Bed & ISA - a time to swap the dogs?

[funduffer]

I purchased the majority of my HYP with a lump sum (at retirement) some 3 years ago. At that stage, I filled up my ISA allowance, and the rest (i.e most of it) went into a regular (non-ISA) share dealing account. Over the last three years I have gradually 'Bed & ISA'd' my HYP into my ISA account, using up any unused ISA allowance in March of each year.

With each Bed & ISA, I have transferred shares that I definitely want to keep, with an eye on not exceeding my capital gains tax allowance for the year. I have transferred these exactly like for like, and my dealer has done this for me charging just one fee, rather than 2. I am a non-tinkerer by nature, so have resisted the temptation to do anything else in these transactions!

I now have a £20000 ISA allowance this tax year, which is a bit less than the value of the remainder of my non-ISA HYP constituents. These are a mixture of shares that have done well and I definitely want to keep, ones I am unsure about, and 'dogs' that have cut dividends. The non-ISA shares in question are:

Shares I want to keep: BAE Systems (BA.), GlaxoSmithKline (GSK), Imperial Brands (IMB) - will transfer these as is.

Shares I am unsure about: TP ICAP (TCAP), Nex Group (NXG), Pearson (PSON) - can't decide about these, but will probably transfer as is.

Dogs: AMEC Foster Wheeler (AMFW), Centrica (CNA), Sainsburys (SBRY) - I think I might swap out for 'better' shares.

So if I Bed & ISA the 'dogs', what would you do - swap them for better shares in their sector, or a new sector, or transfer them as is?

For example, I could swap Centrica for SSE, Sainsburys for Marks & Spencer, and AMEC.... well this is probably going to become Wood Group anyway, so maybe I will wait and see what happens here, unless there is a better prospect.

(For info, my ISA shares, which make up the rest of my HYP are: BHP Billiton (BLT), Capita (CPI), Carillion (CLLN), Galliford Try (GFRD), HSBC (HSBA), Legal and General (LGEN), Lloyds Bank (LLOY), Marstons (MARS), National Grid (NG.), Royal Dutch Shell (RDSB), South32 (S32), Stagecoach (SGC), Unilever (ULVR), Vodafone (VOD). I have no intention of tinkering with these!)

As usual when I can't make up my mind what to do, so I turn to Lemonfool for thoughts and comments, and maybe inspiratioin!

FD

[moorfield]

FD

How about starting the other way round with a blank piece of paper and re-selecting 15-20 new HYP shares (from the Sunday Times Top 200 list as your selection pool). You'll have some already. Dump the ones you don't re-select and re-balance the ones you do and add accordingly.

Apropos CNA and SEE a prospective government policy of energy price caps on the Big 6 providers has appeared again this week, under Conservative not Labour colours. There is an NG. shaped hole in that list!

Good luck, would be interested to see the end product of your efforts.

M

[tea42]

I just did the same thing but my HYP was much older than that. See recent thread viewtopic.php?f=15&t=4144#p41474

You are a bit late if you wanted to use last year's ISA allowance too...

[tramrider]

Shares I am unsure about: TP ICAP (TCAP), Nex Group (NXG), Pearson (PSON) - can't decide about these, but will probably transfer as is.

Dogs: AMEC Foster Wheeler (AMFW), Centrica (CNA), Sainsburys (SBRY) - I think I might swap out for 'better' shares.

FD

I agree that AMFW is quite bad, but I am not so convinced about dumping CNA and SBRY. I think SBRY is a fairly stable business and the forecast yield is 3.8% on the current price, and I am still getting 3.2% on my original price. CNA has lost quite a bit of capital, but the forecast yield is 6.2% on the current price.

I am rather more worried about the future of PSON's strategy and dividend cover, although the forecast yield is 4.2% on the current price.

I think we have all been hurt by the drops in capital, but the forecast yields are bearable if there is likely to be some recovery. They are all difficult decisions. I am mostly doing nothing about them, but they are already tax sheltered for me, so I can afford to wait a while.

Tramrider

[Raptor]

The only 2 I would seriously look to change would be AMFW and PSON. I am looking at selling some shares for a building project and these 2 are on the list. AMFW for all the reasons that have been discussed on TLF, the low yield going forward, even if taken over by Wood and I have lost patience with PSON and where they are going.

Raptor

[77ss]

Shares I am unsure about: TP ICAP (TCAP), Nex Group (NXG), Pearson (PSON) - can't decide about these, but will probably transfer as is.

What's the problem with TCAP?

[richfool]

There's couple of suggested "dogs to ditch", here:

http://www.fool.co.uk/investing/2017/04 ... arge-pole/

[tjh290633]

Shares I want to keep: BAE Systems (BA.), GlaxoSmithKline (GSK), Imperial Brands (IMB) - will transfer these as is.

Shares I am unsure about: TP ICAP (TCAP), Nex Group (NXG), Pearson (PSON) - can't decide about these, but will probably transfer as is.

Dogs: AMEC Foster Wheeler (AMFW), Centrica (CNA), Sainsburys (SBRY) - I think I might swap out for 'better' shares.

May I suggest that you base your decision on how the income from the shares is or has been doing?

I hold PSON and so far they have continued to perform, albeit they held their dividend last year unchanged. I don't hold any others of your doubtful six, so cannot really comment, but whatever you do, I would be inclined to repurchase at the current median holding value, rather than swap on a one for one basis.

TJH

[funduffer]

Shares I am unsure about: TP ICAP (TCAP), Nex Group (NXG), Pearson (PSON) - can't decide about these, but will probably transfer as is.

What's the problem with TCAP?

Nothing really, except that I bought ICAP originally for my HYP, and now I end up with 2 smaller holdings: Nex (was ICAP) and TCAP (which was Tullet Prebon). Do I really need both, and if not, which is best?

[dspp]

Why sell at all. You risk selling low. The market has a way of curing these things, either through internal mge action, or external M&A action.

An example from today is that my holding in Standard Chartered which I bought a few years ago. It had fallen to 450 or so and is now at 700 or so. I have very little insight into whether it will go higher, say back to 1000, but I continue to hold as part of being diversified. Am I wrong - maybe !

regards, dspp

[77ss]

Shares I am unsure about: TP ICAP (TCAP), Nex Group (NXG), Pearson (PSON) - can't decide about these, but will probably transfer as is.

What's the problem with TCAP?

Nothing really, except that I bought ICAP originally for my HYP, and now I end up with 2 smaller holdings: Nex (was ICAP) and TCAP (which was Tullet Prebon). Do I really need both, and if not, which is best?

Understood. I just had TLPR, so am not confronted with 2 smaller holdings.

Which is best? Who knows! They appear to be taking different bets on the future of inter-dealing. Can they both be right? Is there room for both approaches? I am sitting on my TCAP holding, but with both, maybe you are in a better position.

[funduffer]

Why sell at all. You risk selling low. The market has a way of curing these things, either through internal mge action, or external M&A action.

I need to sell to transfer the shares into my ISA account. is there another way?

[Breelander]

I need to sell to transfer the shares into my ISA account. is there another way?

No. HMRC rules state you can only subscribe cash to an ISA. You cannot transfer shares into an ISA, the only exception being recently received shares from a company scheme.

You can’t transfer any non-ISA shares you already own into an ISA unless they’re from an employee share scheme.

https://www.gov.uk/individual-savings-a ... -isas-work

[Gengulphus]

Dogs: AMEC Foster Wheeler (AMFW), Centrica (CNA), Sainsburys (SBRY) - I think I might swap out for 'better' shares.

I'm not certain what your criteria for a share to be a "dog" are, but at least in the case of Centrica, I don't think I agree with them! Basically, the word suggests a serial disappointer to me, and the evidence about Centrica doesn't!

Specifically, after many years of increasing dividends, Centrica had a bad year in 2014, and as a result cut the 2014 final dividend and the 2015 interim dividend, each by about 30%. Since then, it's had a less bad but still loss-making year in 2015, and a reasonably profitable year in 2016 - good enough that its dividend is now reasonably covered. It's basically held its dividend during that time (*) - not surprising, as the two loss-making years in which it was still paying a dividend will have depleted its reserves and it ought to replenish them before going back to raising its dividend. Furthermore, there are clear signs that it is indeed replenishing its reserves, in the form of pretty big reductions to net debt, especially in 2016.

In short, the picture I see is of a company that ran into a fairly seriously bad patch, and is now successfully recovering. It seems rather perverse to me to have hung on to it when the bad news was at its height during 2015, and now, with recovery under way and the share price if anything lower, to be seriously thinking of selling... There's something to be said for TJH's general policy of not selling immediately on bad news, but waiting for the share price to recover - but that something is based on selling if and when the share price has recovered significantly and the company's finances haven't, not the other way around!

(*) The 0.03p changes to the individual dividends are totally insignificant, especially as they are equal and opposite for the interim and final and so cancel each other out.

Gengulphus

[funduffer]

Dogs: AMEC Foster Wheeler (AMFW), Centrica (CNA), Sainsburys (SBRY) - I think I might swap out for 'better' shares.

I'm not certain what your criteria for a share to be a "dog" are, but at least in the case of Centrica, I don't think I agree with them! Basically, the word suggests a serial disappointer to me, and the evidence about Centrica doesn't!

Specifically, after many years of increasing dividends, Centrica had a bad year in 2014, and as a result cut the 2014 final dividend and the 2015 interim dividend, each by about 30%. Since then, it's had a less bad but still loss-making year in 2015, and a reasonably profitable year in 2016 - good enough that its dividend is now reasonably covered. It's basically held its dividend during that time (*) - not surprising, as the two loss-making years in which it was still paying a dividend will have depleted its reserves and it ought to replenish them before going back to raising its dividend. Furthermore, there are clear signs that it is indeed replenishing its reserves, in the form of pretty big reductions to net debt, especially in 2016.

In short, the picture I see is of a company that ran into a fairly seriously bad patch, and is now successfully recovering. It seems rather perverse to me to have hung on to it when the bad news was at its height during 2015, and now, with recovery under way and the share price if anything lower, to be seriously thinking of selling... There's something to be said for TJH's general policy of not selling immediately on bad news, but waiting for the share price to recover - but that something is based on selling if and when the share price has recovered significantly and the company's finances haven't, not the other way around!

(*) The 0.03p changes to the individual dividends are totally insignificant, especially as they are equal and opposite for the interim and final and so cancel each other out.

Gengulphus

I have defined a 'dog' as a dividend cutter in the time I have held my HYP - I.e. The last 3 years. Centrica is in this category as you have described.

I am selling, because I have to sell to move this share to my ISA account. The question I have is, is Centrica the best utility to reinvest in my ISA account? I agree Centrica is in a better place than it was a year ago, but SSE, for example, yields more, and has not cut it dividend in the last 5 years, so looks a more solid utility than Centrica perhaps?

Thanks for the comments, Gengulphus, I really value your posts.

FD

[moorfield]

Specifically, after many years of increasing dividends, Centrica had a bad year in 2014, and as a result cut the 2014 final dividend and the 2015 interim dividend, each by about 30%.

The effect of Centrica's dividend cut on my own portfolio can be seen in the "actual vs. target income" table I keep on the Portfolio Management & Review board.

There's something to be said for TJH's general policy of not selling immediately on bad news, but waiting for the share price to recover

I agree with TJH's policy of not selling immediately, although as I have written up on that board I look at the effect on the income of the whole portfolio before making the decision to sell an individual holding. I didn't need to sell Centrica in 2015 so I held on, and remain on target for my retirement objective.

Edit: I have since adopted a policy of not topping up a cutter I hold onto until at least the following financial year's final accounts and dividend policy are published.

[Gengulphus]

I have defined a 'dog' as a dividend cutter in the time I have held my HYP - I.e. The last 3 years. Centrica is in this category as you have described.

Thanks for the clarification. FWIW, I would suggest 'cutter' or 'recent cutter' instead of 'dog' - the reason being that when I see the term 'dog' used, it's usually with the implication that the share's performance has been mediocre and is expected to remain that way. I.e. in practice it carries a fairly strongly implied opinion about the future, so is IMHO better avoided if you don't want to express such an opinion - whereas 'cutter' is more just a factual statement about the past.

Please don't take this as a telling-off, by the way - it's not, it's just feedback about the impression your choice of word gave me!

I am selling, because I have to sell to move this share to my ISA account. The question I have is, is Centrica the best utility to reinvest in my ISA account? I agree Centrica is in a better place than it was a year ago, but SSE, for example, yields more, and has not cut it dividend in the last 5 years, so looks a more solid utility than Centrica perhaps?

Good question, and I don't really know the answer. SSE hasn't cut its dividend, agreed, but it's had five years (2012-2016) of the dividend being uncovered by basic EPS and while adjusted EPS has been higher and does cover the dividend, the difference is due to five successive years of 'exceptional' items - which rather stretches the meaning of the term! That picture is complicated by the interim results, which showed adjusted EPS falling, basic EPS rising and the 'exceptional' items changing sign, and then further by the January trading statement saying they were "on target to ... deliver adjusted earnings per share of at least 120 pence", considerably higher than the 34.2p reported in the interim results. Also, SSE's net debt has been rising recently, whereas Centrica's has been falling.

Not saying that I find any of that more than somewhat disquieting, and SSE has demonstrated considerable ability to deliver excellent shareholder returns during the 25 years I've held them (including under their former names Scottish & Southern Energy and Scottish Hydro-Electric). So I'm not going to be swapping them out for Centrica - but equally, I'm not going to be swapping my more recent holding of Centrica (of about 12 years standing) for more SSE.

I think my decision in your position would depend on the size of the holding. If it's quite small, making a broker commission order-of-1% of the capital involved, then I think I would prefer swapping to SSE if it still cost me only one broker commission for the buy and the sell. But it would be a pretty mild preference and I wouldn't consider it worth paying an extra broker commission for. If it's quite large, making an extra broker commission negligible, then I would have the same mild preference, this time not significantly affected by whether I paid an extra commission - but I would seriously consider the other option of splitting the reinvestment 50:50 between the two companies.

Note though that that's all on the basis of a quick look through recent results and trading statements, done for the purpose of this post and limited to the sort of effort I think a post is worth. A more serious look might lead me to a different conclusion - so I'm offering the above more for what it says about the directions my thoughts might go than for its conclusions...

Gengulphus

[Arborbridge]

Gengulphus's comment regarding SSE accounts (eps) prompt we to wonder if Dod sees this as a sign that the "culture" isn't quite as good as he believed it was.


Arb.

[dspp]

Why sell at all. You risk selling low. The market has a way of curing these things, either through internal mge action, or external M&A action.

I need to sell to transfer the shares into my ISA account. is there another way?

Then simply B&B them across into your ISA ("bed and ISA") provided your total ISA uptakefor the year is within your ISA annual allowance (£20k).

regards, dspp

[Gengulphus]

Why sell at all. You risk selling low. The market has a way of curing these things, either through internal mge action, or external M&A action.

I need to sell to transfer the shares into my ISA account. is there another way?

Then simply B&B them across into your ISA ("bed and ISA") provided your total ISA uptakefor the year is within your ISA annual allowance (£20k).

regards, dspp

"Bed and ISAing" is basically just a combination of selling outside the ISA, transferring the proceeds into the ISA as a cash subscription and buying inside the ISA, so you're agreeing with funduffer that he needs to sell! His issue is whether he wants to buy the same shares inside the ISA as he sells outside, not whether he sells outside...

Gengulphus