Are some HYP favourites doomed?

[Clitheroekid]

An interesting article regarding the dangers of value traps and how structural changes may affect some HYP favourites - https://www.ii.co.uk/analysis-commentar ... I1NDY1NQS2

[Dod101]

I would not give too much credence to articles like this but I think it is fairly obviously right on the shares mentioned. I do not hold any of them mentioned in the first couple of paragraphs anyway, I am glad to say. So certainly I think some HYP favourites are probably doomed certainly to leave the FTSE100, although not necessarily doomed as in going bust. The shares mentioned have a very poor trading history and an indifferent dividend record.

Dod

[Arborbridge]

I've no idea, but I suspect the answer has to be yes to the "some HYP favourites" - there will always be some share which are doomed! The problem is knowing which ones and to judge by this article we should all become chartists to find out.

Keep a decent spread of shares and plough on is all we can do.


Arb.

[idpickering]

I've no idea, but I suspect the answer has to be yes to the "some HYP favourites" - there will always be some share which are doomed! The problem is knowing which ones and to judge by this article we should all become chartists to find out.

Keep a decent spread of shares and plough on is all we can do.


Arb.

Spot on Arb. You took the words right out of my mouth. I was just about to type a similar post to yours. HYPing in action, although to many actions are frowned upon here.

Ian.

[IanTHughes]

An interesting article regarding the dangers of value traps and how structural changes may affect some HYP favourites - https://www.ii.co.uk/analysis-commentar ... I1NDY1NQS2

A few musings before breakfast:

RETAIL

Marks & Spencer (MKS)
Kingfisher (KGF)
Sainsbury (SBRY)

My HYP only contains SBRY – bought in April 2012 – although MKS is part of a Family Member HYP – bought in April 2018 – both holdings underwater. KGF I passed over, probably due to a then recent dividend drop, although I would need to trawl my archives to know for sure.

I believe that in years gone by all three have been at times HYP stalwarts. KGF did blot its dividend copy book some time before the other two but all have subsequently reduced the dividend, sometimes more than once. So for me, they are all off-limits until such time as I consider the dividend to be stabilised with increases likely.

One of the problems that I believe still needs to be confronted is the capture of the Online Shopping market. It is only one anecdote but for myself my main grocery shopping is now online, as is my purchase of basic clothing requirements and other shopping too. I do not believe that I am alone in this.

BANKS

Royal Bank of Scotland (RBS)
HSBC Group Holdings (HSBA)
Barclays Bank PLC (BARC)
Lloyds Banking Group (LLOY)
Standard and Chartered Bank PLC (STAN)

Again, my HYP only includes one - HSBA bought in 2012 – which is also a part of my Family Member HYP. A large global banking organisation that does not appear to be restricted either geographically or by business area. I personally would have no problem with buying right now, subject of course to the portfolio’s diversification criteria.

STAN has had some regulatory problems a few years ago and of course is not high yield – 2.79%. LLOY does look to be on the road to redemption but of course may be hampered by Brexit. As I understand, it really is a UK-centred bank now. RBS is still a basket case but I must confess to not knowing much about either RBS or BARC, the latter of which is yielding over 5.00% I believe. I mean, why bother when HSBA’s yield is comparable or even superior?

TELECOM

Vodafone Group (VOD)

My HYP contains a major holding of VOD which was first bought in April 2012 and has been topped up a few times since. The most recent top-ups – Jan, Feb, Mar and Apr 2019 – made just before the dividend cut which so far appears to have been a turning point price-wise. Overall my holding is showing a small profit and of course has paid out significant dividends since purchase. The core holding in my Family Member HYP was bought later in April 2014 when the price was somewhat higher. Oh well, best laid plans and all ….

The prospective spin out of the “Towers and Masts” business is apparently the trigger for the recent price surge which will of course give some welcome relief to the debts outstanding and I am persuaded that dividend progress should likely now follow. I will continue to buy VOD, once I am certain that the dividend cut is properly done and dusted, probably at the next interims to be announced in November.

BT Group PLC (BT-A)

BT-A, on the other hand, has been disappointing. I bought a core holding for my Family Member HYP in April 2018 and a small holding for my own HYP at a higher yield only two months later in June 2018. Probably I should have continued to ignore it, we shall see. Currently off-limits as I believe the board has indicated a possible cut in dividend this year or next. However, I do still believe that BT will continue to be a major player in the Telecom market even though the well-known and well-documented pension problems will continue to dog its performance, certainly as long as low interest rates prevail.

UTILITIES

National Grid PLC (NG)

NG has been in my HYP since an initial core purchase in April 2015 and a couple of top-ups later that year. Nothing spectacular although a return of capital in May 2017 has improved the otherwise drop in capital value which is now about level. Dividends have progressed, I think a small amount ahead of inflation, certainly not losing much ground, but no real increases either - steady as she goes. I am not unhappy with its progress but I do tend to ignore it when looking at my HYP successes

The Corbyn threat and price caps aside, I believe NG will continue as is for a while at least. It would be in the mix for a new one-shot HYP and will be topped up in my HYP, assuming it is the highest yield then available.

Centrica PLC (CNA)

CNA was a core holding for my Family Member HYP and has been very disappointing! Reduced dividend followed by held dividend and then another reduced dividend tells the whole story really

Very much on the naughty step

OIL & GAS

Royal Dutch Shell (RDSB)

Despite the held USD dividend value, there is nothing wrong with this one as far as I can see. It has been a part of my HYP since June 2012, the fifth or sixth purchase. Continually topped up as the yield increased through the years 2015 to 2017. At the same time I also bought into BP PLC (BP) and both holdings are now showing a healthy capital gain and more importantly of course, have produced significant dividends since purchase.

MINING

BHP Group PLC (BHP)

Has been in my HYP since April 2015, shortly before the dividend cut! Since then performance of both capital value, including two returns of capital, and dividends has been impressive, well justifying its purchase.

Mining is a cyclical business, relying as it does on a growing global economy creating demand for the basic materials dug out of the ground. However, the occasional famine need not be over concerning in my view, not if one also enjoys the feast! Always buy at the right yield of course.

Rio Tinto PLC (RIO) or Glencore PLC (GLEN) are currently the preference, but only because of the higher yields on offer.

PHARMACEUTICAL

GlaxoSmithKline PLC (GSK)

My HYP has a holding of AstraZeneca PLC (AZN), which qualified ahead of GSK on yield grounds back in February 2012, one of my first purchases! My Family Member HYP, which was set up in one shot two years later than mine, has a holding of GSK. Sure, no dividend increase since purchase but not a complete disappointment in my view.

Both Pharma’s are on my HYP Candidate List.


In summary, nothing is I believe “doomed” although the once stalwart HYP Retail candidates are something of a concern. However, that is nothing particularly unusual in the overall scheme of things as the UK Economy slowly morphs over time, as it always will do. I mean where was VOD 30 years ago? The somewhat disappointing performance of a full holding of MKS or SBRY, bought way back when, would surely have been more than compensated for by those other HYP Stalwarts going from strength to strength, assuming of course a properly diversified HYP. The same goes for the other disappointments – BT-A and CNA - in other words, nothing to worry about overall in my view!


Now, enough musing, time for bacon and eggs!



Ian

[tjh290633]

I suppose that the cautionary tale should involve Rentokil, which I disposed of in 2009 (approx.) because it stopped paying dividends. Eventually it resumed paying dividends and the share price has recovered. It has not yet got back to the stage of being an HYP candidate, but has not disappeared.

I guess that we all hold one or more of the potentially doomed shares. I know that I do, but am not unduly worried. I held on to Lloyds and Taylor Wimpey when the other shares badly affected by the events of 2008-9 had been sold, in the belief that they would recover. In terms of yield they are doing well. I held on to Tesco when it fell out of favour, but the yield remains low. Odd that it does not feature in the list. Perhaps a couple of years ago it would have.

TJH

[Alaric]

It (Rentokil) has not yet got back to the stage of being an HYP candidate, but has not disappeared.

The share price has increased more rapidly than the dividend. Anyone still holding, or buying ten years ago would have seen a 15% annualised return since then. It's recent as well, 42% over the last year.

http://tools.morningstar.co.uk/uk/stock ... E%24%24ALL

[StepOne]

It (Rentokil) has not yet got back to the stage of being an HYP candidate, but has not disappeared.

The share price has increased more rapidly than the dividend. Anyone still holding, or buying ten years ago would have seen a 15% annualised return since then. It's recent as well, 42% over the last year.

http://tools.morningstar.co.uk/uk/stock ... E%24%24ALL

Rentokil featured heavily in the Motley Fool UK Investment Guide as quality investment. This was in 1999 and shortly afterward the wheels came off. I never held, but it's pleasantly surprising to see that the share price is now back up at the peaks it achieved at the turn of the century. Regular buying, or re-investing dividends, would have seen a pretty decent return I guess.

StepOne

[Dod101]

Rentokil featured heavily in the Motley Fool UK Investment Guide as quality investment. This was in 1999 and shortly afterward the wheels came off. I never held, but it's pleasantly surprising to see that the share price is now back up at the peaks it achieved at the turn of the century. Regular buying, or re-investing dividends, would have seen a pretty decent return I guess.

I know nothing about Rentokil but if StepOne is correct, the share price is now back to where it was nearly 20 years ago. Big deal. Not much good as LTBH which is what HYP is supposed to be all about. Timing is everything for this sort of share it would seem.

Dod

[StepOne]

Rentokil featured heavily in the Motley Fool UK Investment Guide as quality investment. This was in 1999 and shortly afterward the wheels came off. I never held, but it's pleasantly surprising to see that the share price is now back up at the peaks it achieved at the turn of the century. Regular buying, or re-investing dividends, would have seen a pretty decent return I guess.

I know nothing about Rentokil but if StepOne is correct, the share price is now back to where it was nearly 20 years ago. Big deal. Not much good as LTBH which is what HYP is supposed to be all about. Timing is everything for this sort of share it would seem.

Dod

Wrong conclusion Dod. What this example shows is that even if you had bought Rentokil at the Worst Possible Time (1999) and not re-invested at all, you would now be breaking even, with the additional benefit of the dividends received.

If you had reinvested dividends you would have had a roaring success

If you had bought at ANY OTHER TIME (mid 90s, or before or anytime from 2003 onwards) then you would be handsomely in profit, more so if you had reinvested dividends.

In other words, LTBH is the way to go (especially with dividend re-investment).

StepOne

[Alaric]

If you had reinvested dividends you would have had a roaring success

That might depend on what you reinvested them in or even if able to do so. You cannot reinvest dividends if there aren't any, as was the case when the dividends were suspended. Nor can you reinvest if using them for living expenses.

When it was tipped for a HYP around 2007, it had a high yield because the share price was collapsing and the Company problems had yet to work through into dividend cancellation. It then rebounded so really the high yield was identifying it as a recovery candidate. But not all such shares recover.

Are there any readily accessible twenty or twenty five year histories of the market indexes or tracker funds? How would you have done investing a lump sum in a FTSE 100 tracker fund in December 1999?

[StepOne]

If you had reinvested dividends you would have had a roaring success

That might depend on what you reinvested them in or even if able to do so. You cannot reinvest dividends if there aren't any, as was the case when the dividends were suspended. Nor can you reinvest if using them for living expenses.

When it was tipped for a HYP around 2007, it had a high yield because the share price was collapsing and the Company problems had yet to work through into dividend cancellation. It then rebounded so really the high yield was identifying it as a recovery candidate. But not all such shares recover.

If you'd bought at the worst possible time (turn of the century) then you would have had eight years worth of dividends to reinvest, at prices as low as 150p-250p. They are now 450p, so I think we can say that things would have turned out okay with LTBH (although maybe I was over-egging it slight to say ''roaring success").

I completely agree with you that not all such shares recover, but I was just replying to Dod's point that was was an example of why LTBH is bad, whereas I see it the opposite way.

Cheers,
StepOne

[Dod101]

StepOne

HYP is not a dividend reinvestment strategy. It is a strategy for providing an income to live off so dividend reinvestment is a red herring.

Timing is everything because think what has happened to the value of the share in 20 years in terms of purchasing power if it has the same nominal value today as it did 20 years ago? I do not have the price history but if Alaric is correct then only if you avoided buying at what turned out to be the peak would you have made money and it does not sound as if it was much of a HYP candidate for much of the time anyway. I want my LTBH shares to be like Unilever. All share have their ups and downs but a steady and increasing dividend will usually produce real capital appreciation which is what I want, so that at least it keeps pace with inflation.

Dod

[StepOne]

...only if you avoided buying at what turned out to be the peak would you have made money ...

That's exactly my point Dod! If you are adopting a 'buy-it-now' approach (a la HYP) then you would be really unlucky to buy at the peak. In fact you could have bought Rentokil at any time in 38 out of the last 40 years and you would have done really well - particularly if you reinvested dividends which a lot of HYPers do. In the other 2 years you would probably still be breaking even, which is hardly a disaster. Therefore if someone asserts that the Rentokil case study demonstrates that LTBH is a poor strategy, I say no, it demonstrates the opposite.

StepOne

[Dod101]

OK. I am certainly a LTBH investor but I suspect I would have ditched Rentokil when it had its problems, as I certainly tend to ditch shares when they stumble. I do not know Rentokil well enough to know what I would have done and in any case it would be with the benefit of hindsight now and that of course proves noting.

You of course are using to hindsight to show that Rentokil has in one sense worked out fine, although I must say to stagger back to achieve the same level of SP as 20 years earlier is not much good for the LTBH investor.

Dod

[Arborbridge]

You of course are using to hindsight to show that Rentokil has in one sense worked out fine,

Dod

RTO is an interesting case for me, and I do not need to use hindsight to find out what happened. I swapped out of Rentokil shares into some Reckitt and some National Grid shares in May 2010. So thus far that isn't hindsight, it's on record.

When I last did a "tinkering study" in November 2017, I put this case down as a "tinkering win" with the two substitute shares showing a bigger TR and dividend output than Rentokil would have done.

However, in 2019 I suspect that in redoing that comparison, the answer may be closer, or swung round - not that I've done it. I can see that RTO's share price has grown around 50% more than the replacement shares, so there's a good chance that hanging on to Rentokil might now look like it was the smart option.

I long ago concluded that selling out and buying into another share should be done with great caution, for it is only around 50% successful, judging by my cases. Don't expect it to be a wonder cure. The above example also shows that it all depends which time scale you intend to run the study over. The longer it goes, the less important it is to sell out and swap (probably!).

Arb.

[Dod101]

Very interesting Arb. I am beginning to think that unless the share is a real basket case, we are probably just as well to hang on. Not that it will stop me tinkering of course. Apart from anything else we do not know if a share will recover and even if so, how long that recovery will take.

For instance I sold Centrica in December 2015 at £2.123. Today it is 68 pence. It looked right to sell in December 2015 and still looks right nearly 4 years later, although you never know, those hanging on might just be proved right a la Rentokil, but I am glad I sold.

Dod

[Arborbridge]

Very interesting Arb. I am beginning to think that unless the share is a real basket case, we are probably just as well to hang on. Not that it will stop me tinkering of course. Apart from anything else we do not know if a share will recover and even if so, how long that recovery will take.

For instance I sold Centrica in December 2015 at £2.123. Today it is 68 pence. It looked right to sell in December 2015 and still looks right nearly 4 years later, although you never know, those hanging on might just be proved right a la Rentokil, but I am glad I sold.

Dod

In a similar way, I'm glad I sold Marks; I can't see it recovering soon, perhaps not in my HYPing lifetime. But I might be back in a couple years rueing that decision.

Arb.

[IanTHughes]

You of course are using to hindsight to show that Rentokil has in one sense worked out fine,

RTO is an interesting case for me, and I do not need to use hindsight to find out what happened. I swapped out of Rentokil shares into some Reckitt and some National Grid shares in May 2010. So thus far that isn't hindsight, it's on record.

When I last did a "tinkering study" in November 2017, I put this case down as a "tinkering win" with the two substitute shares showing a bigger TR and dividend output than Rentokil would have done.

A tinkering win? Not bad considering the Total Return that would have been received by remaining with Rentokil Initial (RTO) is currently around 16.50% per annum! Well done!


Ian

[Arborbridge]

You of course are using to hindsight to show that Rentokil has in one sense worked out fine,

RTO is an interesting case for me, and I do not need to use hindsight to find out what happened. I swapped out of Rentokil shares into some Reckitt and some National Grid shares in May 2010. So thus far that isn't hindsight, it's on record.

When I last did a "tinkering study" in November 2017, I put this case down as a "tinkering win" with the two substitute shares showing a bigger TR and dividend output than Rentokil would have done.

A tinkering win? Not bad considering the Total Return that would have been received by remaining with Rentokil Initial (RTO) is currently around 16.50% per annum! Well done!


Ian

Note: I said up to 2017. I believe the RTO shareprice picked up quite strongly after that. My RTO XIRR would have been 7.73% and that of RTO sold then NG and RB continuing is 17.73%.