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Whether HYP (as defined in the guidelines) works

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

#222097

Postby IanTHughes » May 16th, 2019, 12:46 pm

Alaric wrote:
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.

Which you now agree is the correct policy?


Ian

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

#222098

Postby Alaric » May 16th, 2019, 12:50 pm

IanTHughes wrote:Which you now agree is the correct policy?


The HYP concept is flawed by virtue of its tilt towards under performers and exclusion of out performers.

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

#222099

Postby PinkDalek » May 16th, 2019, 12:50 pm

Alaric wrote:
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.


This is old ground and some have both considered and bought Unilever in their High Yield Portfolio (when the time was apparently right). Maybe also Compass. Don't know about the etcs.

I think you mean historical. Historic gives far more importance to this never ending debate.

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

#222100

Postby IanTHughes » May 16th, 2019, 12:51 pm

Alaric wrote:
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?

Please refer to my earlier answer which you will find here:

viewtopic.php?p=221843#p221843

But let us not go round in circles



Ian

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

#222101

Postby Breelander » May 16th, 2019, 12:55 pm

Alaric wrote:...the historic and current refusal to consider shares such as Unilever, Compass etc. suitable.


Historically there have been a few (rare) occasions when Unilever has been on a suitable yield. On such occasions quite a few HYP'ers (myself included) have added them to their HYP.

ULVR had a ttm yield of 3.9% on 10th March 2011 when I bought it for my HYP. At that time the ftse100 had a yield somewhere between 3.0% to 3.5%. So there are times when the likes of ULVR are 'High Yield' by any practical definition. Not now, certainly, but worth watching out for.

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

#222103

Postby PinkDalek » May 16th, 2019, 12:57 pm

Similarly Compass, as evidenced here:

viewtopic.php?p=221753#p221753

Re: Compass Group Interims
Post by bluedonkey » 15 May 2019 10:47

Yes, I bought it in October 2005. It was recommended at the time as it was in HYP territory then.

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

#222105

Postby Alaric » May 16th, 2019, 1:02 pm

PinkDalek wrote:This is old ground and some have both considered and bought Unilever in their High Yield Portfolio (when the time was apparently right).


That created a major row on the "Practical" board about whether "low" yielders such as Unilever could even be discussed. Anyone who ignored supposed rules about dividend yield but bought and held stocks with chunky dividend increases would have done well.

General reasoning may suggest that a stock with an expectation of dividend increases or at least dividend increases above the market norm is likely to see its market price go to a premium, with the effect that its initial dividend yield drops below the market norm. I would suggest that for someone building a portfolio of income producing shares to retire on in say twenty years time, that shares with a low initial yield but considerable growth are completely suitable and if the combined income and growth is higher, are more suitable than those with an initial high but subsequently level or decreasing dividend.

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

#222107

Postby IanTHughes » May 16th, 2019, 1:08 pm

Alaric wrote:
PinkDalek wrote:This is old ground and some have both considered and bought Unilever in their High Yield Portfolio (when the time was apparently right).

General reasoning may suggest that a stock with an expectation of dividend increases or at least dividend increases above the market norm is likely to see its market price go to a premium, with the effect that its initial dividend yield drops below the market norm. I would suggest that for someone building a portfolio of income producing shares to retire on in say twenty years time, that shares with a low initial yield but considerable growth are completely suitable and if the combined income and growth is higher, are more suitable than those with an initial high but subsequently level or decreasing dividend.

Of course! But, what about an initial High Yield with subsequent Dividend Growth, at or above the market norm?. That must surely be the best solution of all!


Ian
Last edited by IanTHughes on May 16th, 2019, 1:08 pm, edited 1 time in total.

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

#222108

Postby PinkDalek » May 16th, 2019, 1:08 pm

Alaric wrote:
PinkDalek wrote:This is old ground and some have both considered and bought Unilever in their High Yield Portfolio (when the time was apparently right).


That created a major row on the "Practical" board about whether "low" yielders such as Unilever could even be discussed. ...


I'm well aware of the discussions, including in the Biscuit Bar, and the resolution. You appear to have misremembered the outcome or are choosing to ignore it.

To refresh your memory, here is my reply to you at the Biscuit Bar:

viewtopic.php?p=206651#p206651

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

#222109

Postby Alaric » May 16th, 2019, 1:11 pm

PinkDalek wrote: You appear to have misremembered the outcome or are choosing to ignore it.


The outcome was that it could be discussed. That it should ever have been an issue was my point.

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

#222111

Postby Alaric » May 16th, 2019, 1:13 pm

IanTHughes wrote:Of course! But, what about an initial High Yield with subsequent Dividend Growth, at or above the market norm?. That must surely be the best solution of all!


Can you find any though?

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

#222116

Postby IanTHughes » May 16th, 2019, 1:25 pm

Alaric wrote:
IanTHughes wrote:Of course! But, what about an initial High Yield with subsequent Dividend Growth, at or above the market norm?. That must surely be the best solution of all!

Can you find any though?

With that much detail? Nope. I cannot see into the future and neither, might I add, can you!


Ian

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

#222118

Postby Alaric » May 16th, 2019, 1:32 pm

IanTHughes wrote:With that much detail? Nope. I cannot see into the future and neither, might I add, can you!


A bit pointless asserting it as a viable strategy then. Potential lower yielding shares with high dividend growth rates are easier to identify. Rather than sort by initial yield, sort by the sum of initial yield and dividend growth rate. Dividend growth rate is historical, but then so is initial yield for the most part.

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

#222119

Postby AJC5001 » May 16th, 2019, 1:34 pm

Alaric wrote:General reasoning may suggest that a stock with an expectation of dividend increases or at least dividend increases above the market norm is likely to see its market price go to a premium, with the effect that its initial dividend yield drops below the market norm. I would suggest that for someone building a portfolio of income producing shares to retire on in say twenty years time, that shares with a low initial yield but considerable growth are completely suitable and if the combined income and growth is higher, are more suitable than those with an initial high but subsequently level or decreasing dividend.


I look forward to your posting your suggested portfolio for such a strategy - perhaps 15 shares? From different sectors to provide diversity? Feel free to suggest any other factors you consider relevant - number of years dividend growth, perhaps, or something about debt or cashflow.

I've always wanted to see what such a portfolio would contain.

I'll keep an eye on Investment Strategies in anticipation.

Adrian

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

#222122

Postby Lootman » May 16th, 2019, 1:41 pm

AJC5001 wrote:
Alaric wrote:General reasoning may suggest that a stock with an expectation of dividend increases or at least dividend increases above the market norm is likely to see its market price go to a premium, with the effect that its initial dividend yield drops below the market norm. I would suggest that for someone building a portfolio of income producing shares to retire on in say twenty years time, that shares with a low initial yield but considerable growth are completely suitable and if the combined income and growth is higher, are more suitable than those with an initial high but subsequently level or decreasing dividend.

I look forward to your posting your suggested portfolio for such a strategy - perhaps 15 shares? From different sectors to provide diversity? Feel free to suggest any other factors you consider relevant - number of years dividend growth, perhaps, or something about debt or cashflow.

I've always wanted to see what such a portfolio would contain.

It's a fair point because the UK market as a whole is very geared towards higher yields (and lower dividend cover as the quid pro quo for that).

Diageo and Unilever always get cited but as you note that is only a couple of names. To comply with the request I think you'd really have to go down into the mid-cap world, or go overseas. Neither would be acceptable to the HYP purist of course, but I think such a portfolio could be composed if it was global in nature.

Off the top of my head it might probably include names like Nestle, Apple, Amgen, MicroSoft, Boeing, Disney, MGM, J&J, McDonalds, Pepsi, Visa, Samsung, Toyota, Canadian Pacific . . .

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

#222127

Postby IanTHughes » May 16th, 2019, 1:53 pm

Alaric wrote:
IanTHughes wrote:With that much detail? Nope. I cannot see into the future and neither, might I add, can you!

A bit pointless asserting it as a viable strategy then.

You were the one claiming the 20/20 forward vision, not me. I was merely responding in kind to show that anyone can claim anything if they set the right scenario parameters. My apologies if you were confused.

Alaric wrote:Potential lower yielding shares with high dividend growth rates are easier to identify. Rather than sort by initial yield, sort by the sum of initial yield and dividend growth rate.

If you believe that to be the case, go for it. I would never dream of suggesting that you should change your Investment Strategy's selection criteria for no other reason than that I disagreed with them.

Alaric wrote:Dividend growth rate is historical

Of course! But only the shareholder now selling their holding to you can point to any benefit from that historical dividend growth rate. The dividend growth rate that your new holding will enjoy has not yet commenced.


Ian

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

#222133

Postby Alaric » May 16th, 2019, 2:17 pm

IanTHughes wrote: The dividend growth rate that your new holding will enjoy has not yet commenced.


Neither has the dividend used in the dividend yield calculation been paid.

The raw material on dividends can be found at

https://www.dividenddata.co.uk/dividend ... et=ftse100

and the rates of dividend increase at

https://www.dividenddata.co.uk/ftse-div ... et=ftse100

It's been a bumper five and ten years as regards dividend increases for much of the FTSE 100.

It's ordered by market capitalisation.

Number 4 on the list is Royal Dutch Shell B with a dividend yield of 5.79% and a dividend growth rate over 5 years of 0.65%. Combined then it's 6.47. Number 5 on the list is Diageo with a dividend yield of 2.00% and thus a HYP reject. The growth rate on the other hand is 6.30% , so combined is 8.30 .

Lower down there's a Company called Ashtead Group which at a yield of 1.67% would be ignored in any HYP discussion. The dividend growth rate has been 32.7% over 5 years. It might be too late for new investors as the share price has almost tripled over five years.

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

#222137

Postby IanTHughes » May 16th, 2019, 2:36 pm

Alaric wrote:
IanTHughes wrote: The dividend growth rate that your new holding will enjoy has not yet commenced.


Neither has the dividend used in the dividend yield calculation been paid.

The raw material on dividends can be found at

https://www.dividenddata.co.uk/dividend ... et=ftse100

and the rates of dividend increase at

https://www.dividenddata.co.uk/ftse-div ... et=ftse100

It's been a bumper five and ten years as regards dividend increases for much of the FTSE 100.

It's ordered by market capitalisation.

Number 4 on the list is Royal Dutch Shell B with a dividend yield of 5.79% and a dividend growth rate over 5 years of 0.65%. Combined then it's 6.47. Number 5 on the list is Diageo with a dividend yield of 2.00% and thus a HYP reject. The growth rate on the other hand is 6.30% , so combined is 8.30 .

Lower down there's a Company called Ashtead Group which at a yield of 1.67% would be ignored in any HYP discussion. The dividend growth rate has been 32.7% over 5 years. It might be too late for new investors as the share price has almost tripled over five years.

Pass those eggs Grandma!


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

#222143

Postby Charlottesquare » May 16th, 2019, 3:06 pm

IanTHughes wrote: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?


Ian


Surely depends on the expected rate of growth. The metric for that might be earnings yield-dividend yield, as that which is not distributed is retained within the company and in part hopefully pays for said future growth rate. Then you get to ROCE, the retained earnings may be more likely to perform in line with past company ROCE (of course they may not, company may chase more and more acquisitions which dilute the current ROCE, but then again they may do similar and synergies improve it)

Accordingly surely one requires to look at least at dividend cover when evaluating whether one say purchases the share with 3% div yield and 3 times cover, so in effect 6% reinvestment or the share yielding 7% and only 1 times cover with no reinvestment, or of course the share yielding 7% with 1.5 cover so 3.5% reinvestment. (In effect consider P/E)

And having evaluated the amount of reinvestment one can then consider (albeit backward looking) past ROCE and what sort of impact it might have on future earnings re the company.

Or of course, if you cannot be bothered with crunching accounts and numbers, the stage I have pretty much reached, you can buy more and more ITs and let the managers do most of the the heavy lifting.

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

#222147

Postby Charlottesquare » May 16th, 2019, 3:14 pm

Alaric wrote:
IanTHughes wrote: The dividend growth rate that your new holding will enjoy has not yet commenced.


Neither has the dividend used in the dividend yield calculation been paid.

The raw material on dividends can be found at

https://www.dividenddata.co.uk/dividend ... et=ftse100

and the rates of dividend increase at

https://www.dividenddata.co.uk/ftse-div ... et=ftse100

It's been a bumper five and ten years as regards dividend increases for much of the FTSE 100.

It's ordered by market capitalisation.

Number 4 on the list is Royal Dutch Shell B with a dividend yield of 5.79% and a dividend growth rate over 5 years of 0.65%. Combined then it's 6.47. Number 5 on the list is Diageo with a dividend yield of 2.00% and thus a HYP reject. The growth rate on the other hand is 6.30% , so combined is 8.30 .

Lower down there's a Company called Ashtead Group which at a yield of 1.67% would be ignored in any HYP discussion. The dividend growth rate has been 32.7% over 5 years. It might be too late for new investors as the share price has almost tripled over five years.


Why do you add the current yield to the growth rate, surely the growth rate should be applied as a power over x years to the current yield?

So current yield 5% growth rate 3% has , after year one, 5x1.03, year two 5x1.03^2 etc. Even then you need to discount due to the time value re receiving the income.


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