HYP Practical guidance: what is the FTSE 100 yield?

[Gengulphus]

In viewtopic.php?p=343354#p343354, moorfield asks in the context of the HYP Practical guidance "is there a source/link which definitely settles the question (and can be helpfully linked from the Guidelines) of what is high yield?". The pedantic answer is that the guidance clearly indicates that it's a yield above that of the FTSE100, but it seems pretty clear to me from the thread context that what he's really asking is whether there is a source/link that definitely settles the question of what the FTSE100 yield is.

My view is that the answer to that question should be something like "No - there are indicative sources, but not definitive ones. Accept that it's valid to view as high any yield that's in the same ballpark as any of the indicative answers or higher." Part of my reason for believing that is that I know of two sources for the FTSE100 yield I find respectable and reputable, namely https://markets.ft.com/data/indices/tea ... =UKX.D:FSI and https://dividenddata.co.uk/dividendyiel ... et=ftse100 (there may well be more I don't know about, of course). They currently disagree quite significantly with each other, giving values of 4.74% and 3.79% respectively (*). The other part of my reason for believing that is that the yield a HYPer is really interested in is the forward yield from their date of purchase, and both of those sources are essentially historical yields - so neither is really good as an apples-with-apples comparison with current yields of shares. That doesn't normally make a huge difference, but the widespread dividend cuts in the last six months or so make me suspect neither 4.74% nor 3.79% is an especially good estimate of the current forward yield of the FTSE100.

But my view is doubtless not the only one, and since I'm not a moderator, it's not one that will directly affect whether posts are deleted / moved from HYP Practical. So this is a request for others' views on what the FTSE100 yield is for the purposes of the HYP Practical guidance - and especially for moderators' views, since those will directly affect such matters.

Please note that this thread is not about broader matters such as whether the guidance is sensible in wanting HYP shares to have yields above that of the FTSE100, or whether there are better choices for that 'is this yield high?' test. It is purely about how people should understand the current guidance's test. If anyone wants to discuss those broader matters, feel free, but please start a new thread for them!

(*) Why they differ by so much, I'm not certain. I suspect that it may be due to the FT value using historical dividends for the companies' last completed financial year and the DividendData value using rolling historical dividends - with so many companies having December 31st or March 31st year ends, historical dividends for their last completed financial years will be very largely uninfluenced by the pandemic, while rolling historical dividends will include a lot of post-pandemic interims. But that is just a suspicion and I haven't done the digging needed to confirm whether it is in fact the case.

Gengulphus

[scrumpyjack]

A J Bell do a quarterly estimate based on analysts consensus forecasts.

https://www.ajbell.co.uk/dividend-dashb ... rd-q2-2020

This shows that analysts think that 2021 dividends in aggregate will be back to the 2019 levels

[mc2fool]

The pedantic answer is that the guidance clearly indicates that it's a yield above that of the FTSE100, but it seems pretty clear to me from the thread context that what he's really asking is whether there is a source/link that definitely settles the question of what the FTSE100 yield is.

My view is that the answer to that question should be something like "No - there are indicative sources, but not definitive ones. Accept that it's valid to view as high any yield that's in the same ballpark as any of the indicative answers or higher." Part of my reason for believing that is that I know of two sources for the FTSE100 yield I find respectable and reputable, namely https://markets.ft.com/data/indices/tea ... =UKX.D:FSI and https://dividenddata.co.uk/dividendyiel ... et=ftse100 (there may well be more I don't know about, of course). They currently disagree quite significantly with each other, giving values of 4.74% and 3.79% respectively (*).
:
(*) Why they differ by so much, I'm not certain. I suspect that it may be due to the FT value using historical dividends for the companies' last completed financial year and the DividendData value using rolling historical dividends - with so many companies having December 31st or March 31st year ends, historical dividends for their last completed financial years will be very largely uninfluenced by the pandemic, while rolling historical dividends will include a lot of post-pandemic interims. But that is just a suspicion and I haven't done the digging needed to confirm whether it is in fact the case.

You wouldn't consider FTSE Russell themselves to be a, indeed, the definitive source?

https://www.ftserussell.com/products/indices/uk, scroll down and click on the factsheet link for the FTSE 100 Index and on page 3 of that PDF it says that as at 31 August 2020 the yield was 4.70%.

That's very close to the current FT figure, and as it closed at 5963 on 28-Aug (31st was a bank holiday) and pretty close to the same today, that looks definitive too.

My suspicion on the difference between that and the dividenddata figure is that the FTSE figure is what you'd actually have got from holding the index constituents in their market cap weighted amounts, whereas the dividenddata is simply an arithmetic average of the yields of the constituents. But that is just a suspicion and I haven't done the digging needed to confirm whether it is in fact the case.

[kiloran]

My suspicion on the difference between that and the dividenddata figure is that the FTSE figure is what you'd actually have got from holding the index constituents in their market cap weighted amounts, whereas the dividenddata is simply an arithmetic average of the yields of the constituents. But that is just a suspicion and I haven't done the digging needed to confirm whether it is in fact the case.

That sounded like pretty good reasoning, but I downloaded the DividendData data to a spreadsheet, and the arithmetic average of the FTSE100 individual company yields is 3.1%, not the 3.79% quoted at the top of the page. Oh well!

--kiloran

[Gengulphus]

A J Bell do a quarterly estimate based on analysts consensus forecasts.

https://www.ajbell.co.uk/dividend-dashb ... rd-q2-2020

This shows that analysts think that 2021 dividends in aggregate will be back to the 2019 levels

Thanks for the reminder of that source - I had seen in a previous thread, but had forgotten it... It does have some problems - it's only updated once per quarter and a lot can happen in a quarter (especially in current conditions), and analyst's forecasts are generally for the first not-yet-reported-on financial year of the company, whenever that ends. So for instance the current analysts' forecasts for Taylor Wimpey are for the ~75%-complete year from 01/01/2020 to 31/12/2020, while those for Barratt Developments are for the ~25%-complete year from 01/07/2020 to 30/06/2021. Both being housebuilders, the two companies are probably quite similarly affected by the pandemic, but the difference in the forecast periods means that their forecasts may be rather differently affected... However, given that the other sources I know of for the FTSE100 yield also have pandemic-related problems, it's certainly worth adding to the list of indicative sources.

Gengulphus

[dealtn]

I don't know of an answer, certainly one that is free.

My data source is paid for, and even then I manually adjust and check it.

However does it really matter for those that follow HYP, and especially on a HYP-P Board? It seems to me the most important of those four letters is the second P. Maybe it would matter on a HYP-T Board would one ever to be created. From the infrequent occasions I visit and contribute the "practical" answer to many such questions at this unusual time, appears to be an acceptance that these aren't normal times.

As such there seems to be no concern about buying/topping-up/discussing etc. shares that have had cuts/suspensions/cancellations of dividends, and that historic/current/forecast yields of zero and low-yield are frequent. The days of strict application of "rules" seem behind us, and may not return, or at least must await the return of something considered normal again.

The arguments about such matters, less frequent than they used to be, appear to be from those that have the tendency to "weaponise" such matters as an attack on the HYP system, not out of genuine consideration for the topic of yield. Or is that just a wrong impression I have picked up?

[Gengulphus]

You wouldn't consider FTSE Russell themselves to be a, indeed, the definitive source?

https://www.ftserussell.com/products/indices/uk, scroll down and click on the factsheet link for the FTSE 100 Index and on page 3 of that PDF it says that as at 31 August 2020 the yield was 4.70%.

Not for HYP purchase decisions, no, for reasons explained in my OP. But of course, as also indicated in my OP, it's what the moderators consider that counts, not what I consider...

That's very close to the current FT figure, and as it closed at 5963 on 28-Aug (31st was a bank holiday) and pretty close to the same today, that looks definitive too.

I believe the FT sources its figures from FTSE Russell, so that is probably no coincidence. I would normally prefer FTSE Russell to be the linked source, as being closer to the horse's mouth, but in this case I feel that's outweighed by the FT link producing up-to-date figures and a chart that's of interest if one wants to see how the yield has varied in the past.

Gengulphus

[Gengulphus]

However does it really matter for those that follow HYP, and especially on a HYP-P Board? ...

I'd have thought it was pretty obvious that what is allowed to be posted on the HYP Practical board does matter to users of that board, and that as the HYP Practical guidance uses the FTSE100 yield in one of its criteria, it matters what that yield is! It doesn't necessarily matter to how they run their portfolios in practice, but it does matter to how they use the board. (Which may be the key to settling whether this thread should be on the Biscuit Bar or on HYP Practical - a decision I was uncertain about, and which I have passed to the moderators to decide by reporting my own OP.)

Gengulphus

[dealtn]

However does it really matter for those that follow HYP, and especially on a HYP-P Board? ...

I'd have thought it was pretty obvious that what is allowed to be posted on the HYP Practical board does matter to users of that board, and that as the HYP Practical guidance uses the FTSE100 yield in one of its criteria, it matters what that yield is! It doesn't necessarily matter to how they run their portfolios in practice, but it does matter to how they use the board. (Which may be the key to settling whether this thread should be on the Biscuit Bar or on HYP Practical - a decision I was uncertain about, and which I have passed to the moderators to decide by reporting my own OP.)

Gengulphus

I don't think our views differ hugely on this. My point is that on many observable occasions what is posted on that Board, "allowed" or not, isn't actually that reflective of the guidelines any more. Maybe I am wrong on this, as I am not a frequent poster, but as an observer that is how it seems. I note your quote stops short of my point about the last of the 4 letters HYP-P being as important as the others.

Given the obvious difficulty in ascertaining what (forecast) yields are for individual companies, and an index as an aggregate, the practical solution, given that historic ones are no longer the close proxy they have been in the past, seems almost by default to mean that a "common sense" solution is being applied by the practitioners there. Is that wrong?

[Wizard]

However does it really matter for those that follow HYP, and especially on a HYP-P Board? ...

I'd have thought it was pretty obvious that what is allowed to be posted on the HYP Practical board does matter to users of that board, and that as the HYP Practical guidance uses the FTSE100 yield in one of its criteria, it matters what that yield is! It doesn't necessarily matter to how they run their portfolios in practice, but it does matter to how they use the board. (Which may be the key to settling whether this thread should be on the Biscuit Bar or on HYP Practical - a decision I was uncertain about, and which I have passed to the moderators to decide by reporting my own OP.)

Gengulphus

But as the guidance is "should" when applied to that criterion then surely having a definitive answer on what the FTSE100 yield may be is not as critical as you suggest.

[Gengulphus]

However does it really matter for those that follow HYP, and especially on a HYP-P Board? ...

I'd have thought it was pretty obvious that what is allowed to be posted on the HYP Practical board does matter to users of that board, and that as the HYP Practical guidance uses the FTSE100 yield in one of its criteria, it matters what that yield is! It doesn't necessarily matter to how they run their portfolios in practice, but it does matter to how they use the board. (Which may be the key to settling whether this thread should be on the Biscuit Bar or on HYP Practical - a decision I was uncertain about, and which I have passed to the moderators to decide by reporting my own OP.)

I don't think our views differ hugely on this. My point is that on many observable occasions what is posted on that Board, "allowed" or not, isn't actually that reflective of the guidelines any more. Maybe I am wrong on this, as I am not a frequent poster, but as an observer that is how it seems. I note your quote stops short of my point about the last of the 4 letters HYP-P being as important as the others.

Sorry, but I meant what I said about this thread being "purely about how people should understand the current guidance's test". Please take broader subjects such as how closely (or not) posters on HYP Practical actually adhere to the guidance elsewhere - the "When does "should" mean "must" and when doesn't it?" thread might be suitable. That is also the reason why I stopped my quote short of the bits about HYP-P and HYP-T: what the HYP Practical board is for is a different question from how to interpret the yield-above-FTSE100's test in its guidance.

Given the obvious difficulty in ascertaining what (forecast) yields are for individual companies, and an index as an aggregate, the practical solution, given that historic ones are no longer the close proxy they have been in the past, seems almost by default to mean that a "common sense" solution is being applied by the practitioners there. Is that wrong?

Maybe not, as long as they can remain in close enough agreement about what the "common sense" solution is to avoid arguments about whether shares do or don't have sufficiently high yields for discussion to be allowable. But on the evidence of various exchanges that have required moderator intervention over the years, that seems very doubtful to me... In particular, I think everyone has to accept that even though a yield is below the FTSE100's yield in their opinion, if it is reasonably close then it is perfectly valid for others to have other opinions on the question, and not a good idea either to report them as off-topic or to make an issue of it on the board. (And if it's unreasonably far below the FTSE100 yield - so much below that they feel it is deliberately flouting what the guidance says or just completely ignoring it, IMHO it's still not a good idea to make an issue of it on the board: reporting it means the moderators have one off-topic post to deal with, whereas making an issue of it on the board is liable to give them many off-topic posts to deal with!)

Gengulphus

[tjh290633]

(*) Why they differ by so much, I'm not certain. I suspect that it may be due to the FT value using historical dividends for the companies' last completed financial year and the DividendData value using rolling historical dividends - with so many companies having December 31st or March 31st year ends, historical dividends for their last completed financial years will be very largely uninfluenced by the pandemic, while rolling historical dividends will include a lot of post-pandemic interims. But that is just a suspicion and I haven't done the digging needed to confirm whether it is in fact the case.

Gengulphus

That I suspect is the answer for the difference between them.

In my view, both are unrealistic, but our crystal balls are cloudy.

TJH

[Gengulphus]

However does it really matter for those that follow HYP, and especially on a HYP-P Board? ...

I'd have thought it was pretty obvious that what is allowed to be posted on the HYP Practical board does matter to users of that board, and that as the HYP Practical guidance uses the FTSE100 yield in one of its criteria, it matters what that yield is! It doesn't necessarily matter to how they run their portfolios in practice, but it does matter to how they use the board. (Which may be the key to settling whether this thread should be on the Biscuit Bar or on HYP Practical - a decision I was uncertain about, and which I have passed to the moderators to decide by reporting my own OP.)

But as the guidance is "should" when applied to that criterion then surely having a definitive answer on what the FTSE100 yield may be is not as critical as you suggest.

I have not suggested that having a definitive answer to the question is critical! Quite the contrary - I gave my answer to the question in my OP as "No - there are indicative sources, but not definitive ones. Accept that it's valid to view as high any yield that's in the same ballpark as any of the indicative answers or higher."

But if that or something similar is the moderators' answer, I do regard it as important ("critical" is probably too strong a word) that it's generally understood that there isn't a definitive answer - there is some leeway, and so what you see as somewhat-below-FTSE100 yields aren't worth making an issue of, either by reporting them or on the board. And of course, if the moderators' answer is that there is a definitive test (which I think is unlikely based on what I've read elsewhere, but I could be wrong), it is important that people understand what that definitive answer is.

In short, I think it important that people understand what the moderators' answer is, whether that answer is definitive or not.

Gengulphus

[dealtn]

(And if it's unreasonably far below the FTSE100 yield - so much below that they feel it is deliberately flouting what the guidance says or just completely ignoring it, IMHO it's still not a good idea to make an issue of it on the board: reporting it means the moderators have one off-topic post to deal with, whereas making an issue of it on the board is liable to give them many off-topic posts to deal with!)

Gengulphus

Well, as I said, I am not a frequent contributor there, so I won't be reporting such posts, but if you are setting that bar then I fear the Board will once again descend into some of the less attractive behaviours of the past.

It will encourage reporting of the numerous posts that are now normal, as I described earlier where shares that have cut/cancelled etc. and don't meet what many believe to be the "rules", are discussed with respect to new purchases.

That "common sense" might not be observed should the guidelines be seen as some kind of binary test. I suspect the moderators will have a difficult job finding an adequate source of "yield" that can be used in the way, and that their work load might increase on the back of suggestions of a tighter guidance, rather than a more lassiez-faire approach.

I genuinely don't know what the answer can be, and whilst its not a Board that matters a lot to me, the unnecessary use of moderator time and resource across the site does. (Be that from extra work from guidelines that aren't tight enough, and encourage, deliberate or not, misinterpretation, or from overly tight guidelines that encourage unnecessary "spats" about technical unimportant breaches).

I admire your intentions but they might result in either a non-problem being fixed, or a new (actually old) problem being created.

[Wizard]

I'd have thought it was pretty obvious that what is allowed to be posted on the HYP Practical board does matter to users of that board, and that as the HYP Practical guidance uses the FTSE100 yield in one of its criteria, it matters what that yield is! It doesn't necessarily matter to how they run their portfolios in practice, but it does matter to how they use the board. (Which may be the key to settling whether this thread should be on the Biscuit Bar or on HYP Practical - a decision I was uncertain about, and which I have passed to the moderators to decide by reporting my own OP.)

But as the guidance is "should" when applied to that criterion then surely having a definitive answer on what the FTSE100 yield may be is not as critical as you suggest.

I have not suggested that having a definitive answer to the question is critical! Quite the contrary - I gave my answer to the question in my OP as "No - there are indicative sources, but not definitive ones. Accept that it's valid to view as high any yield that's in the same ballpark as any of the indicative answers or higher."

But if that or something similar is the moderators' answer, I do regard it as important ("critical" is probably too strong a word) that it's generally understood that there isn't a definitive answer - there is some leeway, and so what you see as somewhat-below-FTSE100 yields aren't worth making an issue of, either by reporting them or on the board. And of course, if the moderators' answer is that there is a definitive test (which I think is unlikely based on what I've read elsewhere, but I could be wrong), it is important that people understand what that definitive answer is.

In short, I think it important that people understand what the moderators' answer is, whether that answer is definitive or not.

Gengulphus

But don't we have the answer from anogher thread from today?

To answer the original question, the Mods and site owners want users to recognise what that board is about and that posts should he supportive of that board's objectives. In short, constructive and relevant posts that abide by its guidelines are welcome.

To support this, there are rules and guidelines. The "should" is to give the Mods a little flexibility where they see that someone has posted in a constructive way, and the vast majority of their portfolio conforms to these "shoulds", but maybe one bit doesn't.

However please do not abuse that flexibility.

Clariman

From Site Admin no less.

[Gengulphus]

In short, I think it important that people understand what the moderators' answer is, whether that answer is definitive or not.

But don't we have the answer from anogher thread from today?

To answer the original question, the Mods and site owners want users to recognise what that board is about and that posts should he supportive of that board's objectives. In short, constructive and relevant posts that abide by its guidelines are welcome.

To support this, there are rules and guidelines. The "should" is to give the Mods a little flexibility where they see that someone has posted in a constructive way, and the vast majority of their portfolio conforms to these "shoulds", but maybe one bit doesn't.

However please do not abuse that flexibility.

From Site Admin no less.

No, we don't - that's about how to interpret "should", this question is about how to interpret "the yield of the FTSE 100 index". I'm rather doubtful that flexing the FT figure of 4.74% down to 3.6% (chosen as a figure that came up recently in a HYP Practical thread) would be seen as "a little flexibility"... I can see flexing a figure down by up to around half a percentage point as "a little flexibility" (so I'd have no trouble if it was OK to start from the DividendData figure), but more than a full percentage point strikes me as stretching the meaning of "a little flexibility" beyond breaking point...

But even if my doubts about that are misplaced, it would be good to have the moderators' answer confirmed, here in a thread whose title mentions the specific question. That way, there's a much better hope of it being found when the question arises again in the future, as it doubtless will. And there will be less scope for people to argue about whether the moderators' answer about the FTSE100 yield can be inferred from their answer about "should", and if so, just what the inferred answer should be (take what I say in the last paragraph as an indication of the sort of argument I can easily imagine arising!).

Gengulphus

[Wizard]

In short, I think it important that people understand what the moderators' answer is, whether that answer is definitive or not.

But don't we have the answer from anogher thread from today?

To answer the original question, the Mods and site owners want users to recognise what that board is about and that posts should he supportive of that board's objectives. In short, constructive and relevant posts that abide by its guidelines are welcome.

To support this, there are rules and guidelines. The "should" is to give the Mods a little flexibility where they see that someone has posted in a constructive way, and the vast majority of their portfolio conforms to these "shoulds", but maybe one bit doesn't.

However please do not abuse that flexibility.

From Site Admin no less.

No, we don't - that's about how to interpret "should", this question is about how to interpret "the yield of the FTSE 100 index". I'm rather doubtful that flexing the FT figure of 4.74% down to 3.6% (chosen as a figure that came up recently in a HYP Practical thread) would be seen as "a little flexibility"... I can see flexing a figure down by up to around half a percentage point as "a little flexibility" (so I'd have no trouble if it was OK to start from the DividendData figure), but more than a full percentage point strikes me as stretching the meaning of "a little flexibility" beyond breaking point...

But even if my doubts about that are misplaced, it would be good to have the moderators' answer confirmed, here in a thread whose title mentions the specific question. That way, there's a much better hope of it being found when the question arises again in the future, as it doubtless will. And there will be less scope for people to argue about whether the moderators' answer about the FTSE100 yield can be inferred from their answer about "should", and if so, just what the inferred answer should be (take what I say in the last paragraph as an indication of the sort of argument I can easily imagine arising!).

Gengulphus

I hope you get an answer from a mod shortly.

[MDW1954]

I hope you get an answer from a mod shortly.

Here's one: This whole thread, and the parallel thread on the subject of "must" versus "should", read rather like the bits in Monty Python's 'Life of Brian' regarding the Judean People's Front. In a long investing career, I can't think of a less appropriate time to try and calculate the yield of the FTSE 100. Moreover, my nasty suspicious mind can't quite put to one side that the purpose of this fabled benchmark is to simply make trouble by reporting posts discussing sub-FTSE 100 yield shares, however inadvertently. So I for one will put no effort into this Don Quixote-like endeavour.

MDW1954

[Alaric]

Moreover, my nasty suspicious mind can't quite put to one side that the purpose of this fabled benchmark is to simply make trouble by reporting posts discussing sub-FTSE 100 yield shares, however inadvertently.

II thought it was just an arbitrary benchmark put in by stooz and clariman to get the site up and running. I don't think either are or have ever been "HYP" investors

As the cancelled dividends replace the paid dividends in the twelve month lookback, the benchmark value will drift lower.

[moorfield]

In a long investing career, I can't think of a less appropriate time to try and calculate the yield of the FTSE 100. Moreover, my nasty suspicious mind can't quite put to one side that the purpose of this fabled benchmark is to simply make trouble by reporting posts discussing sub-FTSE 100 yield shares, however inadvertently.

Well as the originator of the question, I should say I am certainly not setting out to make trouble, quite the opposite, and your answer (my italics) illustrates why I asked it. So what benchmark can be used for reliably determining what is high yield? As I wrote in the linked post (viewtopic.php?p=343354#p343354) I use CTY yield because it is simple to measure(*) and poses the question "Why am I buying a single name share yielding less income than this collective?". Perhaps that is best placed on HYSS, certainly I wouldn't expect HYPP folk to consider that the FTSE 100 yield (whatever that is, now) might not be fit for their purpose.


(*) 4 * 4.75p / 320p = 5.9%, until told otherwise