Lump new HYP selection

[Wizard]

All

I have a chunk of capital that I want to use to invest in a broadly HYP portfolio. I have been doing a bit of quantitative analysis and have come up with a candidate list. I have yet to do consistent qualitative review of the candidates, but have stumbled on bits and pieces that has lead me to knock a couple of shares of the candidate list). I have also eliminated most of the sector duplication. My current candidate list is as follows:

Royal Dutch Shell 'A' - Oil & Gas
Pearson - Media, Publishing
HSBC - Banks
Aberdeen Asset Management - Asset Managers
Phoenix Group Holdings - Life Insurance
SSE - Electricity
Marks & Spencer - General Retailers
Centrica - Gas Distribution
Inmarsat - Mobile Telecommunications
Capita - Business Support Services
Vodafone Group - Mobile Telecoms
easyJet - Travel and Leisure, Airlines
GlaxoSmithKline - Pharmacueticals
British Land Company - Real Estate Investment Trusts
Imperial Brands - Tobacco
Royal Mail - Delivery Services
Bellway - Home Construction
William Hill - Travel and Leisure, Gambling
United Utilities - Water
Greene King - Travel and Leisure, Restaurants & Bars
BBA Aviation - Industrial Transportation
Sky - Media, Broadcasting and Entertainment
Tate & Lyle - Food Products
Unilever - Personal Products

I make the average yield of the candidate list c.5.3% vs FTSE100 avg of 3.9%

The available funds to invest can I think be reasonably spread over maybe 20 shares. I'd welcome initial views as to whether any of the above are deemed complete HYP howlers or if I am missing any must buy candidates?

Terry.

[ben328]

I have not done any detailed analysis, but the two that stand out to me are BBA Aviation and Easyjet.

BBA's yield is perhaps a little low for for an HYP, unless you particularly want two in this sector. Personally I have always felt airline shares a bit risky. Do these have the 5 year uninterrupted dividend increases we normally look for? If so perhaps my prejudice against them founded on out of date views.

Best of luck with it

[daveh]

Not looked at your list in detail yet, but the first stand out is RDSA. If you are UK based you want RDSB as these pay the dividends in £ and do not take off Dutch withholding tax.

[tjh290633]

I agree with the above comments, except for the suggestion about ITs and ETFs. After flirting with British Airways some years ago, I decided not to touch airlines again. I am also averse to those companies which are involved in rail franchising, which seems to me to be a fickle exercise.

Otherwise no onjection to the remainder of the selection.

TJH

[Wizard]

I have not done any detailed analysis, but the two that stand out to me are BBA Aviation and Easyjet.

BBA's yield is perhaps a little low for for an HYP, unless you particularly want two in this sector.

Thought I had checked all the DigitalLook yields I had used, but missed that one. To be fair almost all the DL were the same as Dividned Data but for some reason DL show BBA as being 4.3%, but yes at 3.9% not that compelling.

Personally I have always felt airline shares a bit risky. Do these have the 5 year uninterrupted dividend increases we normally look for? If so perhaps my prejudice against them founded on out of date views.

I also have an instinctive unease about airlines, but the easyJet dividend history looks sound:
2011 - 10.5p
2012 - 21.5p
2013 - 33.5p
2014 - 45.4p
2015 - 55.2p

But I do plan to do some more DD before any purchases.

Thanks for your input,
Terry.

[grimer]

Maybe Diagio instead of green king, if the price falls?

I'm not sure about airlines - the ROCE tends to be very low.

I'd also avoid Pearson, but that is more of a gut feeling and casual view from the sidelines.

I'd consider a specialist overseas income IT such as Henderson Far East Income (5.8% yield), but I'm a Dirty HYPer (just like my aunty Heather).

[Raptor]

Maybe Diagio instead of green king, if the price falls?

I'm not sure about airlines - the ROCE tends to be very low.

I'd also avoid Pearson, but that is more of a gut feeling and casual view from the sidelines.

I'd consider a specialist overseas income IT such as Henderson Far East Income (5.8% yield), but I'm a Dirty HYPer (just like my aunty Heather).

I 2nd that about Pearson, waiting to see if the move to digital training gets back on course (pun intended).

I also dip Into ITs. HFEL is a worthy one but not for the HYP purist.

Raptor.

[YeeWo]

BBA's yield is perhaps a little low for for an HYP, unless you particularly want two in this sector
I also have an instinctive unease about airlines, but the easyJet dividend history looks sound:
2011 - 10.5p
2012 - 21.5p
2013 - 33.5p
2014 - 45.4p
2015 - 55.2p.

- Please read Mr Buffett's comments on Airlines, they're not good businesses even in the best of times.
- BBA is a Ground Handling business so doesn't have the punishing Capex commitments of buying planes.
- easyJet is terribly vulnerable to EU politics. If as part of Brexit UK doesn't stay in Single European Aviation market easyJet will have Major Problems.
-RELX is a very good business selling cheaply at the moment!?

[idpickering]

Maybe Diagio instead of green king, if the price falls?

I'm not sure about airlines - the ROCE tends to be very low.

I'd also avoid Pearson, but that is more of a gut feeling and casual view from the sidelines.

I'd consider a specialist overseas income IT such as Henderson Far East Income (5.8% yield), but I'm a Dirty HYPer (just like my aunty Heather).

I'd agree with grimer's comments above in relation to Pearson, and air lines. I'm intrigued about the mention of his aunty Heather being a dirty HYPer. Don't I know her? I get the impression I'd like to.

Regards,

Ian.

[kempiejon]

I like your first pass HYP, a blended yield of 5% odd from large caps, good diversity etc. I few thoughts:=

As a reminder you want Shell 'B' if you're UK for tax purposes.
Centrica do not have a pure history of increasing income in my HYP, ditto UU.
In another thread I floated Pennon for water - it's not as big nor is the historic yield as good but forecast yield is better, growth of dividend in my HYP better and commitment to dividend growth as a percentage above RPI is higher.
Phoenix, Billy Hill, BBA and Bellway are not shares I've ever looked at in as prospective picks.
Capita has been out of HYP range for most of my investing life and I added recently on opportunity.
VOD's dividend is uncovered, I hold but have resisted topping up for that reason, that said I have received growing income from them.
I hold BLND in my ISA, there's an advantage in having them sheltered as REITs pay part of their income gross.

[toofast2live]

Yes, I'd add an international income IT for extra diversification. Possibly Murray International. Don't listen to purists who claim foreign revenues equal international diversification. They don't. There are many sectors not represented in this little island that are plentiful elsewhere.

[Wizard]

I like your first pass HYP, a blended yield of 5% odd from large caps, good diversity etc. I few thoughts:=

As a reminder you want Shell 'B' if you're UK for tax purposes.
Centrica do not have a pure history of increasing income in my HYP, ditto UU.
In another thread I floated Pennon for water - it's not as big nor is the historic yield as good but forecast yield is better, growth of dividend in my HYP better and commitment to dividend growth as a percentage above RPI is higher.
Phoenix, Billy Hill, BBA and Bellway are not shares I've ever looked at in as prospective picks.
Capita has been out of HYP range for most of my investing life and I added recently on opportunity.
VOD's dividend is uncovered, I hold but have resisted topping up for that reason, that said I have received growing income from them.
I hold BLND in my ISA, there's an advantage in having them sheltered as REITs pay part of their income gross.

Thanks for the input. I have changed to Shell 'B' in my spreadsheet. I will also look at Pennon.

My selection process was simplistic by the standards I suspect many of you apply, for dividend track record I merely started by looking at average dividend growth over the last four years. I also captured gearing info, but have yet no filtering based on what I have. My understanding was that one of the foundations of HYP was low debt, so to be honest I am a little surprised none of my candidate list have been subject to discussion on that point as the gearing across them does vary quite widely.

More consideration tomorrow as I am busy today.

Terry.

[Wizard]

Yes, I'd add an international income IT for extra diversification. Possibly Murray International. Don't listen to purists who claim foreign revenues equal international diversification. They don't. There are many sectors not represented in this little island that are plentiful elsewhere.

I have no experience of IT and will therefore maybe look at that as phase 2. When I do I will start a thread on High Yield Strategy

Terry.

[kempiejon]

There are many sectors not represented in this little island that are plentiful elsewhere.

I agree with that point. But are these sectors high enough yielding and diverse enough? I looked at European high yield shares a while back but they mostly appear in sectors I already have, banking, insurance, utilities, pharms, oil, telecoms etc. In the USA I looked at a couple of high yield ETFs offering about 3% yield. There's the currency and tax implications outside of UK picks.
OT for this board but I have an IT/ETF portfolio that I use specifically to reach worldwide diversification

[toofast2live]

When I do I will start a thread on High Yield Strategy

Oh yes, I would never suggest discussion here. (Slap on wrist accepted). Merely that international diversification should not be shunned. In fact now that most investors' wealth is in ISAs, and there are few administration/tax problems I am surprised there is not more mention of foreign HY candidates. Yes there are issues with withholding tax, and yes many other parts of the world have lower yields but even so, I have in the past picked up Microsoft, Intel and Cisco on halfway decent yields ( i.e. Comparable to ULVR, recently discussed), although occasional daydreams of Coke at 4% have passed me by.

[Raptor]

I have no experience of IT and will therefore maybe look at that as phase 2. When I do I will start a thread on High Yield Strategy

Terry.

Also keep an eye on viewforum.php?f=54 for Investment Trusts. Luni used to post and had picked a basket for income of IT's. The "strategy" forum would be a good place for your phase 2 discussions, that is the way I did it a couple of years back when I decided to have IT's in my SIPP with an idea that at some future time I may not be able to or want to "mange" a HYP portfolio. It was also a way for me to enter areas and countries that I would like to invest in but no real idea of the contenders. Still too new to decide if it is working.

Raptor.

[Maylix]

-RELX is a very good business selling cheaply at the moment!?

Maybe so, but at a yield of around 2.5% surely not a HYP candidate?

Maylix

[Gengulphus]

Yes, I'd add an international income IT for extra diversification. Possibly Murray International. Don't listen to purists who claim foreign revenues equal international diversification. They don't. There are many sectors not represented in this little island that are plentiful elsewhere.

That shows that foreign revenues do not equal sector diversification. International diversification is really a mix of several different types of diversification, including sector diversification (which helps to protect you against troubles hitting a sector, e.g. the problems banks had that started to really hit them in 2008), currency diversification (which helps to protect you against events such as the sterling devaluation that followed the Brexit vote) and political system diversification (which helps protect you against events such as revolutions hitting specific countries).

I suspect strongly that I've used "international diversification" in the past when I meant "currency diversification" - the aftermath of the Brexit vote is a particularly likely time for that to have happened. If so, I'm sorry for the wording flaw - but I'm fairly certain that what I said would have indicated that I was looking at currency exchange rates and so was talking about currency diversification.

And as far as I am concerned, the purpose of a discussion board is to listen to each other - not necessarily agree with each other, but listen to the arguments and then make up our own minds. Advice not to listen to some participants rather goes against that purpose...

Gengulphus

[grimer]

And as far as I am concerned, the purpose of a discussion board is to listen to each other - not necessarily agree with each other, but listen to the arguments and then make up our own minds. Advice not to listen to some participants rather goes against that purpose...

I agree with you but, I think perhaps, you're taking the comment a bit too literally. I don't think there was any deliberate attempt to denigrate differing opinions.

Let's share knowledge and only 'fall out' if we think somebody (presumably a new poster) is maliciously giving bad advice - otherwise we can respectfully put out our stalls and let others decide.

[grimer]

My selection process was simplistic by the standards I suspect many of you apply, for dividend track record I merely started by looking at average dividend growth over the last four years. I also captured gearing info, but have yet no filtering based on what I have. My understanding was that one of the foundations of HYP was low debt, so to be honest I am a little surprised none of my candidate list have been subject to discussion on that point as the gearing across them does vary quite widely.

To be honest, I have tended to be quite mechanical in choosing shares. I bought quite a few HYP shares in September 2015 and used a stock screener to identify potential purchases. There was a stock screener on the Telegraph website that allowed quite detailed screening - including by ROCE (which at that point I was combining with yield).

http://www.telegraph.co.uk/finance/personalfinance/investing/shares/11253564/Return-on-capital-employed-ROCE-we-explain-a-term-that-helps-you-pick-shares.html

The FTSE happened to be at a bit of a low and I did really well out of the recovery. The HYP shares out performed the index by quite a bit. Then I came across the HYP forum, which was very educational.

Good luck with whatever you buy, but I'm afraid I don't really have the ability to drill down through accounts.