potential for Aug topup

[Arborbridge]

Here's my topup table produced at this morning's state of play. The yields used are those that have been "doctored" by me according to known cancellations or reductions.



Of these seven are probably excluded owing to being near the soft limit of 5% for income provided.
This leaves six shares: TSCO, RDSB, BP, UU, SBRY, PSON
Tsco is rather low on yield - and I notice the recent results have poor cash flow. (Why?)
UU is acceptable but for the cash flow: according to morningstar numbers, the dividend has remained uncovered by cash in each of the past seven years. How long can that last?
RDSB, BP, SBRY are all recent cutters. One might speculate that SBRY might well return to paying soon and cash flow is reasonably good - although we cannot say at what rate dividends will commence
That leaves PSON which has a similar yield to Tesco. If the yield on offer is less than 3.68% i.e. 90% of my average, I would normally veto - that applies to both of these, although Tesco is on the threshold. With such a low yield, one might argue that it's best to sit on the cash or re-deploy to a different portfolio. In my view, topping up my HYP makes sense when the available yield is higher than my IT basket, but less so if the choice is equal or less.

At present I'm not particularly enthusiastic about any of these options, but I have the weekend to think about it - cheap dealing day is Monday. Any input from posters would be taken into consideration.
For further interest, here is my sector breakdown:-

Financial Services                  |  12.61 %
Pharmaceuticals & Biotechnology     |   9.44 %
Life Insurance                      |   8.53 %
Food Producers                      |   8.06 %
Gas, Water & Multiutilities         |   6.86 %
Household Goods & Home Construction |   5.58 %
Nonlife Insurance                   |   4.84 %
Tobacco                             |   4.36 %
Mining                              |   3.85 %
Oil & Gas Producers                 |   3.82 %
Media                               |   3.81 %
Beverages                           |   3.73 %
Banks                               |   3.62 %
Equity Investment Instruments       |   3.51 %
Multiutilities                      |   3.38 %
Food & Drug Retailers               |   3.19 %
Electricity                         |   3.17 %
General Industrials                 |   2.96 %
Mobile Telecommunications           |   2.75 %
Retail REITs                        |   1.95 %
                                    |         
Total                               |    100 %

Arb.

[seagles]

Maybe relax your income rule. Not sure how much over each would take you but, for me, breaching 5% would not be bad in current environment, but by how much over are you willing to go? Mind you by Monday the %'s would probably all change anyway

[tjh290633]

My problem is that most of the shares in my top-up list are disqualified for one reason or another. Share of income, share of cost or no dividends.

Here is my top-up table:

Top-up          Income                     Cost                
Rank     EPIC   Rank     EPIC   % Income   Rank   Epic   % Cost
     1   IMB*        1   LGEN      6.60%      1   PSON    4.46%
     2   VOD*        2   BATS      6.06%      2   RDSB    4.44%
     3   BATS*       3   IMB       5.36%      3   LLOY    4.40%
     4   BP.         4   RIO       5.15%      4   MARS    4.35%
     5   BLND        5   SSE       5.06%      5   WMH     4.30%
     6   RDSB*       6   VOD       4.77%      6   AV.     4.24%
     7   AV.*        7   NG.       4.65%      7   BT.A    4.19%
     8   IMI         8   BHP       4.59%      8   MKS     4.02%
     9   MKS         9   GSK       4.02%      9   BP.     3.92%
    10   PHP        10   BP.       3.91%     10   GSK     3.72%
    11   GSK        11   ADM       3.91%     11   S32     3.71%
    12   LGEN*      12   AV.       3.79%     12   BLND    3.63%

From the lsts of share of income, the top 8 are disqualified and from share of cost, the top 6 likewise, and I am holding fire on BLND and MKS, because of cancelled dividends. BP. have reduced theirs, but that does not worry me greatly.

Regarding Tesco, they are currently at 4.1% yield, at median+1 position. Pearson at 3.2% are at median-4, and would be out of the running anyway because of recent top-up. Let's just look at the middle of my yield table:

10   AV.    5.21%
11   GSK    5.16%
12   ADM    4.80%
13   UU.    4.72%
14   BA.    4.57%
15   TATE   4.47%
16   RDSB   4.43%
17   BLND   4.31%
18   TSCO   4.11%
19   PHP    3.82%
20   S32    3.31%
21   IMI    3.28%
22   PSON   3.22%
23   ULVR   3.14%
24   DGE    2.71%
25   AZN    2.57%
26   RB.    2.29%
27   SGRO   2.18%
28   KGF    1.28%

The median lies between TSCO and PHP at 3.96%, AV. having moved that up.

Everything below KGF has zero yield so I have left them off, and KGF passed their final. I think that rest are dividend intacta, so to speak, but I could be wrong.

TJH

[Arborbridge]

Regarding Tesco, they are currently at 4.1% yield, at median+1 position. Pearson at 3.2% are at median-4, and would be out of the running anyway because of recent top-up. Let's just look at the middle of my yield table:


TJH

As regards Tesco, I think my yield is probably wrong - I can't see why the payout should be less than this year, which as you say makes it around 4% - certainly above my threshold which is the relevant factor for me.

However, does anyone know what's going on with the cash flow? -



Generally very good, but what's happened to the latest number? 2020 = 0.39p? I wonder if that is simply an error of a decimal point, or is there a mitigation which will work its way out next year?

Arb.

[idpickering]

I would take a punt on more VOD Arb, if that was my HYP. Or if you don’t mind pushing it on life insurance, LGEN.

Ian.

[Arborbridge]

Maybe relax your income rule. Not sure how much over each would take you but, for me, breaching 5% would not be bad in current environment, but by how much over are you willing to go? Mind you by Monday the %'s would probably all change anyway

Yes, it's a thought . which is why 5% is characterised as a "soft" limit - gives some wiggle room.

However, when it seems dividends can be cancelled or reduced at a moment's notice and nothing is certain, it seems sensible not to stray too far from 5%. I have seven shares over 5% right now, but that is owing to the current strange circumstances. When/if some other dividends resume, that will correct itself.

Arb.

[Arborbridge]

I would take a punt on more VOD Arb, if that was my HYP. Or if you don’t mind pushing it on life insurance, LGEN.

Ian.

VOD is a possible. An economic topup would take the income contribution to over 5%, but not outrageously so.
LGEN is vetoed for the moment - income over 6%.



Arb.

[Wizard]

I would take a punt on more VOD Arb, if that was my HYP. Or if you don’t mind pushing it on life insurance, LGEN.

Ian.

VOD is a possible. An economic topup would take the income contribution to over 5%, but not outrageously so.
LGEN is vetoed for the moment - income over 6%.



Arb.

If you are willing to consider VOD and that takes you over 5% why would you not consider the higher yielding IMB? IMB has better cover, is further below median than VOD and is a lower % of cost - surely all those metrics favour IMB over VOD. When some of your suspenders / cutters recommence / raise their dividend (and there have been some good signs around this of late) that breach of threshold will likely be repaired.

[Arborbridge]

Arb.
If you are willing to consider VOD and that takes you over 5% why would you not consider the higher yielding IMB? IMB has better cover, is further below median than VOD and is a lower % of cost - surely all those metrics favour IMB over VOD. When some of your suspenders / cutters recommence / raise their dividend (and there have been some good signs around this of late) that breach of threshold will likely be repaired.

Good points Wizard, and indeed the two shares are similar in my weightings etc. IMB does come higher in the topup table and in that respect should take precedence over VOD. Cash flow cover on both is Ok, but VOD disctinctly better. Was my eye taken off IMB due to the giddy yield caused by continuously falling share price over 5 years? My mind was probably telling me not to trust it. You must put my view in context: I used to invest using a big input of TA. Even now, I'd rather invest in a share in an uptrend than one with a long downtrend like IMB, so I expect that idea is still embedded in my outlook, despite years of HYPing! Old habits die hard.

No doubt I'm overthinking this - many will say I am - but I am also entitled to use these factors such as cash flow cover or gearing as safety fctors, especially in a "tie-break" situation. But Terry would just go with IMB as it's at the top, I would assume - if both were not ruled out due to the 5% consderation.

Here are the comparisons:-


From the above, VOD looks safer.

Arb.

[88V8]

Things are pretty desperate when VOD with its uncovered divi looks like a preferred option.

I'm hovering over a Sell of SSE, but Tempus made them a Buy the other week.
One can pick holes in all your possible picks.
How about some Premium Bonds until things calm down

V8

[Arborbridge]

Things are pretty desperate when VOD with its uncovered divi looks like a preferred option.

I'm hovering over a Sell of SSE, but Tempus made them a Buy the other week.
One can pick holes in all your possible picks.
How about some Premium Bonds until things calm down

V8

Ha!

VOD has an uncovered dividend and for a long time I did not top it up for the very reason.
But if - as people seem to think round here - that eps cover is unreliable but that cash is a more certain indicator - the divdend does seem to be well covered.
Don't ask me to explain the difference, but maybe someone more knowledgeable and who does not find company reports make one lose the will to live, could come in here?

BTW, SSE free cash flow last time I looked was awful And yes, one can pick holes in all choices that anyone makes. In the end, it often comes down to a gut feeling - or often in my case, I spend so much energy pickering that I end up doing nothing!

Arb.

[Wizard]

Arb.
If you are willing to consider VOD and that takes you over 5% why would you not consider the higher yielding IMB? IMB has better cover, is further below median than VOD and is a lower % of cost - surely all those metrics favour IMB over VOD. When some of your suspenders / cutters recommence / raise their dividend (and there have been some good signs around this of late) that breach of threshold will likely be repaired.

Good points Wizard, and indeed the two shares are similar in my weightings etc. IMB does come higher in the topup table and in that respect should take precedence over VOD. Cash flow cover on both is Ok, but VOD disctinctly better. Was my eye taken off IMB due to the giddy yield caused by continuously falling share price over 5 years? My mind was probably telling me not to trust it. You must put my view in context: I used to invest using a big input of TA. Even now, I'd rather invest in a share in an uptrend than one with a long downtrend like IMB, so I expect that idea is still embedded in my outlook, despite years of HYPing! Old habits die hard.

No doubt I'm overthinking this - many will say I am - but I am also entitled to use these factors such as cash flow cover or gearing as safety fctors, especially in a "tie-break" situation. But Terry would just go with IMB as it's at the top, I would assume - if both were not ruled out due to the 5% consderation.

Here are the comparisons:-


From the above, VOD looks safer.

Arb.

That all makes perfect sense, so I can see why you favour VOD. But, your top-up table puts IMB considerably above VOD, which seems to suggest your top-up table does not reflect your thinking around topping up shares. If this is not a short term divergence maybe you should think about amending you top-up table to replace cover with cashflow cover and giving the safety factors a bit more weight and the yield a bit less. You could even add an additional factor of say 90 share price performance, if that is something that influences your thinking on a candidate share.

Edit: PS if the tumbling share price of IMB over the last five years is a concern, and trust me I agree at 63% down is is awful, is the performance of VOD that comforting given it has itself fallen by 53% over the last five years?

[Arborbridge]

That all makes perfect sense, so I can see why you favour VOD. But, your top-up table puts IMB considerably above VOD, which seems to suggest your top-up table does not reflect your thinking around topping up shares. If this is not a short term divergence maybe you should think about amending you top-up table to replace cover with cashflow cover and giving the safety factors a bit more weight and the yield a bit less. You could even add an additional factor of say 90 share price performance, if that is something that influences your thinking on a candidate share.

Edit: PS if the tumbling share price of IMB over the last five years is a concern, and trust me I agree at 63% down is is awful, is the performance of VOD that comforting given it has itself fallen by 53% over the last five years?

But, your top-up table puts IMB considerably above VOD, which seems to suggest your top-up table does not reflect your thinking around topping up shares.

I am not a slave to the topup table, but use it as a starting point, not holy writ. My normal idea would be to look at the top dozen shares in the table and choose from amongst those, but I am pretty sanguine about it, since over time most of those top shares have their day in the sun. It's a bit arbitrary whether I choose number 1 or number 6 - to my mind, it's a way of keeping things in some reasonable balance rather than an exact science.

As an illustration, I bought ULVR just because it was yielding more than usual - not because it's near the top of the table.

When we come to the other factors I've mentioned in this thread, they can become a bit of a nightmare, because it is hard to know just how important, or unimportant, they are. Some people swear by one factor, others by another. For example, a good choice might be United Utilities - but how important is it that the dividend hasn't been covered by cash in many years? Or IMB - how important is the continuously falling share price, and is the high yield outrageously high? (I'm inclined, at this moment, to think so).
Putting all this on my worry beads - if I'm in that frame of mind - can often lead to stasis, or thinking "Sxx, I'll buy some more of "XYZ" fund and let the manager worry about it" or I'll sit on my hands - after all, there's no need to buy anything at all!

TJH, most of the time, will stick to his method unless there are good reasons not to. Making it almost automatic does help, but I do not have his self assurance: frankly, I suffer bouts of lack of courage or alternatively too much hope.

Arb.

[tjh290633]

Just looking idly at tehe relative performanc e pricewise of VOD and IMB, it happens that I sold VOD before they split off Verizon and bought back after the split, in February 2014 at 249p. Currently 116p, or slightly less than 47%. IMB was about 2370p in February 2014 and is 1249p today, about 52% of the Feb 2014 price, so IMB has actually fallen less than VOD.

IMB is currently top of my top-up ranking but is disqualified because its share of income is over 5%. VOD is second in the list but is likewise disqualified.

Were they not, I would go for IMB.

TJH

[Arborbridge]

Just looking idly at tehe relative performanc e pricewise of VOD and IMB, it happens that I sold VOD before they split off Verizon and bought back after the split, in February 2014 at 249p. Currently 116p, or slightly less than 47%. IMB was about 2370p in February 2014 and is 1249p today, about 52% of the Feb 2014 price, so IMB has actually fallen less than VOD.

IMB is currently top of my top-up ranking but is disqualified because its share of income is over 5%. VOD is second in the list but is likewise disqualified.

Were they not, I would go for IMB.

TJH

Thanks Terry - being an inveterate better of hedges, it occurred to me I could go for both - but first I will check what an economic topup would look like bearing in mind that 5% soft boundary.

Arb.

[Arborbridge]

Here's the latest table after my topup yesterday of Tesco, showing only the top 12 of 34 shares:-



IMB,SLA,BAT,CSN were excluded as they were either over, or would have been over 5% of income after an economic topup. BP was excluded as a recent cutter.
This left TSCO as the next viable share on the list with a yield which was very borderline compared with my nominal threshold of 3.6% which I regard as 90% of my average yield (currently 4.0%). However, I am of the view that Tesco's future dividend is unlikely to be less than its historic, so I'm prepared to live with the gamble of 0.1% difference between the concensus forecast and my threshold.

It might be of interest to know in passing, that this topup accounted for some of the cash from my BT sale. Some of the balance is waiting for investment, and the rest went into my IT basket. I believe this action to be a fair swap for the lack of BT dividend for in medium future.

Arb.

[idpickering]

Thanks for the update Arb. I understand your feelings regarding BP. Arb, but I’m inclined to cut them some slack. They’re one of four shares I’m looking at topping up over the next couple of months, the others being BATS and BA.

Ian.

[idpickering]

Thanks for the update Arb. I understand your feelings regarding BP. Arb, but I’m inclined to cut them some slack. They’re one of four shares I’m looking at topping up over the next couple of months, the others being BATS and BA.

Ian.

The more switched on here might've noticed I said one of four shares above. I meant 1 of 3. I was in a rush to go gardening.

Ian.