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When do you stop chasing yield?

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moorfield
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When do you stop chasing yield?

#111220

Postby moorfield » January 17th, 2018, 10:48 am

When do you stop chasing yield?

Another post-CLLN tweak to my own rules. Some may be aware I already don't buy/top-up anything yielding below CTY (City of London IT, currently 3.7% ish), I'm now also going to apply that more firmly to anything yielding above 2*CTY, so 7.4%.

That rules out CNA, RE.B(*) for further top-ups in my own portfolio, and looking at the FTSE350 would rule out buys of PFG, CEY, GFRD, CPI.

(*) and a consequence, which many here may welcome, is that also rules out many high yielding preference shares

Dod101
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Re: When do you stop chasing yield?

#111234

Postby Dod101 » January 17th, 2018, 11:48 am

Answer. Don't chase yield in the first place. I think your two times the City of London yield is too high. Anything more than say 50% above the FTSE100 yield is about as high as I would go. That would be anything much more than around 6%. That is not hard and fast because there might be circumstances where you might go higher but you need a good reason.

High yielding prefs are quite different. I find that RE.B refers to Prefs of REA Holdings. Not much wiser but it would be helpful if used the full names.



Dod

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Re: When do you stop chasing yield?

#111237

Postby kempiejon » January 17th, 2018, 11:52 am

moorfield, I think the phrase of too good to be true comes to mind with high yields, especially if they indicate a recent significant price drop too and perhaps the trouble in the company hasn't made it's way to the dividend and accounts - then it might pay to wait for the next significant announcement from the company. Sometimes though it might give you a short buying window of a long term bargain, I bought BP and RDSA at twice the market yield both would have broached your twice CTY level I think and so far so good.
Regarding your list and being excluded from selection well CNA, RE.B, PFG, CEY, GFRD, CPI do not really set me alight as suitable candidates regardless of current yield levels.
Centrica, REA holdings prefs, Provident Financial, Centamin, Galliford Try and Capita, well all of those except GFRD and CPI would fail the 5(ish) year rising dividend, cutters, fixed payouts or short history and so be excluded from my HYP. Only the cutter Centrica is a ftse100 candidate so the others could be excluded for being undersized. But there is sense in having guidelines so setting a maximum yield might well be prudent.

tjh290633
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Re: When do you stop chasing yield?

#111246

Postby tjh290633 » January 17th, 2018, 12:19 pm

It's difficult, as sometimes the yield chases you. In general, be suspicious of very high yields, but where to draw the line is difficult. As I have 14 shares yielding over 5%, I'm loath to suggest that 5% should be the limit. With BP. on the cusp of 6%, maybe that is the point, but be careful.

TJH

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Re: When do you stop chasing yield?

#111253

Postby OLTB » January 17th, 2018, 12:27 pm

Does this mean that you would question SSE as its latest div yield is 6.8% and future yield is 7.4% (according to Digital Look - or whatever its new name is)?

Cheers, OLTB.

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Re: When do you stop chasing yield?

#111255

Postby bluedonkey » January 17th, 2018, 12:33 pm

Yes, this topic is exercising my mind at the moment. Although my portfolio has ridden out the Carillion wipe out, it is still startling to calculate the loss and what might have been.

Regarding yield, is "too high" the right way to go? I just don't know. RDSB (surely not RDSA?) and SSE come to mind. Is SSE to be avoided at present because its yield is too high?

I bought Carillion on these dates with yields:

16.08.12 - 6.5%
08.04.15 - 5.4%
12.05.16 - 6.8%

Yield figures calculated as 1st 12 months of dividends divided by purchase cost. After the last purchase, I only received 12 months of dividends and that was the end as we now know.

idpickering
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Re: When do you stop chasing yield?

#111257

Postby idpickering » January 17th, 2018, 12:44 pm

OLTB wrote:Does this mean that you would question SSE as its latest div yield is 6.8% and future yield is 7.4% (according to Digital Look - or whatever its new name is)?

Cheers, OLTB.


That's a fair point OLTB. As I mentioned elsewhere I was going to top up my Sse plc holdings today, which did happen. For me, I've taken advantage of the lowering of the SP of this company, and bought a bit of that higher yield on offer currently. It is unlikely that I will be topping these up again in the foreseeable future. I am aware of the political risk, and It's one I'm willing to take. If such a yield was on offer from another company I had doubts about, I'd look elsewhere. Basically, each case on it's own merits, and I'd be careful of other stocks yielding much more than 6%.

Ian.

Dod101
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Re: When do you stop chasing yield?

#111264

Postby Dod101 » January 17th, 2018, 12:52 pm

I hold SSE and am not selling but I am not sure I would buy although with Ian's good fortune with Shell who am I to argue? Certainly SSE is I think a well run company and they are removing one political problem in the spinning off of their retail side. On balance I think they are fine but the market often knows better than me!

Dod

idpickering
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Re: When do you stop chasing yield?

#111271

Postby idpickering » January 17th, 2018, 1:07 pm

Dod101 wrote:I hold SSE and am not selling but I am not sure I would buy although with Ian's good fortune with Shell who am I to argue? Certainly SSE is I think a well run company and they are removing one political problem in the spinning off of their retail side. On balance I think they are fine but the market often knows better than me!

Dod


Like you Dod, I like to think that the culture of my holdings is good, from a business perspective, and towards shareholders. This from Sse plc sums that up well;

We believe that our first responsibility to shareholders is to give them a return on their investment through the payment of dividends. We aim to do this by successfully fulfilling our core purpose, which is to provide the energy people need in a reliable and sustainable way.


http://sse.com/investors/dividendsandourscripscheme/

No guarantees of course, but I like their attitude.

Ian.

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Re: When do you stop chasing yield?

#111292

Postby Arborbridge » January 17th, 2018, 1:55 pm

It's all well and good saying one should not top up at a high yield, but isn't the logic of this that one should be selling at those levels?
I know Dod would argue for honourable exceptions, but then we are back to simply saying "We'll trust the management" and ignoring the market judgement. And if we do that, it also follows we believe the market it wrong - so we shouldn't be topping up?

A real example: Greene King, historic yield 6.2%, shorting 6.8%. Price in decline for a couple of years: dividends apparently safe and steadily increasing. Top up or not to top up? Sell or not to sell?

Test you idea about what you would do in the next problem period by looking at this. If you cannot say, then the suggesting of using yield or shorting isn't going to be much use, is it?

Arb.

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Re: When do you stop chasing yield?

#111301

Postby Raptor » January 17th, 2018, 2:25 pm

Interesting thread. After last years CLLN "collapse" I thought this through and applied a "Luni" flag to my HYPTUSS. I use the FTSEALLSHARES yield as a base and add a 1.8 multiplier. Currently that is 6.43% tops. Applying that to my HYP gives:-



TW, CNA and MARS are in the top 3 for top-up. SSE is number 8. To be honest even without the "too high yield" rules I would not touch any of them for either top-up or buying "new". Lloyds (LLOY) is on the cusp at 6.4% but does not figure in my top-ups for other reasons. Looking at the list I would be looking at BT or Marks & Spencers, but both them have "doubts" for me. Fortunately I do not have money ready to "invest" and do not see any being available for HYP buying until April or longer.

I got out of CLLN last July after first "Warning", my last buy was in May 15 so cannot claim to have chased the yield. So at least got some money back. Taking into account dividends a 50% write off.

Raptor.

edited. Thanks PD....

Dod101
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Re: When do you stop chasing yield?

#111317

Postby Dod101 » January 17th, 2018, 2:55 pm

Good grief. If SSE is yielding 7.4% then I definitely would not be buying or topping up. In fact I will be keeping a very close eye on it because that is uncomfortably high and I am not sure can be discounted solely on political grounds.

Fortunately my newspaper (The TImes) says the yield is a mere 6.8%. That makes me feel slightly better but not much. Presumably 7.4 % is somebody's forecast. I never look at forecasts.

Dod

tjh290633
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Re: When do you stop chasing yield?

#111326

Postby tjh290633 » January 17th, 2018, 3:14 pm

Regarding SSE, as it is going to split off apart,my inclination is to wait until we know more about the successor companies before making any decisions.

TJH

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Re: When do you stop chasing yield?

#111329

Postby idpickering » January 17th, 2018, 3:22 pm

Dod101 wrote:Good grief. If SSE is yielding 7.4% then I definitely would not be buying or topping up. In fact I will be keeping a very close eye on it because that is uncomfortably high and I am not sure can be discounted solely on political grounds.

Fortunately my newspaper (The TImes) says the yield is a mere 6.8%. That makes me feel slightly better but not much. Presumably 7.4 % is somebody's forecast. I never look at forecasts.

Dod


Dividend data have SSE at 6.9% see https://www.dividenddata.co.uk/dividend ... y?epic=SSE

Ian.

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Re: When do you stop chasing yield?

#111360

Postby Itsallaguess » January 17th, 2018, 4:55 pm

Dod101 wrote:
Presumably 7.4 % is somebody's forecast.


I'm not sure there's any presumption necessary, given that it's written there in the column-header -



Cheers,

Itsallaguess

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Re: When do you stop chasing yield?

#111364

Postby Arborbridge » January 17th, 2018, 5:11 pm

Dod101 wrote:Good grief. If SSE is yielding 7.4% then I definitely would not be buying or topping up. In fact I will be keeping a very close eye on it because that is uncomfortably high and I am not sure can be discounted solely on political grounds.

Fortunately my newspaper (The TImes) says the yield is a mere 6.8%. That makes me feel slightly better but not much. Presumably 7.4 % is somebody's forecast. I never look at forecasts.

Dod


My charts have the historic yield broadly in agreement at 6.8%, but whether to hitch your decisions on 6.8% or 7.4% is not much difference. Perhaps the risk isn't all political, but most is I'd guess. Yield has been bouncing around the 6.5% for a good while with a previous peak of 6.7% in 2014.

If we think labour will get returned and nationalise companies wholesale, we'll all be looking back and saying "we should have got out when the writing was on the wall. Nationalisation and/or the politics of envy (regarding dividends) will drive a coach and horses through our types of investments.

Dod101
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Re: When do you stop chasing yield?

#111367

Postby Dod101 » January 17th, 2018, 5:17 pm

OK. How do soothsayers divine a forecast yield anyway? Considering that SSE has only just about managed an RPI increase for the last few years, somebody must be expecting a further drop in the share price.

If I were to make a forecast of yield, well I wouldn't. I might make a stab at the actual likely dividend in monetary terms but then I can see no useful purpose to that so have never bothered. Forecasting the yield is just silly to my mind because you need to make two guesses. The first is the actual dividend in monetary terms and the other is the likely share price. The likelihood of getting both of those right is virtually nil and thus the 7.4% forecast is worth nothing.

Arb is correct and that is why I will be keeping a close watch on SSE for the next several months, but an election is not due until 2021 isn't it? But you never know and Corbyn will I think by that time have blown it.

Dod

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Re: When do you stop chasing yield?

#111371

Postby Itsallaguess » January 17th, 2018, 5:35 pm

Dod101 wrote:
How do soothsayers divine a forecast yield anyway?


We listen to the business-analysts who are employed to both follow and talk to the companies involved with regards to their projected business positions, including the expected future position of their dividends.

I believe the Digital Look forecast-yield figures are based on a aggregate of those analyst forecasts, and I'm quite content to perform an overall income-portfolio view based on the sum of those forecasts based against my holdings. At a portfolio level, these aggregated forecast-yields have been close enough to be useful to me in planning my expected future income.

Anyone using historical-yield figures, based on the past 12-months dividends paid out is also 'making a forecast' that those dividends themselves will be paid out in the coming 12 months.

Some companies don't actually do so....

Cheers,

Itsallaguess

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Re: When do you stop chasing yield?

#111373

Postby Dod101 » January 17th, 2018, 5:43 pm

I use historical yield but I am not making a forecast, merely an assumption. There is a difference. And I am not forecasting yield; I am assuming that the actual monetary dividend over the entire portfolio will be not less than the previous year.

Coming back to SSE. It means that soothsayers who are forecasting a 7.4% yield are assuming a further drop in the share price based on recent dividend progression. That is hardly comforting.

Dod

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Re: When do you stop chasing yield?

#111378

Postby Itsallaguess » January 17th, 2018, 6:16 pm

Dod101 wrote:
I use historical yield but I am not making a forecast, merely an assumption.

There is a difference.


Could you please explain what that difference is, as I fail to see how an assumption of a similar dividend amount going forward is not a forecast in itself.

Cheers,

Itsallaguess


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