FD's HYP annual update

[funduffer]

FD HYP Year 3 – The Good, the Bad and the Ugly

This is an update of my HYP, on the 3rd anniversary of the 1st purchase on 7th Feb 2014. Actually it’s a month late, but I have been busy!

HYP Context & Objectives
I retired in December 2013, and I am lucky in that my DB pension meets all my basic living needs, so any income from the HYP can be spent on luxuries, holidays, or re-invested back into the HYP. Accordingly, I have no great need to avoid shares that some might say have ‘dangerously high’ yields, nor to operate a safety reserve. I just go for a good cover, high income, and expect (and hope) that the income growth will beat inflation.

HYP activity in Year 3
FD HYP currently looks like this:


Forecast yield is a shade over 5.3% overall (as per HYP Top-up SS). 23 shares in total, up from 17 a year ago.

In the past year, I have re-invested most dividends and added some limited additional funds. The main activity was to sell off 40% of my GSK holding (after the special, and when the price went over £17 in October 2016). This was to reduce my dependence on this share, which did constitute more than 25% of my HYP last year. The proceeds went to adding a builder (Galliford Try (GFRD)), 2 companies from Travel & Leisure (Marstons (MARS) & Stagecoach (SGC)), and bolster Support Services (Capita (CPI)). I also transferred a small Lloyds Bank (LLOY) ISA into my HYP, and topped this up to a reasonable sized holding, and also topped up South32 (S32) to a reasonable sized holding, on the promise of a strong dividend forecast and a sensible-sounding dividend policy.

The Good
With inflation near 2%, I received flat or rising dividends from 12 of my shares. Best performers were RDSB, IMB and HSBC, with most benefit coming from the change in the £/$ exchange rate. Overall dividend income increased by 19%, but this of course includes some dividend drag from Year 2, and the effect of top-ups & purchases in Year 3. Income unitisation shows the income per unit increased by 6.7% in Year 3, well ahead of inflation. A good part of this was due to the GSK special.

The Bad
I had 2 major dividend cutters last year – BLT and AMEC, and SBRY also had a small cut. PSON has announced a cut for this coming year, and I hold my breath over CLLN and CPI.
In 3 years I have had 4 cutters, and this has persuaded me to increase diversification into new sectors – hence the purchases in Transport & Leisure and Construction & Materials. I have also introduced a new guideline to not top-up a share with cover <1.5 (unless a REIT or a Utility), which I did not enforce previously. Buying policy for new shares & top-ups is now the same.

The Ugly (aka corporate actions)
ICAP split into TCAP and Nex Group, adding a new share and additional diversity, but this didn’t cause me any extra work, but I ended up with 2 smaller holdings.
IMT became IMB, again of little consequence.

Capital
I use (income) unitising, and unit price has increased by 18.7% in the past year, compared to 24.8% for the FTSE AS index, not that I worry too much about this sort of thing.

Next Year
After 3 years, I feel my HYP is maturing reasonably well, and I expect to re-invest most of the accumulated dividends in the coming year, although I do not expect any major new injections of capital. I may do a bit of re-balancing, but I am not a tinkerer by nature, so will probably just let things rest unless anything unexpected happens. I recognise my GSK holding is still high, but I like the share, and I am not inclined sell, but let the others catch up through re-investment.
I will report back next year. Thanks for your time and patience if you got to the end, and any comments/constructive criticisms will be taken on board.

FD

[Arborbridge]

FD, things are proceeding well, it seems. You've made good returns whichever way you slice it.
I expect you will carry on with the rebalancing as the HYP matures : e.g. I expect you'd not be buying more where the income percentage is already high.

Thanks for sharing the info.

Arb.

[Ivyrobert]

A tidy HYP, I admire it. Will you be looking to add more names to it over time?

[funduffer]

A tidy HYP, I admire it. Will you be looking to add more names to it over time?

At 23 shares I am in no rush to add new sectors or particular companies. I am now in a position where I will only carry out 2 or 3 top/ups new purchases per year as I like to have fairly large trades, to minimise costs.

When I am ready to top-up, I use HYPTUSS to generate the candidates ( the top 8 to 10). I will also screen for new shares, but they are usually thin on the ground. I then pick the best 2 or 3 and do a bit more research before buying.

I am not averse to adding a few more new picks to get to 25 or so, but I will be quite content to stay at 23.

A couple of ideas I will be considering - a REIT, and a water company, but otherwise I am not sure there are many holes in my HYP.

Thanks for the comments.

FD