort zone. I think it is time to wave goodbye.

Nope - yield of 1%.
Was Berkeley a HYP share?
For my portfolio I'd like to see a record of increasing dividends, usually a 5 year history. Berkeley probably had that back in 2004 but at the time yielded about 2% and certainly wasn't on my radar. In 2014 it had around 2 years of growth and was yielding about 8%. I have held BKG, bought summer 2016 something to do with Ukexit if I recall, I sold out about 6 months later but it was never HYPable as per my guidelines around that time.

Davidsb wrote:
So, in five years, the yield will have gone from over 7% to 1.5%, taking BKG well out of my HYP comfort zone. I think it is time to wave goodbye.

When you sell, you can console yourself that the total return over 5 years is both positive and exceeding the FTSE 100.

BKG has at times in the past had a yield above the FTSE100 average, at times touching 9%.

Source: 5 year view available here.
https://www.dividenddata.co.uk/dividend ... ctor=goods

Of course, mathematically share buybacks are just as valuable as dividends provided the price paid is fair. And from a taxation point of view a buyback may be considerably more advantageous as it doesn’t create a taxable income event, allowing one freedom to use CGT allowances at a sale timing of your choice rather than income allowances at a time that suits the company.

I doubt the yield seekers here will see the mathematical sense, but thats their lookout.

Now we see Fools makings plans made to dispose of shares in a business performing pretty well, run by the founders, with a reputation as one of the top management teams in property earned over 40 years, purely because of the way the total return is split when given to them?

Seems a bit odd to me, but that’s what makes a market.

In a word, no! With a yield of around 1% it is nowhere near the "High" Yield required by the HYP Strategy. Can one not get more on Gilts?

Here is some personal history:

I first bought Berkeley Group Holdings (BKG) on 11 July 2016 at a price of 2,551.00p, when the historical yield was 7.84%, based on the previous annual dividend of 200p. I was of course attracted by the high yield, but also by the dividend policy which was to return all excess profits to Shareholders by way of dividends.

Disappointingly, from an HYP point of view, the dividend promise was soon abandoned in favour of Share Buybacks, no doubt in order to take advantage of the high yield/low price. The next interim dividend was reduced by 15% to 85.24p and the final was further reduced to 51.76p. To be fair, the share price did increase to a then high of 4,197.00p on 01 Dec 2017.

For various personal reasons, I needed to raise some funds from my HYP in Jan 2018 and I determined to sell my BKG holding at a price of 4,198.53p, when the historical yield was 3.26%. The choice of sale was made entirely because of the change of dividend policy, which certainly looked to me like continuing with a further downward trend to the Dividend amount.

Since that sale, apart from a brief rally in March/April 2018, the price has slipped downwards, reaching 3,226.0000 on 1 Nov 2018, before rallying to the present price of 3,821.00p. At the same time the annual dividend has been reduced to 90.05p for the Year Ending 30 Apr 2018 (2017: 137.00p, 2016: 200.00p, 2015: 180.00p). Of course, this a very short period of time, especially for an eternity holding strategy such as HYP, but I have to ask: "Where has the shareholder return gone?"

One final point I should mention is that, if I had not required the funds and held on rather than sold as I did, then my annual return on the holding would still be in double figures, 18.64% in fact. Obviously I completely lucked out in selling when I did!


Ian

JoyofBrex8889 wrote:BKG has at times in the past had a yield above the FTSE100 average, at times touching 9%.

Source: 5 year view available here.
https://www.dividenddata.co.uk/dividend ... ctor=goods

Of course, mathematically share buybacks are just as valuable as dividends provided the price paid is fair. And from a taxation point of view a buyback may be considerably more advantageous as it doesn’t create a taxable income event, allowing one freedom to use CGT allowances at a sale timing of your choice rather than income allowances at a time that suits the company.

I doubt the yield seekers here will see the mathematical sense, but thats their lookout.

I am equally certain that HYPers understand entirely your very simple mathematics. The problem for the HYP Strategy is of course the need for an increasing Income! Did you not understand that?


Ian

Not even close. The "rot" started about 2.5 years ago ( search Berk* in HYP Practical using The Lemon Fool search tool at the top RHS of the page).

Graphically, the decline in yield is shown, here;

https://www.dividenddata.co.uk/dividend ... y?epic=BKG

Have investors been compensated (for example by a share price increase ) in this period...no!

Dividends paid (declining)

https://www.dividenddata.co.uk/dividend ... y?epic=BKG

monabri wrote:Not even close. The "rot" started about 2.5 years ago...

Berkeley and Persimmon both embarked on an almost identical 'return of capital' plan, with planned payments set out from 2012 up to 2021.

Compare and contrast - while PSN have consistently increased their capital return plan over and above the original planned payments, BKG have cut back their original plan in favour of share buybacks.

I know which I'd prefer to (and do) hold. Payments received from my PSN have now exceed what I paid for them in 2007, plus the share price has more than doubled.

Following the splitting of threads, which effectively removed the actual return record of Berkeley from the discussion :The question is, what new junk equity dross are you going to replace Berkeley with?

I mean, you have to replace it with something that has performed better, right? But can you find something that has a track record better than an 18% 10year total return AND a high yield?

JoyofBrex8889 wrote:Following the splitting of threads, which effectively removed the actual return record of Berkeley from the discussion...

Quite rightly as TR is not part of the practical HYP process, for which this board has been set up. If you want to discuss that please do it elsewhere. Thanks C.

JoyofBrex8889 wrote:The question is, what new junk equity dross are you going to replace Berkeley with?

I mean, you have to replace it with something that has performed better, right?

Not at all! Seriously why would you think that? Do you only invest where returns have already been generated? How very odd!

JoyofBrex8889 wrote:But can you find something that has a track record better than an 18% 10year total return AND a high yield?

What complete nonsense! If funds are made available for a new purchase within an HYP, one must simply attempt to find the highest yield, where one considers the dividend sustainable, and where one's diversification criteria, whatever they happen to be, are met! Historical performance has absolutely nothing to do with it.


Ian

JoyofBrex8889 wrote:Of course, mathematically share buybacks are just as valuable as dividends provided the price paid is fair. And from a taxation point of view a buyback may be considerably more advantageous as it doesn’t create a taxable income event, allowing one freedom to use CGT allowances at a sale timing of your choice rather than income allowances at a time that suits the company.

I doubt the yield seekers here will see the mathematical sense, but thats their lookout.

Of course, mathematically dividends are just as valuable as share buybacks provided the price paid is fair - that's just as valid a statement as yours, since they mean the same thing. Together they imply that there is no mathematical advantage either way - so anyone who sees "mathematical sense" in either choice is suffering from a delusion. Provided the price paid is fair (*), of course - if it's higher than fair, dividends have the advantage; if lower than fair, buybacks have the advantage. Of course, buybacks will have the effect of driving the price up if done at a rate higher than the market can very easily absorb, and I've certainly seen indications that some buyback programmes have done that - in the form of the share price falling back significantly after the programme comes to an end. In particular, I strongly dislike companies announcing the size of their buyback programme - it is IMHO basically an invitation to the market to push the price up above fair levels, in the knowledge that the company will have to pay it or admit to failing to do what they said they'd do. It's better for companies that don't put a size on their buyback programme, but instead just say they'll buy back unless the price is too high or they've run out of the cash available (and IIRC, Berkeley are such a company) - but there is still the problem that the directors may well have a rose-tinted picture of their company's worth and so be willing to pay a higher-than-fair price...

The tax considerations are non-existent for many HYPers - basically, anyone who has got their entire HYP in tax shelters should also see no "taxation sense" in either choice. For them, it just boils down to what's better on "practicalities sense", and for those who actually want to draw an income, dividends have an advantage on that front: taking the income from them doesn't involve the practicality of having to decide what to sell and when. Quite a lot of share investors find selling decisions one of the hardest types of investment decision - so that advantage will be fairly significant for quite a lot of HYPers.

Of course, some HYPers cannot or don't want to tax-shelter their entire HYP (I'm one of them), and for them, taxation considerations become important. The practicality considerations still apply to them, and indeed there are a few more - having to report CGT in one's tax return involves more paperwork than having to report one's dividend income. Depending on the amounts of money involved and how onerous the HYPer finds the practicalities, the practicalities might still win... And even when they don't, unlike the mathematics you refer to, the tax system is complex, and there are circumstances / purposes for which it's better taxwise to have extra income than to have capital gains. Examples include not having enough income to fill one's personal allowance (unlike one's basic-rate band, personal allowance not used against income is completely wasted and cannot be used against capital gains), wanting to make use of the "normal gifts out of income" exemption from Inheritance Tax, and wanting to make use of the Income Tax relief available from EIS and SEIS investments (capital gains don't substitute for income in either of the last two). The first of them is very unusual, of course, and the other two involve fairly sophisticated use of the tax system - but investors who are carefully manufacturing their 'income' from capital gains while keeping an eye on the CGT are making fairly sophisticated use of the tax system anyway!

So basically, while I've little doubt that your arguments hold water for some HYPers, I don't think they're any sort of basis for general remarks about "yield seekers".

(*) Not that it's at all easy to know whether a share price is fair, or even exactly what being fair means.

Gengulphus

Well, I sold out completely on 26th July.

Apart from having put up with the sub-par dividend yield for longer than many others would have, I decided that proceeds approaching £40/share would enable me to invest in a proper (c5% yield) share and ratchet up my annual income significantly.

So, the search is now on.....