Jam today or jam tomorrow?

[vrdiver]

When filtering for HYP purchases, I usually set the dividend yield so as to eliminate low or average yielding shares. I note in my own HYP however, that there are several companies whose dividend, whilst nominally now a low yield, has been increasing at a steady clip over quite a few years, with the attendant increase in share price keeping it below the HYP radar.

It occurs to me that HYP builders, especially those in it for the long term, might want to filter on companies that have raised their dividend for 10, 20, 30 or more years (creating a pressure on the board not to be in the chair when the record is broken) and then to filter on sustainability as well as actual yield.

My argument is not original: many have argued that a company yielding 3% and growing at 10% pa is a better cash cow than a company yielding 5% but growing the dividend at 5% pa. Mathematically it's true (eventually), but in the real world, how do investors balance the jam today / jam tomorrow conundrum within the HYP universe?

[idpickering]

When filtering for HYP purchases, I usually set the dividend yield so as to eliminate low or average yielding shares. I note in my own HYP however, that there are several companies whose dividend, whilst nominally now a low yield, has been increasing at a steady clip over quite a few years, with the attendant increase in share price keeping it below the HYP radar.

It occurs to me that HYP builders, especially those in it for the long term, might want to filter on companies that have raised their dividend for 10, 20, 30 or more years (creating a pressure on the board not to be in the chair when the record is broken) and then to filter on sustainability as well as actual yield.

My argument is not original: many have argued that a company yielding 3% and growing at 10% pa is a better cash cow than a company yielding 5% but growing the dividend at 5% pa. Mathematically it's true (eventually), but in the real world, how do investors balance the jam today / jam tomorrow conundrum within the HYP universe?

An interesting post vrdiver. On your later point there, I think it all ties in with recent comments on this board from myself and others, that certain shares, despite being lower yielders, such as Unilever and the like, do form a firm and reliable base for a HYP, around which to build the HYP. I know ULVR are never going to shoot the lights out with their dividend on an annual basis, but compounding that return over the years, it adds up nicely. We HYPers are a patient lot after all.

Ian.

[Wizard]

When filtering for HYP purchases, I usually set the dividend yield so as to eliminate low or average yielding shares...
...Mathematically it's true (eventually), but in the real world, how do investors balance the jam today / jam tomorrow conundrum within the HYP universe?

For a new purchase, surely the HYP approach by definition is to look for a high yielder, jam today. IIRC this is the case under a PYADic approach or as recently defined for TLF. That said, I am beginning to think the sustainability point you make is an important one.

Terry.

[idpickering]

When filtering for HYP purchases, I usually set the dividend yield so as to eliminate low or average yielding shares...
...Mathematically it's true (eventually), but in the real world, how do investors balance the jam today / jam tomorrow conundrum within the HYP universe?

For a new purchase, surely the HYP approach by definition is to look for a high yielder, jam today. IIRC this is the case under a PYADic approach or as recently defined for TLF. That said, I am beginning to think the sustainability point you make is an important one.

Terry.

Good morning Terry. Whenever I screen for shares, my lowest yield screen starts at 3%. Screening the FTSE100 would throw up 40 shares. Having just done a screen via digitallook, I see Centrica and Pearson are right at the top offering yields of 8.6% and 7.4% respectively. I would ignore them as being to good to be true. So in the FTSE100 my potential universe is 38 shares to filter some more. Within that one could easily construct a well diversified HYP IMHO. Unilever currently offer a forward yield of 3.2% incidently. I also hold Diageo and they only offer 2.5% yield, but I'm not going to sell my holdings, or top them up, nor am I going to top up my ULVR holdings either. They can stay as part of my HYP base. The magic word in this is Portfolio, and it's the overall portfolio yield I'm aiming at achieving.

Ian.

[moorfield]

My argument is not original: many have argued that a company yielding 3% and growing at 10% pa is a better cash cow than a company yielding 5% but growing the dividend at 5% pa. Mathematically it's true (eventually), but in the real world, how do investors balance the jam today / jam tomorrow conundrum within the HYP universe?

It is possible to evaluate how much tomorrow's jam is worth today, using a present value method, but one has to make some assumptions along the way:

How much jam to you want tomorrow?
How quickly is today's jam growing?
What's the rate of inflation?

I draw a "jam today / jam tomorrow curve" which extrapolates to 2031 and against which I am measuring my overall HYP income annually to keep me on track.

[ADrunkenMarcus]

I think a large part of this is, naturally, dependent on your time frame. I was purchasing dividend growth shares in my early 20s, so my time horizon is much longer.

For myself, I don't follow the HYP route as I have preferred to go for lower yielders with greater dividend growth potential. However, for someone wanting the income in the next ten or fifteen years - or reinvesting the dividends within the portfolio during an accumulation stage - then I understand why they would prefer a higher starting income.

Best wishes

Mark.

[tjh290633]

I've looked at this over time, having included Hanson in my PEP at the outset and similarly, Stagecoach (SGC) in my parallel ISA. Both had lower yields than the other selections. However the path forward is never smooth. Hanson began demerging, leaving the rump as a high yielding aggregate business, with IMT and Energy as high yielding offshoots. Eventually taken over, the total return was fine, although I doubt that the income ever caught up the initially higher yielding peers.

Stagecoach had a wobbly period with problems in Coach USA, but recovered and eventually grew to the extent that I sold it because of the low yield. I don't think it caught up, although I was able to add at very low price when it was out of favour. Again events conspired to thwart initial ideas.

There are some apparently rock solid shares which justify their lower yields, like MKS for many years. Nobody knows what the future may bring.

Be vigilant.

TJH

[Arborbridge]

When filtering for HYP purchases, I usually set the dividend yield so as to eliminate low or average yielding shares. I note in my own HYP however, that there are several companies whose dividend, whilst nominally now a low yield, has been increasing at a steady clip over quite a few years, with the attendant increase in share price keeping it below the HYP radar.

It occurs to me that HYP builders, especially those in it for the long term, might want to filter on companies that have raised their dividend for 10, 20, 30 or more years (creating a pressure on the board not to be in the chair when the record is broken) and then to filter on sustainability as well as actual yield.

My argument is not original: many have argued that a company yielding 3% and growing at 10% pa is a better cash cow than a company yielding 5% but growing the dividend at 5% pa. Mathematically it's true (eventually), but in the real world, how do investors balance the jam today / jam tomorrow conundrum within the HYP universe?

What you are veering towards is essentially a non-HYP discussion, and that would be better exposed over on the other board where it can be given full reign. Extensive discussion about companies yielding less than the FTSE is most certainly not within the HYP Practical remit, though as a passing observation no one could object.
And as such a passing observation, I'd mention UK dividend Aristocrats, which does look for consistent and increasing dividend payers - though asking for 20 or 30 years increasing dividends seems beyond the UK market. I have a holding in UKDV, and have "enjoyed" 4.56% XIRR since April 2012 and a snail-like dividend growth. There may be better ways, of course, but as an example of the long term divi payers theory, I have to say it does not exactly shine out like a beacon!

Arb.

[moorfield]

Extensive discussion about companies yielding less than the FTSE is most certainly not within the HYP Practical remit, though as a passing observation no one could object.

Why not? Pyad holds several in HYP1.



Edit:

Discussion of potential shares, and of shares which have been selected in the past, is acceptable on the HYP Practical Board.

[OhNoNotimAgain]

When filtering for HYP purchases, I usually set the dividend yield so as to eliminate low or average yielding shares. I note in my own HYP however, that there are several companies whose dividend, whilst nominally now a low yield, has been increasing at a steady clip over quite a few years, with the attendant increase in share price keeping it below the HYP radar.

It occurs to me that HYP builders, especially those in it for the long term, might want to filter on companies that have raised their dividend for 10, 20, 30 or more years (creating a pressure on the board not to be in the chair when the record is broken) and then to filter on sustainability as well as actual yield.

My argument is not original: many have argued that a company yielding 3% and growing at 10% pa is a better cash cow than a company yielding 5% but growing the dividend at 5% pa. Mathematically it's true (eventually), but in the real world, how do investors balance the jam today / jam tomorrow conundrum within the HYP universe?

What you are veering towards is essentially a non-HYP discussion, and that would be better exposed over on the other board where it can be given full reign. Extensive discussion about companies yielding less than the FTSE is most certainly not within the HYP Practical remit, though as a passing observation no one could object.
And as such a passing observation, I'd mention UK dividend Aristocrats, which does look for consistent and increasing dividend payers - though asking for 20 or 30 years increasing dividends seems beyond the UK market. I have a holding in UKDV, and have "enjoyed" 4.56% XIRR since April 2012 and a snail-like dividend growth. There may be better ways, of course, but as an example of the long term divi payers theory, I have to say it does not exactly shine out like a beacon!

Arb.

To capture the dividend growth of the market you have to hold the whole market. Not a subset.

[Arborbridge]

Extensive discussion about companies yielding less than the FTSE is most certainly not within the HYP Practical remit, though as a passing observation no one could object.

Why not? Pyad holds several in HYP1.


Edit:

Discussion of potential shares, and of shares which have been selected in the past, is acceptable on the HYP Practical Board.

That is true, but you are distorting my meaning. Nothing wrong with discussing shares which were once genuine HYP shares and are held in portfolios. But I'm pointing out that we should not be veering towards discussing low yielding shares as a way of life, or an alternative strategy: i.e. "I think lower yield shares grow faster, therefore I'm advocating this as a strategy".

I'm sure you understand the difference perfectly well, and wonder if people on this board are just disingenuous for the sake of stoking up a good anti-HYP argument.

[Arborbridge]

To capture the dividend growth of the market you have to hold the whole market. Not a subset.

True, but no one mentioned capturing the growth of the whole market (except you, of course) and we are interested in a subset - that is what HYP is.

Your own theory is an alternative strategy and why not discuss it on the other board where one can have a fully in-depth discussion - this would be better than your guerilla tactic of sniping at HYP whever possible, which convinces nobody.


Arb.

[staffordian]

As TJH hinted at, the problem with the "Jam today or jam tomorrow" question is that by making do with plain bread and butter today, there is no guarantee that tomorrow's jam will not have gone mouldy.

Staffordian

[Arborbridge]

As TJH hinted at, the problem with the "Jam today or jam tomorrow" question is that by making do with plain bread and butter today, there is no guarantee that tomorrow's jam will not have gone mouldy.

Staffordian

Or, just as likely, you will starve before getting as far as tomorrow! One needs a certain yield to survive.

[moorfield]

That is true, but you are distorting my meaning. Nothing wrong with discussing shares which were once genuine HYP shares and are held in portfolios. But I'm pointing out that we should not be veering towards discussing low yielding shares as a way of life, or an alternative strategy: i.e. "I think lower yield shares grow faster, therefore I'm advocating this as a strategy".

I'm sure you understand the difference perfectly well, and wonder if people on this board are just disingenuous for the sake of stoking up a good anti-HYP argument.

Arb, fair enough. I too should expand on my "How much jam do you want tomorrow?" post above in the "present value" context I think there can be some (albeit narrow) wiggle room for lower yielders, between inflation say 2% and FTSE 100 yield say 3.9%. That would not preclude buying a few of Pyad's shares above and, for those who are fond of it, ULVR. As you know, I wouldn't personally.

[Arborbridge]

Arb, fair enough. I too should expand on my "How much jam do you want tomorrow?" post above in the "present value" context I think there can be some (albeit narrow) wiggle room for lower yielders, between inflation say 2% and FTSE 100 yield say 3.9%. That would not preclude buying a few of Pyad's shares above and, for those who are fond of it, ULVR. As you know, I wouldn't personally.

Well, it would almost always preclude it for me - or indeed for anyone following the HYP strategy. 2% would be tinker time for the likes of myself and TJH, and in any case, I would be certain there are better options - even at 2%-3.9%.
But, I have strayed from the true path, buying ULVR when it yielded scarcely 4% (forecast), I believe, but that is a notable exception.

Best leave it there, lest we become moderated

[OhNoNotimAgain]

Moderator Message:
Deleted text. We know what you are pointing towards and that is not a discussion relevant to HYP practical. Raptor.

[StepOne]

Unilever was the last addition to my HYP about 4 years ago. At that point I was struggling to find any really good candidates that were yielding any more, and I liked Unilever's other qualities (size and diversity).

In 2014 my income from Unilever was well below that of my other holdings, but the rate of dividend growth means that this year it will deliver more pounds for me than British Land, BHP Billiton (including S32), Centrica, Glaxo, Pearson and Sainsburys.

The Unilever share price has also done well, so the yield remains low, but it's been a successful inclusion in my HYP (so far!).

(I must admit, I never thought that all the shares in an HYP needed to be yielding above market average - as long as the total portfolio was.)

Cheers,
StepOn

[idpickering]

Unilever was the last addition to my HYP about 4 years ago. At that point I was struggling to find any really good candidates that were yielding any more, and I liked Unilever's other qualities (size and diversity).

In 2014 my income from Unilever was well below that of my other holdings, but the rate of dividend growth means that this year it will deliver more pounds for me than British Land, BHP Billiton (including S32), Centrica, Glaxo, Pearson and Sainsburys.

The Unilever share price has also done well, so the yield remains low, but it's been a successful inclusion in my HYP (so far!).

(I must admit, I never thought that all the shares in an HYP needed to be yielding above market average - as long as the total portfolio was.)

Cheers,
StepOn

I agree with your later point there StepOne, in relation to the overall portfolio yield beating the market average, as I mentioned in my post further up this thread.

Ian.

[88V8]

Partly depends on one's age.
In my 60s, I want my jam today, thankyou. Also my peanut butter and marmalade.

But I try to avoid the 'extra 20% free' which tend to go mouldy when opened.
Luni always said not to chase the yield.

He also had a low yield cutoff even for reliables like Unilever.
Sensible chap.

V8