Trimmed back Compass CPG

[tjh290633]

Following a sustained rise, and aided by the number of share going XD today, Compass (CPG) burst through my weight limit of 1.5 times the median holding value last night. Consequently I sold 25% of my holding at 2,032p this morning.

It is debateable with a yield below 2% whether I should have sold the lot, and bought a new replacement share, but let's see what it's like after the final is announced.

The proceeds went into topping up BT.A at 174p XD, IMB at 2071p and South32 at 156p, between 16% and 20% increase in their holdings.

As a result the top-up table now looks like this:

Top-up          Income                     Cost                
Rank     EPIC   Rank     EPIC   % Income   Rank   Epic   % Cost
     1   TW.*        1   TW.       6.00%      1   MARS    4.83%
     2   WMH         2   BT.A      4.77%      2   BT.A    4.65%
     3   LLOY*       3   IMB       4.76%      3   MKS     4.46%
     4   SSE*        4   SSE       4.43%      4   LLOY    4.38%
     5   IMB*        5   MARS      4.31%      5   WMH     4.19%
     6   BLND        6   AV.       4.05%      6   GSK     4.13%
     7   LGEN        7   RIO       3.92%      7   AV.     4.09%
     8   MKS*        8   RDSB      3.91%      8   SSE     4.08%
     9   KGF         9   BATS      3.70%      9   PSON    3.77%
    10   AV.        10   BP.       3.57%     10   RDSB    3.76%
    11   BT.A*      11   ADM       3.47%     11   S32     3.48%
    12   SMDS       12   LGEN      3.43%     12   BLND    3.44%

This now makes both BT.A and IMB disqualified because of share of income, and of cost in the case of BT.A. However, William Hill who report interims tomorrow, has advanced to the first eligible position, previously ineligible through share of cost. Those with shares of either income or cost which, topping up by 20% would take them over the 5% limit, are disqualified under my own rules. They are indicated with a asterisk in the top-up ranking.

My portfolio now looks like this:

Value                           
Rank    EPIC   Weight   % Median
    1   DGE     3.95%     137.9%
    2   GSK     3.94%     137.5%
    3   SGRO    3.90%     136.3%
    4   AZN     3.58%     124.9%
    5   RDSB    3.43%     119.8%
    6   MARS    3.41%     119.3%
    7   ULVR    3.31%     115.7%
    8   ADM     3.20%     112.0%
    9   VOD     3.17%     110.6%
   10   CPG     3.14%     109.7%
   11   BP.     3.14%     109.7%
   12   UU.     3.11%     108.6%
   13   BATS    3.07%     107.3%
   14   BT.A    3.03%     105.7%
   15   RIO     2.99%     104.4%
   16   AV.     2.87%     100.3%
   17   NG.     2.86%     100.0%
   18   IMB     2.86%     100.0%
   19   S32     2.77%      96.9%
   20   SSE     2.76%      96.5%
   21   PSON    2.74%      95.7%
   22   LGEN    2.73%      95.4%
   23   TATE    2.73%      95.4%
   24   BHP     2.72%      95.1%
   25   TW.     2.69%      93.8%
   26   BA.     2.57%      89.7%
   27   BLND    2.46%      85.9%
   28   WMH     2.29%      80.0%
   29   RB.     2.26%      79.0%
   30   MKS     2.25%      78.7%
   31   LLOY    2.22%      77.6%
   32   IMI     2.21%      77.3%
   33   SMDS    2.10%      73.5%
   34   KGF     1.90%      66.4%
   35   TSCO    1.62%      56.6%

As will be apparent, the topped up shares are now close to the median value, and CPG has fallen to about 10% above the median. 9 of my holdings have gone XD today.

TJH

[Arborbridge]

Thanks for the update Terry,

We have much discussion on here about good and bad points of shares, fears of the future, the culture, or the yield being dangerously high like IMB or BT - the fog of war!
I appreciate the way TJH goes for kill, aided by the numbers, and just sticks to his method. Such certainty is admirable.


Arb.

[funduffer]

I agree with Arb, admirable how tjh has a method and sticks to it. The results speak from themselves.

I would be OK with tjh's top-up's, except I would have probably not gone with BT.A, with a frozen dividend and a forecast reduction over the next couple of years.

tjh

[TahiPanasDua]

I rarely trim anything and I'm too lazy to have the regular discipline of target maximums like TJH. I do review the size of my holdings from time to time and employ a little understood and undervalued method..."just eyeball it". So far it has worked OK but who knows?

However, it was interesting for me to actually work out my average and top holdings today. Surprise, surprise, the top holdings are about 1.8 times the average. Not too bad and they are ULVER and DGE so won't be sold. They are "bankers". Confirmation bias allowed me to totally discount a single outlier being HSBC, an actual banker, which is held in my Hong Kong account and is an almost embarrassing 2.4 times. But I will never trim it.......another story.

My last trim was Greggs which has done so well but now looks a tad expensive so I reduced it to that top 1.8 value. I bought 2 ITs (HFEL and MYI) with the booty.

As stated elsewhere, I now never buy HYP shares preferring ITs and ETFs but I don't sell the HYP.

TP2.

[Bouleversee]

I agree with Arb, admirable how tjh has a method and sticks to it. The results speak from themselves.

I would be OK with tjh's top-up's, except I would have probably not gone with BT.A, with a frozen dividend and a forecast reduction over the next couple of years.

I certainly admire Terry's courage but I hold both and whereas Compass has done very well for me, BT.A has been a complete disaster over the same period and nothing would persuade me to switch from former to latter which looks to me like a candidate for one of LUNI's danger zones, but then I am a coward and nothing like as knowledgeable as TJH. Terry, please explain why you think BT is a good buy at this moment, with all the problems and expense of 5G and fibre provision, etc. Was the problem with the pension fund sorted and is there not a serious risk that the dividend might have to be reduced to a level which would make it no longer attractive (leaving out any effect on capital value which I know is of no interest in this place)?

[tjh290633]

Terry, please explain why you think BT is a good buy at this moment, with all the problems and expense of 5G and fibre provision, etc. Was the problem with the pension fund sorted and is there not a serious risk that the dividend might have to be reduced to a level which would make it no longer attractive (leaving out any effect on capital value which I know is of no interest in this place)?

Lorna, I bought it because my ranking system said it should be bought. I have done the same with Vodafone, buying in July and October 2018 and again in June after the dividend had been cut, in both cases because they were top of the midden for topping up.

As you know, the market is perverse, and were the dividend to be cut the price may well rise. Meanwhile I can enjoy the yield of almost 9% while it lasts. I might remind you that the VOD yield is at 5.2% after the cut in the dividend. One might expect a similar effect with BT.A.

I am not bothered about the pension fund. Shortfalls at this time are down to low interest rates. A rise to sensible levels would eliminate the shortfall.

TJH

[Bouleversee]

I expect you will be proved right in due course. My problem is that I can't help holding my nose (and my trigger finger to buy) when I get a whiff of a midden, which is why I am sitting on a lot of cash. I feel the urge to buy when everything is smelling of roses bursting into bloom. I know they can fade quickly but they usually bloom again next year whereas it takes a long time to struggle out of the midden and some poor things sink further and irretrievably into it. Only time will tell which will do what. At least you will have had more dividends in the meantime if you are fully invested.

[tjh290633]

I expect you will be proved right in due course. My problem is that I can't help holding my nose (and my trigger finger to buy) when I get a whiff of a midden, which is why I am sitting on a lot of cash. I feel the urge to buy when everything is smelling of roses bursting into bloom. I know they can fade quickly but they usually bloom again next year whereas it takes a long time to struggle out of the midden and some poor things sink further and irretrievably into it. Only time will tell which will do what. At least you will have had more dividends in the meantime if you are fully invested.

Lorna, don't forget the exhortation to buy low and sell high. I must admit that I do go bottom fishing to some extent.

TJH

[stevie1912]

Terry, your method seems a great way to grow income over time, maintain diversification, and the total returns over the last 30 years are really impressive.

Can I please ask whether you use HYP for any income provision? Even though your top-ups focus on growing income, whenever you trim or receive dividends you appear to top-up (as you have done here) rather than withdraw for income. So are you still in the accumulation phase? Or are you meeting your income needs from non-HYP assets? I hope you don't mind me asking this.

Some insight would be great as I am currently considering how best to take the income I need in the decumulation phase to start in a couple of years or so. I had intended to use the natural income from a HYP portfolio, but that would mean missing out on the top-up method that seems to have been a significant factor in your total returns. Thanks.

[Alaric]

I had intended to use the natural income from a HYP portfolio, but that would mean missing out on the top-up method that seems to have been a significant factor in your total returns.

The problem you would like to have is where the share price grows faster than the dividends. Dividend yield being quoted as Dividends divided by Share Price, the yield reduces when this happens. This gives an opportunity to sell some of the price growth and reinvest so as to increase income. As to whether to do this or not, outside of taking a view on relative share merits, an aspect to consider is whether either by income or market price, a share is "too large" a proportion of the overall portfolio.

Compass is a share that has done well for its holders. Five year total return 17.85%, ten year 21.45% but some of that in the form of share price growth, not dividends. That said the dividend in 2008 was 12p and in 2018 37.7p . The ten year share price is 359 to 2040, so the price has moved faster than the dividends.

[tjh290633]

Terry, your method seems a great way to grow income over time, maintain diversification, and the total returns over the last 30 years are really impressive.

Can I please ask whether you use HYP for any income provision? Even though your top-ups focus on growing income, whenever you trim or receive dividends you appear to top-up (as you have done here) rather than withdraw for income. So are you still in the accumulation phase? Or are you meeting your income needs from non-HYP assets? I hope you don't mind me asking this.

Some insight would be great as I am currently considering how best to take the income I need in the decumulation phase to start in a couple of years or so. I had intended to use the natural income from a HYP portfolio, but that would mean missing out on the top-up method that seems to have been a significant factor in your total returns. Thanks.

Stevie, the simple answer is that I have enough income from other sources so that I only withdraw accumulated dividends if I have a big exceptional expense coming up. Last year we had a long cruise to celebrate our Golden Wedding. In fact the cash came from the dumping of Indivior plus accumulated dividends.

One objective in building up the flow of income is the possible need to fund care in the future. Others are taking income regularly from their portfolios, and may be more helpful. In my case, I know when the major expense is expected, like 3 months before the cruise, and I know my anticipated flow of dividends, so I can avoid topping up until I have the cash required, which I can then withdraw.

The question you need to address is how you achieve a regular income and also have a buffer against any shortfall. One idea is to have a savings account into which you pay all dividends, and which also holds the buffer fund. The buffer probably needs to be at least a year's desired income, to cover for a major market slump. Then you can take your regular income out of that savings account, untroubled by monthly variations. You could build the buffer by drawing the desired income during the year before retirement. That is probably better that not spending all the dividends once you retire.

TJH

[Bouleversee]

I had intended to use the natural income from a HYP portfolio, but that would mean missing out on the top-up method that seems to have been a significant factor in your total returns.

The problem you would like to have is where the share price grows faster than the dividends. Dividend yield being quoted as Dividends divided by Share Price, the yield reduces when this happens. This gives an opportunity to sell some of the price growth and reinvest so as to increase income. As to whether to do this or not, outside of taking a view on relative share merits, an aspect to consider is whether either by income or market price, a share is "too large" a proportion of the overall portfolio.

Compass is a share that has done well for its holders. Five year total return 17.85%, ten year 21.45% but some of that in the form of share price growth, not dividends. That said the dividend in 2008 was 12p and in 2018 37.7p . The ten year share price is 359 to 2040, so the price has moved faster than the dividends.

Did you include the special dividend(s); there was at least one large one during that period. How is total return calculated over a 10 year period? I should have thought it was more than that. Presumably that is an annualised figure allowing for compounding. Is there a quick way of doing that?

[Alaric]

Did you include the special dividend(s); there was at least one large one during that period. How is total return calculated over a 10 year period? I should have thought it was more than that. Presumably that is an annualised figure allowing for compounding. Is there a quick way of doing that?

I just look it up on the tools.morningstar site, Google for morningstar <company name>. I would expect that if you presented the data exactly the same as morningstar, the Excel XIRR function would reproduce their result.

Special dividends presumably are included. It's the annualised figure.

[tjh290633]

Did you include the special dividend(s); there was at least one large one during that period. How is total return calculated over a 10 year period? I should have thought it was more than that. Presumably that is an annualised figure allowing for compounding. Is there a quick way of doing that?

There were two, 56p in 2014 and 61p in 2017, with share consolidations of 5.9% and 3.9% respectively.

For the last 10 years, since 3rd August 2009, the XIRR is 23.74%, but I haven't allowed for the share consolidations, so it will be less. 22.61% after making the adjustment. That is without reinvesting the dividends, just based on a single holding taking the dividends out.

TJH