daveh wrote:I'm also a holder (both GSK and AZN), both have done well for me with GSK doing better on the dividend front having paid back just short of what I paid for the shares in dividends and doubling in price with AZN performing better on price (almost tripling) and returning just over half the original cost in dividends.
Have you held them for similar amounts of time? Unless you have, the contrasts between those sets of figures for the two shares could be pretty misleading...
I ask because I thought I would do a similar comparison for my holdings of the two shares. Each of them has been topped up on numerous occasions, which makes doing proper calculations quite a lot of work, so to get something quickly, I did the calculations for my initial purchase only of each share. And the answers I got were that those AZN shares have returned 51% of their purchase price in dividends and are up in value by 166%, while those GSK shares have returned 94% of their purchase cost in dividends and are up in value by 47%. So very similar to what you describe on dividends, and reasonably similar on capital gains.
BUT... My initial purchase of AZN was in February 2012, while my initial purchase of GSK was in January 2004, so I've held GSK for about twice as long as AZN (coming up to 16 years compared with coming up to 8 years). If I take a look at per-year / annualised figures that take that into account, the AZN shares have returned an average of 6.6% of their purchase cost per year in dividends compared with 6.0% for the GSK shares, and the annualised rate of capital gains has been 13.6% for the AZN shares compared with 2.5% for the GSK shares. So the picture given in the last paragraph of GSK having done better on dividends and AZN on capital gains is rather misleading about how well the two companies shares have done for me: the true picture is that the AZN shares have done better on both counts - mildly better on dividends, massively better on capital gains.
But even that modified conclusion may well be misleading, because if I look at what each of the shares' prices did in the 10 years before I purchased them, GSK's roughly doubled and AZN's only rose by at most about 20% (a bit of a rough-and-ready assessment because I'm reading these off share price charts rather than using the more accurate but more time-consuming method of looking up historical prices)... I.e. such comparisons are pretty sensitive to exactly what period one looks at, even for quite long periods of the order of a decade or more, and it follows that even a long history of superior performance might be leading into a future of inferior performance.
Or more briefly, the past is not necessarily a good guide to the future. It's not necessarily a totally unusable guide, but I generally feel that it is much better used as supporting evidence for a HYP decision than as the main evidence. In this case, if it came to a decision about whether to buy GSK or AZN for my HYP, I would first look at the basics: both are certainly the sort of large, sturdy companies that HYPs primarily rely on. GSK has a yield of 4.5%, which for me is high enough - it's flirting with the FTSE 100 yield, which is currently at 4.53% according to the FT, so it will probably be fluctuating in and out of strict compliance with this board's definition of how high a HYP share's yield needs to be as market movements affect both the FTSE 100 level and the GSK share price, but 'near enough is good enough' is the applicable principle in my view! AZN has a yield of 2.9%, which is definitely not a high yield by this board's standards. It would definitely be a top-up purchase for me rather than a new purchase, which puts discussing purchasing it into a bit of a grey area as far as being on-topic for this board is concerned...
Putting that aside briefly, AZN's dividend has been static since 2012 and hasn't been covered by reported EPS since that year - nor is it likely to this year judging by the figures in the three sets of quarterly results we've had so far. It has been covered by what the company calls "core EPS", which has presumably (I could check, but haven't) had various loss-making activities adjusted out of it. I've no objection to such adjustments when they're saying to shareholders "here's something loss-making that we're getting rid of reasonably soon, so we're making an adjustment to give you a good idea what to expect in the longer-term future". But in AZN's case, "core EPS" has been well above reported EPS for many years now, so they seem very likely to be adjusting out things I can expect to continue into the longer-term future - and I don't want to adjust such things out! As another quick check, operating cash flow has been much closer to reported EPS than to "core EPS", suggesting that the dividend hasn't really been covered by cash flow either. I could try doing a proper evaluation of free cash flow - i.e. the cash flow the company really has available for returns to shareholders plus enhancements to its business's earnings power. But I'm not adept at such calculations, never having found a method for doing them that I find satisfactory, so it would involve quite a bit of thinking and effort - and the combination of AZN's sub-3% yield and the picture I'm getting from looking at the EPS and operating cash flow figures is enough to convince me that I'm far too unlikely to come to a different conclusion as a result of putting in that effort. So for me, AZN is clearly not a plausible HYP purchase at present, even as a top-up and even for a HYPer with a very relaxed view of what qualifies for a top-up purchase...
A similar look at GSK says that its supporting evidence from dividend record, EPS and operating cash flow isn't all that good either, but it is rather better than AZN's: its dividend has been held and mostly uncovered by basic EPS since 2014 rather than 2012, and these third-quarter results give basic EPS for the first 9 months of 67.7p, somewhat ahead of schedule to achieve the 80p needed to cover the dividend this year. I definitely wouldn't say it was likely to be the best choice of purchase for many HYPers, but wouldn't rule the possibility out entirely.
Finally, none of that takes the actual position of the shares in my own HYP into account, since that's only a factor for my decisions, not those of anyone else. But in case it is of interest to anyone, this thread has brought it to my attention that AZN is now the largest holding in my HYP other than Greene King (which is a special case because of the takeover). It's not quite at the level where I would normally consider top-slicing a holding, but holdings that reach that level don't normally look to me as unlikely a prospect for dividend increases as AZN does at present. And as it happens, I would quite like to have a bit of extra cash available in the next few months for non-investment reasons, and a realised capital gain would improve my prospects of using my CGT allowance well this year - so I feel a top-slice coming on!
Gengulphus
If I understand them, I assume that's because I do not understand them 