too high?

[kempiejon]

I like dividenddata, since the covid times they've published a list of cutters.
https://www.dividenddata.co.uk/dividend ... ldividends
Some yielded over 2xCTY and some not. Picking out the HYPables or proper analysis I have not bothered with. Eyeballing looks like there's more FTSE350s over 8% that cut than didn't. I'm not sure that's relevant to HYPers some of those cutters wouldn't have made the portfolio and covid was a funny ole time, others failure on those safety factors I like e.g. cover, debt, history of growing dividends etc.

[Itsallaguess]

"Too high" is a floating number, not fixed at say an arbitrary value (eg "2xCTY").

But the '2 x CTY yield' metric is also a floating number, and isn't 'fixed at an arbitrary value' at all, and that market-related variability is actually at the heart of the simplicity of this proposal...

We can take a look at the useful variability of the CTY historic yield in the following 5-year yield chart, where I've also tried to align a 5-year FTSE chart underneath so we can see why the '2 x CTY' yield 'too high' metric is being proposed -




Sources - https://www.dividenddata.co.uk/dividend-yield.py?epic=CTY

https://www.google.com/finance/quote/UKX:INDEXFTSE?window=5Y


If we broadly agree that any company yield is likely to 'float' to some degree by way of it's underlying share-price, then hopefully we can also agree that there are both company-level drivers that are likely to influence that share price and also market-level drivers that are likely to more widely affect many company share prices as the FTSE 100 sentiment also floats around, often due to wider economic sentiment.

And we can see the effects of that 'market driven' influence on the underlying CTY yield in the above two charts, where the early-2020 COVID-induced drop in the FTSE 100 led to a 'spike' in the underlying yield of CTY during the same period.

But all that time, during that turbulent market-driven period, we might agree that no matter where the value of the CTY yield actually spiked to, we could perhaps, at all times, still consider it 'relatively normal' in terms of the underlying CTY yield, because if we can agree for the sake of this example that the underlying dividends were to continue to be paid out, as they actually did go on to be as seen in the CTY dividend-history chart (https://www.dividenddata.co.uk/dividend-history.py?epic=CTY), then the 'useful variability' of the changeable '2 x CTY' metric then hopefully becomes apparent, because it can still then potentially be used as a variable marker to highlight 'outlier' yields at any market level, because whilst the above chart examples show the CTY yield history during that process, all other high-yield options are likely to have gone through the same 'yield spike' during that early-2020 period, so what the '2 x CTY' yield metric is looking to do is to maintain a level of 'variable normalcy' for 'normal' market-driven yield ranges, whilst still maintaining a '2 x CTY' variable-yield metric to then be available 'at all times' through which 'outlier too-high yields' can still be made 'visible' outside of that market-driven 'yield variability' range...

If a business is generating the free cash flow it can afford the dividend otherwise it is making dividend payments that are funded by adding debt. Possibly acceptable if it's a one off or there is a reason such as wanting to invest in the business. If it is a low margin business it might not be able to service the debt and then has the further problem of paying the debt down and then might go cap in hand back to it's investors.

Which all makes complete sense, of course, but as we can see from reading the Carillion thread linked to yesterday (https://www.lemonfool.co.uk/viewtopic.php?f=15&t=2950&start=320), the wider market often sees and understands company-level 'issues' much sooner than individual investors do, and in fact that linked CLLN thread could perhaps be seen to be crucial reading from start to unfortunate-finish in that regard, as it's a recorded history-lesson in how such market-driven 'too high yields' often play out, whilst individual investors eventually realise with wide-eyed horror that the market understood the issues much clearer, and much sooner than they did, and I would urge anyone interested in this concept of 'too high yields' to read that CLLN thread from first-page to last and see that enticing 'too high' yield-based process in action...

Maybe one should not simply reject a company because of 'rateism'.

Maybe not, but I think on this particular thread some of us are still trying to work that one out, and it's interesting if you go back to the very first post on this 'too high' thread, and look at the table of 'available' high yields that were originally listed back in June 2022, and then also look at the recent 'one year later' information from June 2023 that I added to that original table (https://www.lemonfool.co.uk/viewtopic.php?f=15&t=34915&start=160#p597573), because I've got to be honest and say that looking at that 'one-year-later' data below, people can perhaps then decide for themselves if, in this particular example, whether 'yield-driven-rateism' might have been useful or not, because when the original table was posted the CTY yield was around 5%, which would have given a '2 x CTY' yield marker of around 10% as being highlighted as potentially 'too high'...

Share                    EPIC     Original Yield     12-month dividend change
Rio Tinto                RIO      13.2%                     -37.96%
Persimmon                PSN      12.87%                    -74.47%
Antofagasta              ANTO     9.94%                     -58.11%
M&G                      MNG      9.46%                      7.10%
Abrdn                    ABDN     9.00%                      0.00%
Phoenix Group Holdings   PHNX     7.99%                      3.89%
Legal & General Group    LGEN     7.82%                      4.99%
Anglo American           AAL      7.72%                     -31.49%
Imperial Brands          IMB      7.68%                      1.65%
Taylor Wimpey            TW.      7.36%                      9.56%
Barratt Developments     BDEV     7.23%                      8.46%

And finally, given the above 'one-year-later' data, I think it's also worth mentioning something that's often forgotten in these types of interesting debates, because if we consider the above top three companies, there's often a level of 'even so' discussion about the potential for some of these 'ultra-high-yielders' to still maybe deliver aggregate levels of multi-year underlying dividends that, even taking account of the above types of issues, still perhaps manage to 'deliver' long-term dividend 'amounts' that still might be higher over longer periods than some of their less-volatile, lower-yielding 'neighbours' in such lists.

And what I'd say to such proposals is that they might well be true, but it then highlights the question of how important income-volatility might be to a particular income-investor, who might well be content to give up *some* level of underlying long-term income if, by doing so and avoiding the type of huge dividend-volatility seen in some of the above examples, they perhaps maintain a more settled and reliable long-term income stream from their portfolios...

Cheers,

Itsallaguess

[Dod101]

For all the wording surrounding the final table, all that it shows is that the dividends from miners are volatile, and that most financials are not,........but we knew that already didn't we?

If we need some sort of mechanical guidance then I suppose twice City of London's yield is as good an indicator as any, as illustrated in IAAG's chart.

Dod

[moorfield]

Maybe one should not simply reject a company because of 'rateism'.

Certainly one might not over on the LYP Practical board, but I wouldn't have thought so here.

But the '2 x CTY yield' metric is also a floating number, and isn't 'fixed at an arbitrary value' at all, and that market-related variability is actually at the heart of the simplicity of this proposal...

Precisely it's a market-relative metric, I thought that was well understood here actually but perhaps not. IAAG I think if you posted a third chart - the FTSE100 yield - you would see nearly exactly the same shape.

[IanTHughes]

With a view to looking at whether this list of shares has measured up to their promise within a High Yield Portfolio (HYP), with a purchase made on 22 June 2022, the yield achieved compared with the yield originally forecast, would have been as follows:

EPIC    | Name                  | Buy Price | Buy Yield | Act Yield | +/- (%)
PSN     | Persimmon Plc         |  1,808.00 |    13.00% |     9.40% |  -3.60%
RIO     | Rio Tinto             |  5,019.00 |    11.51% |     8.11% |  -3.40%
AAL     | Anglo American plc    |  3,207.00 |     9.68% |     5.21% |  -4.47%
MNG     | M & G PLC             |    195.70 |     9.35% |    10.02% |   0.67%
ANTO    | Antofagasta plc       |  1,244.00 |     8.99% |     3.89% |  -5.10%
ABDN    | Abrdn PLC             |    166.40 |     8.77% |     8.77% |   0.00%
PHNX    | Phoenix Grp Holdings  |    617.20 |     7.92% |     8.23% |   0.31%
LGEN    | Legal & General Grp   |    241.20 |     7.65% |     8.03% |   0.38%
IMB     | Imperial Brands       |  1,831.50 |     7.59% |     8.89% |   1.30%
BDEV    | Barratt Developments  |    459.80 |     7.20% |     7.81% |   0.61%
TW      | Taylor Wimpey         |    116.50 |     7.11% |     7.78% |   0.67%
        |                       |           |           |           |        
Overall |                       |           |     8.98% |     7.83% |  -1.15%
        |                       |           |           |           |        
CTY     | The City of London IT |    396.00 |     4.90% |     5.06% |   0.16%

Only two from the above list – PSN and RIO – were above the limit of twice the yield offered by CTY. Of those two, PSN’s yield was substantially boosted by what was in effect a decision by the company to carry out a Return of Capital program. I myself rejected PSN as a suitable candidate for HYP on the 10 June 2022.

viewtopic.php?f=15&t=34041&p=504414&hilit=PYAD+HYP+2019_04+REINVEST#p504414

Decision

While it is the case that PSN has the highest yield, some of that has been described as returning capital to the shareholders over the past few years. Indeed, the company has already stated that there will be a further 110p per share later this year. However, I have been unable to determine what the yield would be without such capital returns. As a result, PSN is rejected for now.

So, for me at least, the only share from the above list with a yield above the limit of twice the yield offered by CTY, was offered by RIO.

As can be clearly seen, an actual yield of 8.11% would have been achieved over the 12 months following the purchase. This would certainly have been lost if RIO had been rejected out of hand, no doubt replaced by a choice achieving a lowered income return. However, some are now claiming that this reduced income return, demonstrates that the implementation of a filter to deliberately reduce the overall Portfolio Yield, resulting in a lower income return, should be seen as a success for an income investor.

Going forward, there are some rather obvious problems with using a filter deliberately designed to reduce a portfolio’s forecast income.

Buy High Price – Don’t Buy Low Price

What is being suggested is that a share which may be rejected because of a High Yield – Don’t Buy Low Price – is entirely acceptable just as long as the Yield reduces - Buy High Price. The fundamentals of the share in question are exactly the same, and the risk associated with investing in the particular share has not changed. All that has changed is the forecast Income Return for taking on that risk, which has been reduced.

The only way to assess the risk associated with any possible share purchase, whether High or Low Yield, is to check out the fundamentals. Claiming that a share is less risky, simply because one is being asked to pay more for it, has not been proven and is, in my view, a complete nonsense.

Of course, if someone has any evidence to support the contrary view, I should be delighted to review it.

Enjoy!


Ian

[moorfield]

The only way to assess the risk associated with any possible share purchase, whether High or Low Yield, is to check out the fundamentals. Claiming that a share is less risky, simply because one is being asked to pay more for it, has not been proven and is, in my view, a complete nonsense.

And there we stand at the entrance of a rabbit hole. Which "fundamentals" - wrt to our topic "too high yield" - are you referring to? How are they examined (almost certainly there will be many different ways)? And how, and why, are they any more (or less) reliable than a simple (and time saving) relative yield check? And wheres the evidence for that? There are no right or wrong answers in this game, of course.

[BullDog]

The only way to assess the risk associated with any possible share purchase, whether High or Low Yield, is to check out the fundamentals. Claiming that a share is less risky, simply because one is being asked to pay more for it, has not been proven and is, in my view, a complete nonsense.

And there we stand at the entrance of a rabbit hole. Which "fundamentals" - wrt to our topic "too high yield" - are you referring to? How are they examined (almost certainly there will be many different ways)? And how, and why, are they any more (or less) reliable than a simple (and time saving) relative yield check? And wheres the evidence for that? There are no right or wrong answers in this game, of course.

And then again, having analysed something to death, it's usually the black swans that evade any analysis that bite you. And that's without companies that use questionable policies to make their finances opaque to outsiders.

[moorfield]

And then again, having analysed something to death, it's usually the black swans that evade any analysis that bite you. And that's without companies that use questionable policies to make their finances opaque to outsiders.

Perhaps then we'd save ourselves a lot of analysis paralysis if we just made a habit of avoiding too high yields and looking elsewhere first.

Oh, hang on...

[BullDog]

And then again, having analysed something to death, it's usually the black swans that evade any analysis that bite you. And that's without companies that use questionable policies to make their finances opaque to outsiders.

Perhaps then we'd save ourselves a lot of analysis paralysis if we just made a habit of avoiding too high yields and looking elsewhere first.

Oh, hang on...

Correct. And the very best analysts never see the black swans either. Then maybe a rough rule of thumb such as proposed by yourself and others in the past has some merit. Fundamental analysis clearly isn't infallible and neither is the rule of thumb. At least a rule of thumb is quick and easy to apply and we understand it's fallibility.

It's not really an argument or a debate given the tiny minority that challenge the thinking that a too high dividend is sometimes a warning sign of bad things to come. There's no convincing anyone one way or the other.

My advice for anyone who asks is that if you need to over reach for yield then more capital is required. To remove the need for highest possible yield irrespective of risk.

My rule of thumb here, you typically need about 2x as much capital as you first think you need. No, that's not an infallible rule of thumb either. But it helps with sound sleep at night.

[redsturgeon]

Moderator Message:
I have removed several posts for general silliness and back biting. Please desist.

[csearle]

Moderator Message:
A cluster of off topic posts deleted. The subject is whether a dividend yield can be too high to be included in a HYP (see guidelines). Please stay on-topic, polite, and rational. Thanks. - Chris

[funduffer]

Interesting list of High yielding FTSE 350 stocks with some comments from John Kingham (of UKDividendStocks.com).

https://www.ukdividendstocks.com/blog/t ... ummer-2023

40 bargains in the sweety shop for us HYP types..........

....or is that 40 falling knives about to pierce us into the ground!

I like the Warren Buffett quote at the end!

FD

[tjh290633]

....or is that 40 falling knives about to pierce us into the ground!

FD

There is an old saying, " Never buy on a rising market nor sell on a falling market".

Trying to pick the moment when the market turns can lead to missing the boat.

TJH

[IanTHughes]

My rule of thumb here, you typically need about 2x as much capital as you first think you need. No, that's not an infallible rule of thumb either. But it helps with sound sleep at night.

I do not need twice the capital that I first think I will need, but I do understand that the whole area of investing can be very difficult for a complete novice[Deletion]. Do please provide more details as to what happened, such that you had to double the capital employed in order to achieve your aims.

There are many who contribute to this forum, who may be able to advise you how to better manage your investments. With investing, No-one can "guarantee" that you will not lose capital, but I am sure that you should benefit from studying the actions of the many on these boards who have had more success than you. I can assure you that posts from those posters on this board, with obviously more experience than you, have been very useful to me.

Enjoy!


Ian

Moderator Message:
Unnecessarily personal subordinate clause removed. Please try not to characterise other posters, whatever you think of them. Thanks. - Chris

[kempiejon]

Interesting list of High yielding FTSE 350 stocks with some comments from John Kingham (of UKDividendStocks.com).

https://www.ukdividendstocks.com/blog/t ... ummer-2023

There is an old saying, " Never buy on a rising market nor sell on a falling market".

Trying to pick the moment when the market turns can lead to missing the boat.

TJH

Knowing I can't pick the moment I buy every month. Have accumulated a few on that list over a decade or so. In the past 6 months only Smurfit Kappa appears in that list and my buys, yielding a rather average 4.5%. I also would have missed Dunelm giving me another special as I didn't have them down as yielding 8%.

[Itsallaguess]

Interesting list of High yielding FTSE 350 stocks with some comments from John Kingham (of UKDividendStocks.com).

https://www.ukdividendstocks.com/blog/top-40-high-yield-blue-chip-uk-stocks-summer-2023

A couple of interesting snippets from the above July 2023 article -

30 of those 40 stocks have dividend yields above 5%, 23 have yields above 6% and 17 are above 7%.

Three stocks have a yield of more than 10% and the highest yielder (Vodafone) is forecast to pay an 11% dividend.

and later -

for those of us who are older and (perhaps) wiser, a collection of mature, established multi-billion pound companies with high single-digit yields is a good place to look for sensible long-term investments.

Now John's a member of this site, although he's not been active since February, but given his huge experience in this field, I think it's very interesting in terms of this 'too high' thread that he's explicitly recognised that there's some double-digit 'yields' in the above article list, and yet in that later section quoted above, he specifically talks about 'high single digit yields [being] a good place to look for sensible long-term investments.' (my bold).

It's almost as though someone with a great deal of experience with income-investing is happy to recognise that there comes a point on the income-investment yield-curve where things do sometimes go beyond 'the sensible'...

Cheers,

Itsallaguess

[Itsallaguess]

‎
Now John Kingham has been mentioned in a couple of recent posts, I thought it would be worth highlighting some of the other good resources that are available on his website, many of which are specifically intended to help with assessing a company's quality, defensiveness, and value with regards to dividend-paying investments -

Dividend Investing Guide -

This is a brief but reasonably detailed overview of how I invest in high-quality dividend-paying companies.

It will give you a solid understanding of how the main pieces of the strategy fit together, without getting bogged down in too much detail.


Dividend Investing Checklist -

This is the checklist I use on a regular basis to analyse and value companies.

The checklist is made up of a series of questions that have been designed to assess the quality, defensiveness and value of any dividend-paying company.

Each question comes with a detailed explanation, so you'll know exactly why it's there and how to answer it.


Company Review Checklist -

This is an editable version of my checklist.

It's a Google Doc, so you can make a copy (or download it as an MS Word document) and enter your analysis directly into the checklist.


Company Review Spreadsheet -

This is the spreadsheet I use to analyse income statements, balance sheets and other financial data.

Just make a copy, enter data for a company and the spreadsheet will calculate a range of key metrics and an initial discounted dividend model.


The above free resources can be found on the following link -

https://www.ukdividendstocks.com/free-resources

Cheers,

Itsallaguess

[funduffer]

‎
Now John Kingham has been mentioned in a couple of recent posts, I thought it would be worth highlighting some of the other good resources that are available on his website, many of which are specifically intended to help with assessing a company's quality, defensiveness, and value with regards to dividend-paying investments -

Dividend Investing Guide -

This is a brief but reasonably detailed overview of how I invest in high-quality dividend-paying companies.

It will give you a solid understanding of how the main pieces of the strategy fit together, without getting bogged down in too much detail.


Dividend Investing Checklist -

This is the checklist I use on a regular basis to analyse and value companies.

The checklist is made up of a series of questions that have been designed to assess the quality, defensiveness and value of any dividend-paying company.

Each question comes with a detailed explanation, so you'll know exactly why it's there and how to answer it.


Company Review Checklist -

This is an editable version of my checklist.

It's a Google Doc, so you can make a copy (or download it as an MS Word document) and enter your analysis directly into the checklist.


Company Review Spreadsheet -

This is the spreadsheet I use to analyse income statements, balance sheets and other financial data.

Just make a copy, enter data for a company and the spreadsheet will calculate a range of key metrics and an initial discounted dividend model.


The above free resources can be found on the following link -

https://www.ukdividendstocks.com/free-resources


Cheers,

Itsallaguess

You can also sign up to John's blog if you want to receive articles like the one I posted here.

https://www.ukdividendstocks.com/blog


FD

[pyad]

...It's almost as though someone with a great deal of experience with income-investing is happy to recognise that there comes a point on the income-investment yield-curve where things do sometimes go beyond 'the sensible'...
Itsallaguess

Quite. There is no "too high" and I've long said that it is wrong to reject super high yielders mechanically, for that reason alone, and have reiterated this opinion on the similar thread running on the other board. The view that HYPers should ignore yields above some arbitrary multiple of the FTSE100 or of the Stock Holders Investment Trust etc. seems misplaced to me.

Super HYs are at least worth a look for HYPs to consider their fundies and estimated div sustainability in the near future of a year or two as far as poss. If you then think they are junk, then fine, avoid but at least you have formed a view that's not based on little more than superstition. To reject them mechanically on "too high" a yield means you could be missing out on HYP bargains.

As I said on the other thread, take LGEN which is in the SHY group right now and which would be rejected I guess automatically by the "too high" advocates. Bargain or junk heading for a fall?

[MrFoolish]

Super HYs are at least worth a look for HYPs to consider their fundies and estimated div sustainability in the near future of a year or two as far as poss.

If HYPs are supposed to be for the relatively unsophisticated investor (correct me if I'm wrong), I'm not sure how they are meant to assess this.