Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to johnstevens77,Bhoddhisatva,scotia,Anonymous,Cornytiv34, for Donating to support the site

NorwichFools HYP - 4th birthday and starting drawdown.

General discussions about equity high-yield income strategies
NorwichFool
Posts: 16
Joined: December 15th, 2016, 10:32 am
Has thanked: 15 times
Been thanked: 6 times

NorwichFools HYP - 4th birthday and starting drawdown.

#198220

Postby NorwichFool » February 1st, 2019, 5:18 pm

My High Yield Portfolio is approaching it's 4th birthday. The majority of shares were bought from a lump sum in February to April 2015. Since then I have used reinvested dividends to add a few additional stocks and made top up purchases.
It was always intended very much as an alternative to an annuity. I am now mostly retired from paid work and started drawing an income from the portfolio this financial year. The great majority of the portfolio is in a SIPP and ISA.

I was going to post this in the HYP Practical, but realised that investment trusts aren't allowed to be discussed there. I think of the whole portfolio as a single entity and am happy to include ITs.

Portfolio in order of income:


The portfolio yield is about 6.6% and overall has more than kept up with inflation since it's inception 4 years ago.
Total return since April 2015 is 18.3%. Slightly better than FTSE100 TR.
My biggest disaster was the collapse of Carillion which represented 2.5% of original capital. The fairly substantial dividends from Carillion mitigated the disaster by about 20%.

Things I have learned or would do differently:
1. If you are starting with a lump sum as I did, then better to spread your purchases over 6-12 months. I bought at a peak which has adversely affected my TR and yield.
2. Unless you really know what you are doing avoid small/mid cap companies. Stick to mega caps or well established investment trusts.
3.Try not to fiddle. For me, messing around with buying/selling mostly doesn't help and sometimes makes things worse.

Going forward, I am not planning to change much, except I will probably replace some of the smaller companies and ITs when a reasonable selling price comes up.

Opinions, advice etc. welcome.

dspp
Lemon Half
Posts: 5884
Joined: November 4th, 2016, 10:53 am
Has thanked: 5825 times
Been thanked: 2127 times

Re: NorwichFools HYP - 4th birthday and starting drawdown.

#198227

Postby dspp » February 1st, 2019, 5:44 pm

Well done.

I have put a cross post on the Portfolio Review board for you. That way when you come to do any updates in future years you will be able to find it more easily. But I have suggested that anybody with any comments does so over here.

(viewtopic.php?f=56&t=16020)

regards,
dspp

TUK020
Lemon Quarter
Posts: 2039
Joined: November 5th, 2016, 7:41 am
Has thanked: 762 times
Been thanked: 1175 times

Re: NorwichFools HYP - 4th birthday and starting drawdown.

#198234

Postby TUK020 » February 1st, 2019, 5:55 pm

Norwichfool,
nice looking portfolio (but that may be confirmation bias at work - I have about 75% overlap in the shares, and 50% in the ITs)

Major differences are that I have fewer insurance/financial serves positions, and more small industrials.

You have two shares that I made a conscious decision to bail out on:
SSE, a while back I decided that the trends of earnings vs dividend payouts was going to be unsustainable, and bailed out at 1600 (one of my major lucky timings). I haven't seen anything to make me change my mind.
Wod group: shorting activity scared me, and I backed out, although I think the sp has recovered some since. Maybe I moved too early, but don't feel a compelling reason to get back in.

A couple that I have that I like the look of:
Schroders asset management
Rotork - industrial machinery
A couple that I have that are a bit scarier
Persimmon
Marstons

On ITs, we share HFEL, MRCH, MYI. My biggest position is CTY, which tends to be my SIPP 'bucket' when I don't see anything else I fancy.
tuk020

monabri
Lemon Half
Posts: 8396
Joined: January 7th, 2017, 9:56 am
Has thanked: 1539 times
Been thanked: 3428 times

Re: NorwichFools HYP - 4th birthday and starting drawdown.

#198244

Postby monabri » February 1st, 2019, 6:27 pm

I'd be tempted to sell the lower yielders and reinvest into Merchants IT.

The risk-reward for holding an individual share where the yield is less than that of a collective doesn't seem worth it to me.

In the case of an individual holdings (APF, TATE & BAE Systems), IF both the yield and dividend growth rate are less/similar to Merchants IT then I'd re-deploy in to the higher yielding MRCH.

(I'd suggest referring to "dividend data" to review the CAGR in dividends)

https://www.dividenddata.co.uk/dividend ... &order=#AV.

If you feel uncomfortable redeploying all 3 into MRCH, then you might wish to consider exchanging Tate for CTY (4.16% yield for 4.49%) or even topping up with Murray International to reduce your UK exposure?


(all suggestions for consideration only!)

OZYU
2 Lemon pips
Posts: 199
Joined: December 31st, 2016, 3:52 pm
Has thanked: 42 times
Been thanked: 139 times

Re: NorwichFools HYP - 4th birthday and starting drawdown.

#198263

Postby OZYU » February 1st, 2019, 8:00 pm

On the face of it a fit for purpose portfolio, and indeed lots of solid holdings, we hold a fair number ourselves.

However, your f/cast portfolio yield is approaching 6.66%.
At this level, one can expect that the danger of capital erosion will creep in.

In fact this is precicely what is happening.
Your total return is 18%.

If, ignoring inflation for the moment, your underlying capital (income unit) had been static, your total return I estimate would be nearer 29%.
Not all capital erosion can be attributed to your high entry point, although I agree that trickling the initial injection would always have been my own preference too.

If your capital had kept up with inflation, then your total return would be nearer 43%.
In the long run this WILL matter, despite what anybody on these boards tells you. Retirement can last decades.
A truly balanced portfolio, even an income one, needs both income unit and divi per income unit to BOTH,measured in rolling few years, to grow matching at least RPI.
Eroding capital too much would eventually endanger the safety of the divi stream itself.

Solution: if you can, ie if there is spare income in there and some re investement/top up are possible, then gradually reduce your reduce portfolio yield. It will eventually do the trick.


You did ask for advice, this is what our various portfolios have taught us over decades.


Ozyu


PS If indirectly I am encouraging you to unitise and plot these things vs RPI, I most certainly am. Only then will you know precisely what the beast really is up to.

NorwichFool
Posts: 16
Joined: December 15th, 2016, 10:32 am
Has thanked: 15 times
Been thanked: 6 times

Re: NorwichFools HYP - 4th birthday and starting drawdown.

#198290

Postby NorwichFool » February 1st, 2019, 11:03 pm

TUK020 wrote:Norwichfool,

You have two shares that I made a conscious decision to bail out on:
SSE, a while back I decided that the trends of earnings vs dividend payouts was going to be unsustainable, and bailed out at 1600 (one of my major lucky timings). I haven't seen anything to make me change my mind.
Wod group: shorting activity scared me, and I backed out, although I think the sp has recovered some since. Maybe I moved too early, but don't feel a compelling reason to get back in.

......

On ITs, we share HFEL, MRCH, MYI. My biggest position is CTY, which tends to be my SIPP 'bucket' when I don't see anything else I fancy.
tuk020


Thanks TUK020. Well done on timing your exit from SSE. I only recently bought into SSE and paid 1160. I was happy with the P/E and the dividend seems sustainable. I guess the threat of nationalisation is the major threat.
I acquired Wood Group from the takeover of Amec Foster Wheeler and have just sat on them without much thought. Share price is extremely volatile and bounces up and down all over the place. Divis are reasonable and are reasonably well covered.
I use HFEL as my SIPP bucket - I like the diversification away from the UK.

Crazbe7
2 Lemon pips
Posts: 127
Joined: November 7th, 2016, 11:10 am
Has thanked: 6 times
Been thanked: 52 times

Re: NorwichFools HYP - 4th birthday and starting drawdown.

#198292

Postby Crazbe7 » February 1st, 2019, 11:17 pm

I use HFEL as my SIPP bucket - I like the diversification away from the UK.

Interesting that you use HFEL as a diversification.

My only comment on your ITs / HYP is your lack of exposure to North America. Only Murray International from a quick look.

Otherwise, we have similar equity holdings (approx 75% the same) but I have a higher % in Income ITs as I move away from concentrating on single share selection within an HYP.

Crazbe7

NorwichFool
Posts: 16
Joined: December 15th, 2016, 10:32 am
Has thanked: 15 times
Been thanked: 6 times

Re: NorwichFools HYP - 4th birthday and starting drawdown.

#198295

Postby NorwichFool » February 1st, 2019, 11:23 pm

monabri wrote:I'd be tempted to sell the lower yielders and reinvest into Merchants IT.

The risk-reward for holding an individual share where the yield is less than that of a collective doesn't seem worth it to me.

In the case of an individual holdings (APF, TATE & BAE Systems), IF both the yield and dividend growth rate are less/similar to Merchants IT then I'd re-deploy in to the higher yielding MRCH.

(I'd suggest referring to "dividend data" to review the CAGR in dividends)

https://www.dividenddata.co.uk/dividend ... &order=#AV.

If you feel uncomfortable redeploying all 3 into MRCH, then you might wish to consider exchanging Tate for CTY (4.16% yield for 4.49%) or even topping up with Murray International to reduce your UK exposure?


(all suggestions for consideration only!)


I'm gradually coming round to making more use of ITs. Especially large and/or old established ones. I like HFEL for a variety of reasons: long established trust (1930), diversify away from UK, excellent yield and history of increases which are well covered. It has also had better capital growth than both the average of my portfolio and the FTSE100.

NorwichFool
Posts: 16
Joined: December 15th, 2016, 10:32 am
Has thanked: 15 times
Been thanked: 6 times

Re: NorwichFools HYP - 4th birthday and starting drawdown.

#198301

Postby NorwichFool » February 1st, 2019, 11:48 pm

OZYU wrote:On the face of it a fit for purpose portfolio, and indeed lots of solid holdings, we hold a fair number ourselves.

However, your f/cast portfolio yield is approaching 6.66%.
At this level, one can expect that the danger of capital erosion will creep in.

In fact this is precicely what is happening.
Your total return is 18%.

If, ignoring inflation for the moment, your underlying capital (income unit) had been static, your total return I estimate would be nearer 29%.
Not all capital erosion can be attributed to your high entry point, although I agree that trickling the initial injection would always have been my own preference too.

If your capital had kept up with inflation, then your total return would be nearer 43%.
In the long run this WILL matter, despite what anybody on these boards tells you. Retirement can last decades.
A truly balanced portfolio, even an income one, needs both income unit and divi per income unit to BOTH,measured in rolling few years, to grow matching at least RPI.
Eroding capital too much would eventually endanger the safety of the divi stream itself.

Solution: if you can, ie if there is spare income in there and some re investement/top up are possible, then gradually reduce your reduce portfolio yield. It will eventually do the trick.


You did ask for advice, this is what our various portfolios have taught us over decades.


Ozyu


PS If indirectly I am encouraging you to unitise and plot these things vs RPI, I most certainly am. Only then will you know precisely what the beast really is up to.


Thanks for detailed reply Ozyu, and I am keen to get any advice I can. Got to admit some of that went over my head.

My capital value tends to follow the FTSE100 quite closely. The FTSE100 is presently almost exactly the same value as back in April 2015 and so is my capital. Almost all of my TR has been from dividends.

I plan to take 75-80% of dividends as income and reinvest the remainder.

monabri
Lemon Half
Posts: 8396
Joined: January 7th, 2017, 9:56 am
Has thanked: 1539 times
Been thanked: 3428 times

Re: NorwichFools HYP - 4th birthday and starting drawdown.

#198305

Postby monabri » February 2nd, 2019, 12:54 am

I think where Ozyu is coming from is based on measuring "performance" by unitising your portfolio.

The "output" from the unitisation will be

1) The value of each unit

Example: you've invested £100,000. This is your baseline. Then you decide that the investment can be defined by 1000 units, each of value £100. The allocation of £100 per unit is arbitrary..you could use another convenient value.

So, you have 1000 units each worth £100.

The value of each unit will fluctuate depending on the performance of the underlying investments (share prices).

Q1 Will the value of the units increase with time? (The value would be worth £100k plus RPI ( or better) in n years time..if in 10 years, it is still valued at £100k, its purchasing power has reduced).



2) Income per unit
Let's assume your dividends in the year tot-up to £5000.

So, your income per unit is £5000/1000 or £5 per unit for the year.

Q2 Will the portfolio deliver an income per unit that rises with time, beating RPI ( or some other metric) ? £5000 per year divis might be acceptable now but in 10 years, 20 years?

I believe what Ozyu is saying is that he believes that the answer to Q1 and Q2 might not be affirmative. The portfolio comprises elements that are mainly high yield , the company has prioritised paying the investor with a high yield rather than investing more in the business to grow both the capital value and, in time, produce a rising dividend. You are having a big chunk of the cake now..faster than it is being made (SSE).

Let's take RDSB ( or HSBA, or VOD). Their divi has been static, so the income per unit has not been increasing from these members of your portfolio. The concern is that we come back in 10 years and the divi is still 47cents per quarter and hasn't increased like your electric bill no doubt will have.

Keeping with RDSB ( or HSBA or VOD) and turning to it's contribution to the overall portfolio value. Will the value of RDSB ( and hence the share price) increase strongly over the next 10+ years or will it be worth more or less the same as now?

Of course, we cant answer the questions for definite but if we buy lots of one type of share ( high yield) then it's like buying too much of any one particular type of investment...it increases risk...

So in summary, I think Ozyu is expressing a concern that "unit value" and "income per unit" might remain static or deteriorate.

Where are the " growers" ?

I think he's suggesting looking at investments that are reasonable yields (3% perhaps but not 6%) but which are growing their dividends.

EssDeeAitch
Lemon Slice
Posts: 655
Joined: August 31st, 2018, 9:08 pm
Has thanked: 268 times
Been thanked: 251 times

Re: NorwichFools HYP - 4th birthday and starting drawdown.

#198309

Postby EssDeeAitch » February 2nd, 2019, 4:57 am

monabri wrote:I think where Ozyu is coming from is based on measuring "performance" by unitising your portfolio. ...............

.........
Where are the " growers" ?

I think he's suggesting looking at investments that are reasonable yields (3% perhaps but not 6%) but which are growing their dividends.


That is a very good take on Ozyu's comments and I thank you for it. I am unitising my HYP and even after a mere (volatile) five months since inception, I can see that the capital gain aspect is crucial to future valuations abd hence security.

tjh290633
Lemon Half
Posts: 8209
Joined: November 4th, 2016, 11:20 am
Has thanked: 913 times
Been thanked: 4097 times

Re: NorwichFools HYP - 4th birthday and starting drawdown.

#198351

Postby tjh290633 » February 2nd, 2019, 10:53 am

EssDeeAitch wrote:
monabri wrote:I think where Ozyu is coming from is based on measuring "performance" by unitising your portfolio. ...............

.........
Where are the " growers" ?

I think he's suggesting looking at investments that are reasonable yields (3% perhaps but not 6%) but which are growing their dividends.


That is a very good take on Ozyu's comments and I thank you for it. I am unitising my HYP and even after a mere (volatile) five months since inception, I can see that the capital gain aspect is crucial to future valuations abd hence security.

Just to put some perspective on unitisation, here are the data for my HYP since April 1987:

.            Income                   Accumulation
Year to Unit Value Div/Unit Unit Value
21-Apr-87 1.00 0.00 1.00
05-Apr-88 0.92 2.87 0.94
05-Apr-89 1.19 2.75 1.28
05-Apr-90 1.24 4.33 1.40
05-Apr-91 1.42 5.75 1.69
05-Apr-92 1.38 7.97 1.75
05-Apr-93 1.60 7.33 2.13
05-Apr-94 1.81 6.65 2.50
05-Apr-95 1.75 7.93 2.55
05-Apr-96 2.07 7.81 3.13
05-Apr-97 2.29 8.90 3.62
05-Apr-98 3.48 10.52 5.72
05-Apr-99 3.62 8.91 6.12
05-Apr-00 3.51 11.96 6.13
05-Apr-01 3.48 13.15 6.32
05-Apr-02 3.57 13.82 6.76
05-Apr-03 2.45 12.95 4.85
05-Apr-04 3.14 14.37 6.56
05-Apr-05 3.72 14.02 8.10
05-Apr-06 4.62 18.70 10.57
05-Apr-07 5.27 20.84 12.63
05-Apr-08 4.44 26.09 11.21
05-Apr-09 2.45 22.76 6.46
05-Apr-10 3.94 11.91 10.86
05-Apr-11 4.61 16.71 12.76
05-Apr-12 4.74 19.09 14.19
05-Apr-13 5.27 22.91 17.01
05-Apr-14 5.61 24.19 18.88
05-Apr-15 6.21 26.23 21.84
05-Apr-16 5.92 23.81 21.72
05-Apr-17 6.62 26.21 25.47
05-Apr-18 6.12 33.19 24.66
02-Feb-19 6.07 28.73 25.44 Year to date

As you can see, there are ups and downs. Unit value is in GBP, dividends are in GB pence.

By comparison, the FTSE100 has increased to £3.57 on the same basis as the income unit value of £6.07, and the Dividend per unit for the last 12 months has been 34.96p, while the RPI has risen from 101.8 to 285.6 since inception. So the dividends have risen tenfold, while the RPI has risen by abour 2.8 times.

TJH

dspp
Lemon Half
Posts: 5884
Joined: November 4th, 2016, 10:53 am
Has thanked: 5825 times
Been thanked: 2127 times

Re: NorwichFools HYP - 4th birthday and starting drawdown.

#198355

Postby dspp » February 2nd, 2019, 11:18 am

NorwichFool wrote:My capital value tends to follow the FTSE100 quite closely. The FTSE100 is presently almost exactly the same value as back in April 2015 and so is my capital. Almost all of my TR has been from dividends.


As others have pointed out elsewhere this aspect (FTSE 100 level over last ~5-years, ~6800 > ~7000) may well reflect a different philosophy wrt dividends in UK vs other markets (such as USA). For example the DJIA is up over 5-years from ~16,000 to ~25,000. To the extent that US stocks may be more parsimonious with disbursing profit as dividends, the companies then have more capital to invest internally and grow the capital. In contrast if UK companies return the bulk of dividends to individual shareholders, then - if the shareholders themselves do not reinvest - it is to be expected that the FTSE will level peg. When total return (TR) is the metric for comparison this phenomenon really shows up. It also shows up in national economic performance and is ultimately partly attributable to taxation structures.

(As a slight riposte to myself the index composition also matters. The FTSE 100 has a lot of miners/commodity stocks in it, more so than the DJIA. And commodities have not done so well over the last 5-years. But that is not sufficient to account for all of the difference.)

regards, dspp

NorwichFool
Posts: 16
Joined: December 15th, 2016, 10:32 am
Has thanked: 15 times
Been thanked: 6 times

Re: NorwichFools HYP - 4th birthday and starting drawdown.

#198431

Postby NorwichFool » February 2nd, 2019, 5:58 pm

Many thanks for very useful replies and giving me serious food for thought.

Can people recommend a single good,simple, practical guide to unitization? I've done a search and there are many, many articles.

I have a detailed transaction history of purchases/sales, cash in/out, dividends. Is that sufficient? How difficult would it be to show unit values for each of the past four years?

Norwichfool

OZYU
2 Lemon pips
Posts: 199
Joined: December 31st, 2016, 3:52 pm
Has thanked: 42 times
Been thanked: 139 times

Re: NorwichFools HYP - 4th birthday and starting drawdown.

#198501

Postby OZYU » February 3rd, 2019, 8:04 am

NorwichFool wrote:Many thanks for very useful replies and giving me serious food for thought.

Can people recommend a single good,simple, practical guide to unitization? I've done a search and there are many, many articles.

I have a detailed transaction history of purchases/sales, cash in/out, dividends. Is that sufficient? How difficult would it be to show unit values for each of the past four years?

Norwichfool


See your Private Messages. Good hunting. Ozyu.

ADrunkenMarcus
Lemon Quarter
Posts: 1586
Joined: November 5th, 2016, 11:16 am
Has thanked: 673 times
Been thanked: 479 times

Re: NorwichFools HYP - 4th birthday and starting drawdown.

#198542

Postby ADrunkenMarcus » February 3rd, 2019, 10:47 am

monabri wrote:I think he's suggesting looking at investments that are reasonable yields (3% perhaps but not 6%) but which are growing their dividends.


I'd second that suggestion.

I have what I call a 'dividend growth portfolio' where it's intended as a high dividend yield strategy, but on the basis that I secured an acceptable starting (3.05%) dividend yield for the first year which could then grow steadily over time and lead to a very high dividend yield on the capital invested. As an example, the first year dividend per income unit grew 5.9% in nominal terms and 3.5% in real terms. At the moment, for instance, Unilever has a forecast forward dividend yield of 3.6% if you were to buy it today and there is a good chance IMHO that its dividend will continue to grow for some time at 6% or more on a nominal basis. (One of my holdings is Diageo which has increased its dividend at a shade under 7% CAGR since 1998, leading to a nominal dividend yield on cost of 12.6% for the coming year.)

Unitisation is invaluable and I'd endorse doing it, even if you chose to start now.

Best wishes

Mark.


Return to “High Yield Shares & Strategies - General”

Who is online

Users browsing this forum: No registered users and 5 guests