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Whether HYP (as defined in the guidelines) works

General discussions about equity high-yield income strategies
monabri
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Re: Whether HYP (as defined in the guidelines) works

#221932

Postby monabri » May 15th, 2019, 10:11 pm

Bouleversee wrote:I take it nobody bothered to read the I.C. article?


I did - thank you for the link. I note Mr Oakley centres on the use of Free Cash Flow in his discussion on dividend sustainability - something that we have also considered/used here at TLF.

From the article that Bouleversee provided a link to above, P.Oakley says

"Others, such as ITV (ITV), Marks & Spencer (MKS), WPP (WPP) and British American Tobacco (BATS), have dividends that look quite safe on the basis of their current free cash flows. It begs the question as to whether these companies have been harshly treated by the stock market and are in fact good income shares."

(personally I'm not sure about M&S !!)

One of the questions at the end of the article (from a "johnbeattie777") asks for him to perhaps provide guidance regarding the likes of Legal & General & Aviva where he says "both have chequered dividend histories and are not the easiest businesses for an investor to understand." That I would like to see.

Certainly enough in his article to concern holders of CNA, BT, SSE and...TUI (although they are "foreign") .

I didn't see any reference to political and regulatory pressures on the Utes which has also "inflated" the yield (for new buyers).
Last edited by monabri on May 15th, 2019, 10:13 pm, edited 1 time in total.

IanTHughes
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Re: Whether HYP (as defined in the guidelines) works

#221934

Postby IanTHughes » May 15th, 2019, 10:12 pm

Bouleversee wrote:Is one allowed to ask for a similar chart to show what happened to the capital value per unit over the same period or is that too irrelevant for this board and must be asked on Investment Strategies?


Try this thread

viewtopic.php?f=15&t=16707



Ian

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Re: Whether HYP (as defined in the guidelines) works

#221936

Postby Alaric » May 15th, 2019, 10:25 pm

IanTHughes wrote:But come on, show me your Junk Bond Strategy over the same time period, please!!!


It just seems to me that if you advocate investing in Companies solely on the basis of their dividend yield and ignore past and future capital performance, that a strategy of investing in Corporate Bonds might work in a similar manner. No real idea how well or badly that might work. There may be "alternative strategy aka hedge funds" somewhere out on the extremities that have given it a punt. There are numerous OEICs and ITs that have a high income objective. I don't think they are as dismissive of lower yield shares with high dividend growth prospects as the "HYP strategy" apparently is.

IanTHughes
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Re: Whether HYP (as defined in the guidelines) works

#221942

Postby IanTHughes » May 15th, 2019, 10:42 pm

Alaric wrote:
IanTHughes wrote:But come on, show me your Junk Bond Strategy over the same time period, please!!!

It just seems to me that if you advocate investing in Companies solely on the basis of their dividend yield

Oh your expertise so shines through! You should never invest in a strategy that advocates investing in Companies solely on the basis of their dividend yield. I never would! Oh dear me, I now have this rather funny feeling of "Deja Vu", I wonder why that is. :D Maybe I should lie down for a while :D
Alaric wrote:[a strategy of investing in Corporate Bonds might work in a similar manner. No real idea how well or badly that might work. There may be "alternative strategy aka hedge funds" somewhere out on the extremities that have given it a punt. There are numerous OEICs and ITs that have a high income objective. I don't think they are as dismissive of lower yield shares with high dividend growth prospects as the "HYP strategy" apparently is.

Oh no! And there I was thinking that you had a worked-out strategy! I really thought you knew about a simpler investment method, simpler than HYP but just as effective. Are you now saying that you were just pontificating?

Oh well, back to HYP I guess


Ian

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Re: Whether HYP (as defined in the guidelines) works

#221944

Postby Alaric » May 15th, 2019, 10:50 pm

IanTHughes wrote:Oh well, back to HYP I guess


Enjoy the sea of red.

Has anyone knocked up the comparison between "HYP" and just buying a FTSE 100 or all share Tracker? Lower income presumably, but better capital performance?

IanTHughes
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Re: Whether HYP (as defined in the guidelines) works

#221945

Postby IanTHughes » May 15th, 2019, 10:55 pm

Alaric wrote:
IanTHughes wrote:Oh well, back to HYP I guess


Enjoy the sea of red.


Do you mean the Red Sea?. My goodness, I have not lived around there for many a year. :D

Alaric wrote:Has anyone knocked up the comparison between "HYP" and just buying a FTSE 100 or all share Tracker? Lower income presumably, but better capital performance?

Well of course I have! Why do you think I spend the time doing it myself with HYP?


Ian

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Re: Whether HYP (as defined in the guidelines) works

#221946

Postby Dod101 » May 15th, 2019, 10:58 pm

I run a high yield portfolio and have done for getting on for 20 years (just after the tech bubble of 2000/1) I can assure you it works, even through the crisis of 2008/9. It is not a HYP though which I see as a flawed concept. We only have to take a look at the original pyad HYP to see that, where most of the income now comes from 3 or 4 shares out of 15 or so. (I have not looked it up). I think for a Doris the original HYP might be OK and it has the merit of being easy to handle but I cannot understand why people who are obviously capable of thinking for themselves stick with it through thick and thin as some seem to do.

My rules are very simple because I do not really have any. I do not worry about sectors or how many shares I have, although I usually hold around 20 and some of these are ITs. Touch wood, but I have managed to avoid the recent problems of Carillion and Vodafone. Early on I was caught out by Centrica but I sold shortly after its early problems.

Good luck to Alaric and ITH but I doubt that you will ever agree; one being a dedicated HYPer and the other being a dedicated cynic. (I know where I stand)

Dod

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Re: Whether HYP (as defined in the guidelines) works

#221948

Postby IanTHughes » May 15th, 2019, 11:04 pm

Dod101 wrote:Good luck to Alaric and ITH but I doubt that you will ever agree; one being a dedicated HYPer and the other being a dedicated cynic.

I want it known that, contrary to what Dod101 appears to be implying, I am not a cynical person!
:D


Ian

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Re: Whether HYP (as defined in the guidelines) works

#221973

Postby TUK020 » May 16th, 2019, 6:59 am

Bouleversee wrote:


I take it nobody bothered to read the I.C. article?


couldn't get beyond the paywall.
Perhaps its time to move this thread to Polite Conversation...............

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Re: Whether HYP (as defined in the guidelines) works

#222005

Postby tjh290633 » May 16th, 2019, 9:34 am

Alaric wrote:
IanTHughes wrote:
I am sorry but, if you still do not understand, you will have to ask someone else, better qualified than me obviously, to explain it to you


As a method of selecting stocks for total return, HYP is flawed. You disagree, or are disinterested in total return.

If you select stocks on the basis of recent dividend divided by current price expressed as a percentage, the stocks with the highest percentage are liable to be those where the price has recently fallen and the lowest those where the price has risen.

HYP is not a method for maximising Total Return. The objective is a High and increasing flow of dividends.

Why continue to flog your dead horse, except to be argumentative?

TJH

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Re: Whether HYP (as defined in the guidelines) works

#222012

Postby tjh290633 » May 16th, 2019, 9:51 am

Alaric wrote:
IanTHughes wrote:Oh well, back to HYP I guess


Enjoy the sea of red.

Has anyone knocked up the comparison between "HYP" and just buying a FTSE 100 or all share Tracker? Lower income presumably, but better capital performance?

I can only produce my own details, which may fit the bill:

.             Income Units              Accumulation               
Year to Unit Value Div/Unit Unit Value FT30 FT100
21-Apr-87 1.00 0.00 1.00 1.00 1.00
05-Apr-88 0.92 2.87 0.94 0.92 0.91
05-Apr-89 1.19 2.75 1.28 1.10 1.05
05-Apr-90 1.24 4.33 1.40 1.13 1.14
05-Apr-91 1.42 5.75 1.69 1.28 1.26
05-Apr-92 1.38 7.97 1.75 1.24 1.26
05-Apr-93 1.60 7.33 2.13 1.44 1.46
05-Apr-94 1.81 6.65 2.50 1.65 1.65
05-Apr-95 1.75 7.93 2.55 1.57 1.62
05-Apr-96 2.07 7.81 3.13 1.80 1.90
05-Apr-97 2.29 8.90 3.62 1.85 2.21
05-Apr-98 3.48 10.52 5.72 2.45 3.05
05-Apr-99 3.62 8.91 6.12 2.47 3.21
05-Apr-00 3.51 11.96 6.13 2.42 3.35
05-Apr-01 3.48 13.15 6.32 2.05 2.89
05-Apr-02 3.57 13.82 6.76 1.65 2.69
05-Apr-03 2.45 12.95 4.85 0.85 1.85
05-Apr-04 3.14 14.37 6.56 1.22 2.25
05-Apr-05 3.72 14.02 8.10 1.33 2.51
05-Apr-06 4.62 18.70 10.57 1.68 3.06
05-Apr-07 5.27 20.84 12.63 1.90 3.31
05-Apr-08 4.44 26.09 11.21 1.58 2.93
05-Apr-09 2.45 22.76 6.46 0.87 2.01
05-Apr-10 3.94 11.91 10.86 1.33 2.91
05-Apr-11 4.61 16.71 12.76 1.43 3.03
05-Apr-12 4.74 19.09 14.19 1.33 2.96
05-Apr-13 5.27 22.91 17.01 1.54 3.29
05-Apr-14 5.61 24.19 18.88 1.75 3.38
05-Apr-15 6.21 26.23 21.84 1.91 3.47
05-Apr-16 5.92 23.81 21.72 1.79 3.17
05-Apr-17 6.62 26.21 25.47 2.10 3.76
05-Apr-18 6.12 33.19 24.66 1.79 3.62
05-Apr-19 6.35 31.25 27.04 2.10 3.82
16-May-19 6.23 4.47 26.61 2.10 3.77

If you have figures for the FTSE100TR you may like to compare my accumulation unit figures with that.

TJH

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Re: Whether HYP (as defined in the guidelines) works

#222013

Postby Lootman » May 16th, 2019, 9:53 am

tjh290633 wrote:
Alaric wrote:As a method of selecting stocks for total return, HYP is flawed. You disagree, or are disinterested in total return.

If you select stocks on the basis of recent dividend divided by current price expressed as a percentage, the stocks with the highest percentage are liable to be those where the price has recently fallen and the lowest those where the price has risen.

HYP is not a method for maximising Total Return. The objective is a High and increasing flow of dividends. Why continue to flog your dead horse, except to be argumentative?

I can't claim to speak for Alaric but surely part of the point of discussion boards is to debate issues, and it's hard to debate without arguing (arguing in the sense of making arguments rather than just being rude).

And given that an entire board has been created where no criticism is apparently allowed of HYP, then where else can it be criticised than here? Surely it is useful even for adherents of HYP to hear contrary points else how will they ever learn? There is a real danger that if you create a "safe space" and echo chamber for adherents of any cause then there is the risk of groupthink, rather along the lines of how communist nations invariably fail when they try and suppress all criticism.

To that end I think it is useful to hear some of the flaws of HYP (e.g. risk to capital, single country risk, lack of diversification). And I do not mean there that HYP'ers are not aware of those defects. Quite the contrary given that they go out of their way to downplay those risks with comments like "annuity substitute" and "capital doesn't matter". But if one is going to downplay the flaws of any system then one should at least be aware that that is what one is doing.

Finally it takes two to tango and if Ian or any other HYP'er is offended by such criticism then he is free to not take part. If instead that person continues to comment then the presumption has to be that he is deriving value and learning from the encounter.

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Re: Whether HYP (as defined in the guidelines) works

#222072

Postby dealtn » May 16th, 2019, 11:54 am

IanTHughes wrote: You would prefer to choose the initial 3% yield with a growing dividend and reject an initial 7% yield with a growing dividend. Remarkably, you then go on to claim that your low yield alternative would produce a better Income outcome, the principal aim of the HYP Strategy, over the long term. Could you please show me how you work this out?


Ian




Buy a share with a growing 3% yield. The underlying growth gets "noticed" by the market and the value of the share increases by 10, 20, 100%, or whatever. You can then sell it and reinvest it in your 7% yielder and hey presto you "produce a better Income outcome".

Alternatively you could keep it, or sell it and reinvest elsewhere (and repeat). None of which is HYP of course, and for those that want something relatively simple, and I would also argue, aren't in an "accumulation" phase, that's absolutely fine. It will (probably) be a better strategy than buying an annuity etc.

I'm still not sure why a reasonably intelligent individual would ignore "total return" and limit themselves to a sub-section of the market, during the phase of accumulating capital, if doing it themselves.

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Re: Whether HYP (as defined in the guidelines) works

#222078

Postby Alaric » May 16th, 2019, 12:09 pm

dealtn wrote:
Buy a share with a growing 3% yield. The underlying growth gets "noticed" by the market and the value of the share increases by 10, 20, 100%, or whatever.


In parallel to that, many shares yielding 7% are those that used to yield 3%. The lack of dividend increase, profits, favourable trading etc. has been noticed by the market and the value of the shares has decreased by 50% or more.

They may be a gamble on future dividend policy and trading conditions, but perhaps what you look for are shares where the dividend yield is below the market average, but the growth in dividends is well above. So if you sell, you should get a capital gain and if you hold, an ever increasing dividend.

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Re: Whether HYP (as defined in the guidelines) works

#222080

Postby IanTHughes » May 16th, 2019, 12:11 pm

dealtn wrote:
IanTHughes wrote:You would prefer to choose the initial 3% yield with a growing dividend and reject an initial 7% yield with a growing dividend. Remarkably, you then go on to claim that your low yield alternative would produce a better Income outcome, the principal aim of the HYP Strategy, over the long term. Could you please show me how you work this out?

Buy a share with a growing 3% yield. The underlying growth gets "noticed" by the market and the value of the share increases by 10, 20, 100%, or whatever. You can then sell it and reinvest it in your 7% yielder and hey presto you "produce a better Income outcome".

Why not: buy the share with 7% and a growing dividend from the start? The underlying growth gets "noticed" by the market and the value of the share increases by 10, 20, 100%, or whatever. You have no need to sell it and reinvest it into anything and hey presto you "produce a better Income outcome".

dealtn wrote:I'm still not sure why a reasonably intelligent individual would ignore "total return"

I quite agree. To ignore Total Return would indeed not be intelligent, so I do not

dealtn wrote:and limit themselves to a sub-section of the market, during the phase of accumulating capital, if doing it themselves.

Quite right too. If I was accumulating Capital I would surely cast my net much further than simply High Yield.


Ian

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Re: Whether HYP (as defined in the guidelines) works

#222085

Postby Alaric » May 16th, 2019, 12:21 pm

IanTHughes wrote:Why not: buy the share with 7% and a growing dividend from the start?



Often when the share price has fallen sufficiently to increase the yield to 7% it's because there's no prospect of dividend growth and the expectation is of a dividend cut. The FTSE100 dividend index yield is in the 4% to 4.5% range, so a share with a 7% dividend yield and dividend increases would be an out performer.

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Re: Whether HYP (as defined in the guidelines) works

#222088

Postby dealtn » May 16th, 2019, 12:27 pm

IanTHughes wrote:
Why not: buy the share with 7% and a growing dividend from the start? The underlying growth gets "noticed" by the market and the value of the share increases by 10, 20, 100%, or whatever. You have no need to sell it and reinvest it into anything and hey presto you "produce a better Income outcome".



Er, doesn't that just get you the same income. You asked (I think) how investing in an alternative strategy might allow you to get a better income (than that strategy), and I just demonstrated a way that it might.

I own a number of high yielders, but I have no allegiance to HYP as a strategy. Indeed I hope to never receive any dividends from them!

However I recognise the relative simplicity of a mechanistic investment strategy that is probably better than simply buying an annuity, and for those who adopt it I wish them the best in it meeting their requirements. But I would suggest that anyone confident enough to be selecting shares to grow capital it is foolish to limit yourself to a subset of the investing universe, particularly where the number of shares available isn't a deep pool, and by the nature of having high yields have associated higher risk.

The only reasonable justification I have come across for people doing so in the accumulation phase of such investing, is that by not adopting such a strategy, when the time comes to manage a HYP in the "living off Income" stage it can be more difficult than if the lessons learned etc. weren't discovered earlier.

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Re: Whether HYP (as defined in the guidelines) works

#222089

Postby IanTHughes » May 16th, 2019, 12:33 pm

Alaric wrote:
IanTHughes wrote:Why not: buy the share with 7% and a growing dividend from the start?

Often when the share price has fallen sufficiently to increase the yield to 7% it's because there's no prospect of dividend growth and the expectation is of a dividend cut.

As I have mentioned before, if I believed the dividend would be cut, I would not add such a share to my HYP. I also seek out shares where I believe there is potential for dividend growth. It therefore follows that a 7% yield with potential for dividend growth is vastly superior - income-wise at least - to a 3% yield with a potential for dividend growth. Or would you disagree?

Alaric wrote:The FTSE100 dividend index yield is in the 4% to 4.5% range, so a share with a 7% dividend yield and dividend increases would be an out performer.

What are you saying now, HYP should avoid outperformers?


Ian

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Re: Whether HYP (as defined in the guidelines) works

#222094

Postby Alaric » May 16th, 2019, 12:42 pm

IanTHughes wrote:What are you saying now, HYP should avoid outperformers?


It already does, by the historic and current refusal to consider shares such as Unilever, Compass etc. suitable.

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Re: Whether HYP (as defined in the guidelines) works

#222096

Postby Alaric » May 16th, 2019, 12:45 pm

IanTHughes wrote:As I have mentioned before, if I believed the dividend would be cut, I would not add such a share to my HYP.


In the case of Vodafone, your beliefs were out of line with market expectations and for that matter the comments on these boards. What would convince you that a dividend cut was likely?


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