Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

[Alaric]

The HYP Strategy recommends selecting "High Yield" candidates that have a history of rising dividends.

How then does it filter for the "history of rising dividends". There was the recent selection of 15 sectors by Stephen Bland. I recall little in the write ups about a filter for "rising dividends".

In Euro terms, Vodafone was static and a cutter for 2019.

[IanTHughes]

The HYP Strategy recommends selecting "High Yield" candidates that have a history of rising dividends.

How then does it filter for the "history of rising dividends".

Are you serious? One checks the dividends paid over the preceding years and if the annual total has been rising year on year, you can be pretty confident that it has a "History of Rising Dividends"! How would you expect to do it?

There was the recent selection of 15 sectors by Stephen Bland. I recall little in the write ups about a filter for "rising dividends".

Well here's an idea ….. why do you not ask Stephen Bland?

In Euro terms, Vodafone was static and a cutter for 2019.

Well, the cut that you refer to plainly occurred after its selection for this virtual HYP. Surely you noticed that?

According to my records, at the time of selection, the history of Vodafone dividends over the past 21 years was as follows:

Year Ending  |  EUR       |  GBP     
31-Mar-18    |  15.0700   |  13.3294 
31-Mar-17    |  14.7700   |  13.0043 
31-Mar-16    |  14.4800   |  11.4500 
31-Mar-15    |            |  11.2200 
31-Mar-14    |            |  11.0000 
31-Mar-13    |            |  10.1900 
31-Mar-12    |            |   9.5200 
31-Mar-11    |            |   8.9000 
31-Mar-10    |            |   8.3100 
31-Mar-09    |            |   7.7700 
31-Mar-08    |            |   7.5100 
31-Mar-07    |            |   6.7600 
31-Mar-06    |            |   6.0700 
31-Mar-05    |            |   4.0700 
31-Mar-04    |            |   2.0315 
31-Mar-03    |            |   1.6929 
31-Mar-02    |            |   1.4721 
31-Mar-01    |            |   1.4020 
31-Mar-00    |            |   1.3350 
31-Mar-99    |            |   1.2720 
31-Mar-98    |            |   1.1060

I cannot see a held dividend, can you?

If you do not believe my own records, you can check it out here:

https://www.vodafone.com/content/index/ ... dends.html


Ian

[Alaric]

Outside the distorted world view of "HYP Practical", I think it would be recognised that a dividend yield of 3% (below the current FTSE 100) with dividend increases of 7% was a better long term return than one of 6% (above the current FTSE 100) increasing at 2% and both were better than one of 7% not increasing at all.

[IanTHughes]

Outside the distorted world view of "HYP Practical", I think it would be recognised that a dividend yield of 3% (below the current FTSE 100) with dividend increases of 7% was a better long term return than one of 6% (above the current FTSE 100) increasing at 2% and both were better than one of 7% not increasing at all.

Of course, which is why I am sure you would agree that better still is a current Yield of 6.26%, the current yield of my "Bog Standard" HYP, with the income growing at an annual rate of 6.67%, the growth rate for my "Bog Standard" HYP over the past 5 years.

Or do you disagree?


Ian

[Luniversal]

Shouldn't you then be looking at shares with average or below average dividend yields?

Do you think there are any shares fitting the description of "acceptable level, before the price has risen" out there at the moment. If you ask "why" for a high dividend yield, it's invariably because the price has collapsed.

Between Aug. 2013 and Dec. 2016 I analysed shares' eligibility for a 'pyadic' portfolio continuously, total 179 weeks. On average my database held 169 companies (from the top half of the FTSE 250 and the FTSE 100), excluding about thirty which had lapsed from dividend virtue since 2000 but had been chosen in earlier times by HYP practitioners. Of the majority that had kept the faith, 125 qualified on a more demanding record of paying out than pyad sought: no glitches over the previous ten years, not five. So they could be regarded as 'quality' payers.

From this pool I would select a 25-sector/share HYP (the 'Big One') of the best historic yielders within my pre-set cautionary limits: nothing returned more than 150% or less than 90% of the current All-Share Index average. There was always ample choice; although many 'quality' stocks persistently yielded too little, a typical Big One yielded 26% more than the index, with a better than average payout history and about as wide a range of activities as the somewhat skewed London equity market offered.

If the past is no guide to the future security or buoyancy of income, such a procedure is self-deceiving. But my study of bigger market caps' income streams showed that in 2000-16 more than three-quarters of the ~200 companies in my universe had 'good outcomes' in any given year: most maintained or more often raised their dividends in real terms, others restored or resumed them. Conformity to HYP requirements was the norm.

With the needful precaution of a safety margin and reserve-- if you cannot abide the occasional drop in income's purchasing power-- these findings imply that a variegated collection of around 20 stocks should withstand all economic and market phases. That is, unless the UK corporate sector's capacity for or willingness to distribute earnings alters for the worse. At least my confidence held good for 2000-16, which spanned two bad downturns for share prices and eps.

I have only impressions for the past 2.5 years, but see conflicting signs. Certainly demand for dividend income, both from institutions and retail investors, is as voracious as ever. It will be so as long as money remains so cheap vis a vis inflation. But how willingly will boards feed it? Low inflation makes freezing or 'rebasing' the nominal dividend easier to get away with: typical y-o-y rises have quickly dropped from 5-10% to 0-5%. That does not compensate so easily for the odd lapse, and there seem to be more of them than in the first seven or eight years of recovery after widespread (though sectorally concentrated) cutting and passing in the wake of the financial crisis.

A company such as Imperial Brands which promises 10% rises annually is a rare beast now. More seem to pride themselves on 'responsibly' pegging the rate for several years ahead while they pull their affairs together, e.g. IG Group or Glaxo in my HYPs. Trend inflation of under 3% gives them scant incentive to be more liberal.

So in the near future the scene may be choppier for income in more ways than one. The upside is that such an environment may spark more 'market trading' occurrences: rights issues, special payouts, 'returns of value' or bids. These are usually good for HYP-ers, permitting the release of capital for redeployment into more promising businesses. But they demand more attention to a collection one of whose advantages is supposed to be its peacefulness.

[Alaric]

with the income growing at an annual rate of 6.67%,

It surprised me how well the FTSE 100 has done for dividend growth over the last 5 years.

According to the dividenddata site, there are 39 FTSE 100 shares with both at least a 5 year history of dividend increases and 5 year growth rates in excess of 6%

NMC NMC Health ✔ ✔ 6 32.69%
STJ St. James's Place ✔ ✔ 15 24.75%
MCRO Micro Focus International ✔ ✔ 12 21.53%
RMV Rightmove ✔ ✔ 9 18.35%
ITRK Intertek Group ✔ ✔ 15 16.59%
LSE London Stock Exchange Group ✔ ✔ 9 16.31%
SDR Schroders ✔ ✔ 9 14.47%
HIK Hikma Pharmaceuticals ✔ ✔ 7 13.70%
DCC DCC ✔ ✔ 20 12.48%
REL RELX ✔ ✔ 8 11.34%
SPX Spirax-Sarco Engineering ✔ ✔ 19 11.13%
DLG Direct Line Insurance Group ✔ ✔ 5 10.76%
IHG InterContinental Hotels Group ✔ ✔ 9 10.32%
IMB Imperial Brands ✔ ✔ 19 10.02%
CCH Coca Cola HBC AG ✔ ✔ 6 10.00%
CPG Compass Group ✔ ✔ 17 9.19%
BNZL Bunzl ✔ ✔ 19 9.15%
ULVR Unilever ✔ ✔ 19 7.56%
SGE Sage Group ✔ ✔ 19 7.56%
HLMA Halma ✔ ✔ 19 7.06%
ABF Associated British Foods ✔ ✔ 19 6.99%
JMAT Johnson Matthey ✔ ✔ 19 6.86%
BATS British American Tobacco ✔ ✔ 19 6.51%
SLA Standard Life Aberdeen ✔ ✔ 11 6.45%
DGE Diageo ✔ ✔ 19 6.30%
CRDA Croda International ✔ ✔ 19 6.17%

[Dod101]

Thanks Luniversal. Imperial Brands is an even rarer beast; providing 10% rises per annum in the dividend and a share price which has fallen 15% since the beginning of this year alone, and which has almost halved in the last two years.

It, I think, has shown the most dramatic drop but many of the high yielders share prices remain static or have also dropped off. We can say this is in the short term only, which is of course true, but it is dearly bought income indeed.

To support Alaric, Unilever has managed 8% or so rises in its dividend for the last couple of years and its share price has risen more than 20% even post the attempted takeover bid. If we look further back, its share price has risen about 50% since immediate pre the bid. There is a lot to be said for what some have called a 'quality' dividend even with a much lower yield if it is protecting the share price.

Dod

[IanTHughes]

with the income growing at an annual rate of 6.67%,

It surprised me how well the FTSE 100 has done for dividend growth over the last 5 years.

According to the dividenddata site, there are 39 FTSE 100 shares with both at least a 5 year history of dividend increases and 5 year growth rates in excess of 6%

And your point is what exactly?


Ian

[Alaric]

Imperial Brands is an even rarer beast; providing 10% rises per annum in the dividend and a share price which has fallen 15% since the beginning of this year alone, and which has almost halved in the last two years.

I suppose there are concerns:-

Their "core" market in the supply of tobacco is shrinking and obtaining replacement markets in vaping and previously illegal smoking alternatives may be expensive.

They may eventually get hit by legal challenges and demands for compensation.

[Alaric]

And your point is what exactly?
Ian

That a 6% rate of increase in dividends can be bettered by shares with a lower initial yield.

[monabri]

Outside the distorted world view of "HYP Practical", I think it would be recognised that a dividend yield of 3% (below the current FTSE 100) with dividend increases of 7% was a better long term return than one of 6% (above the current FTSE 100) increasing at 2% and both were better than one of 7% not increasing at all.

I'd prefer the 6%/2% option as I probably haven't got 48 years left.

(and which companies will be growing their divis at 7% pa, every year, for the next half century?)

https://www.mywealthtrace.com/dividend- ... calculator

[IanTHughes]

And your point is what exactly?

That a 6% rate of increase in dividends can be bettered by shares with a lower initial yield.

Really? Well go ahead why don't you simply show us?

If you are so certain that your "Low Yield" idea is a winner, why not select a virtual Portfolio of however many shares you recommend to provide the holder with a high and growing income. If you do that we can then compare the ongoing income performance of your virtual selections with the one recently selected by pyad - Stephen Bland - which I will be reporting on from time to time on the HYP Practical board. We could also compare it with my real Bog Standard HYP, not to mention that of tjh290633 and no doubt those of other contributors to the HYP Practical board.

Will you do it?


Ian

[Luniversal]

Unilever has managed 8% or so rises in its dividend for the last couple of years and its share price has risen more than 20% even post the attempted takeover bid. If we look further back, its share price has risen about 50% since immediate pre the bid. There is a lot to be said for what some have called a 'quality' dividend even with a much lower yield if it is protecting the share price.

Dod

HYP is not about 'protecting the share price'.

I bought Unilever in Jul. 2011, the 11th lowest yielding of 15 in my Footsie 'LuniHYP100'. Unilever then paid 3.7%, compared with 3.1% for the All-Share and a blended 4.6% for the portfolio. Since 2000 it had been occasionally available at or above market average yield: more often than Diageo, the other often-cited 'quality' payer with a low initial return. In seven years Unilever paid me £479 from a stake of £1,200; but dodgy, risky Vodafone contributed £1,176, and a profitable part return of capital to boot. (VOD was my fourth highest yielder of 15.)

The trouble is that when a starting yield is considerably below market, say three-quarters of it or less as so many are, it can take more than a lifetime for the real purchasing power of the income to catch up with a seemingly riskier immediate yield from a HYP-able-- even if the quality stock's dividend grows much faster thereafter. A pound paid out today is worth a lot more than a 50p divi which becomes a pound after seven or eight years of successful trading.

This dilemma is seen in the tale of my two investment trust baskets. Typically the lower-yielding Basket of Seven, more focused on dividends which can grow ULVR-like, can be bought yielding just below the All-Share; whereas the 'juicier' Basket of Eight's initial yield is a quarter higher than the All-Share's. (Though both ratios have worsened in recent times, with investors pursuing income.)

After nearly 20 years since HYP1 Day in Nov. 2000, the B7's income would have grown over twice as fast as the B8's, c. 4% pa real v. less than 2%. But actual revenue to the end of 2018 would have totalled £72,280 for the B7, only £5,248 more than from the B8. And because so much of the B7's payout has been delivered later- the tortoise overtook the hare on annual payout only in 2009-- the purchasing power the juicy basket supplied would have remained, up to now, greater. Tortoises live long lives, which is just as well for them.

You might justify including lower-yielders with good form as a way of absorbing future shocks from allegedly safe higher payers such as Tesco or Centrica. But my researches suggest that such shocks are not frequent or severe enough to warrant wilfully crippling your immediate income.

Another objection to lower yielders is that a company whose dividend ticks up by 6% pa like clockwork year after year is less likely to be the object of the 'market trading' which can do so much to enhance income generation down the road: by recycling capital without tinkering. Squeaky wheels get the grease, erratic payers get the M&A lads after them. Witness my Vodafone v. Unilever experience.

As with everything in life, one must strike a balance. I have often been attacked for being too wary of Warning and Danger Zone shares, but I am as averse to the Low Zone. Quality can be too dear. Mr Market offers hidden gold mines (for him) as well as loss leaders; caveat emptor.

[Dod101]

Alaric has given us 26 of the 39 FTSE100 shares which have produced 5 years of dividends rising by at least 6% per annum. I have gone through these and discounted those where the yield is under 4% (This is a High Yield Board after all) That leaves only St James Place, Micro Focus, Schroders NV, Direct Line, Imperial, BAT, and SLA. I will exclude SLA as it has not existed in its current form for anything like 5 years. Of the others I hold the two tobaccos, and Schroders. Interesting though thank you and it would be food to see the other 13 shares.

Luniversal has beaten me to it I see and as usual has produced well balanced comments.

Dod

[Alaric]

I have gone through these and discounted those where the yield is under 4% (This is a High Yield Board after all)

My point though is that if you intend to re-invest the income, you could look for good performers in the dividend growth sense with yields below that of the FTSE average. It increasingly seems to me that screening on the basis of dividend yield just identifies Companies where the share price is in trouble.

The other point being that if stocks retain the same dividend yield from one year to the next, increased dividends mean increased share prices.

[tjh290633]

Shouldn't you then be looking at shares with average or below average dividend yields?

Do you think there are any shares fitting the description of "acceptable level, before the price has risen" out there at the moment. If you ask "why" for a high dividend yield, it's invariably because the price has collapsed.

Of course not. Why choose shares with low yield for a High Yield Portfolio?

You are assuming that all shares with high yields have prices that have collapsed. That is not the case.

Here is a list of my portfolio, ordered by yield:

Rank   EPIC   Yield 
   1   TW.    10.07%
   2   IMB     9.44%
   3   SSE     9.39%
   4   WMH     9.07%
   5   BT.A    7.85%
   6   AV.     7.42%
   7   MARS    7.03%
   8   BATS    6.80%
   9   LGEN    6.24%
  10   VOD     6.21%
  11   ADM     6.15%
  12   RDSB    5.81%
  13   BP.     5.80%
  14   BLND    5.80%
  15   NG.     5.80%
  16   LLOY    5.49%
  17   UU.     5.30%
  18   S32     5.30%
  19   KGF     5.07%
  20   GSK     5.06%
  21   BHP     5.05%
  22   RIO     5.01%
  23   BA.     4.93%
  24   SMDS    4.63%
  25   MKS     4.54%
  26   IMI     4.37%
  27   TATE    3.87%
  28   AZN     3.53%
  29   ULVR    2.81%
  30   SGRO    2.67%
  31   RB.     2.66%
  32   TSCO    2.49%
  33   PSON    2.31%
  34   CPG     2.12%
  35   DGE     1.99%

Some of the shares have prices which have fallen for various reasons. Often those reasons are irrational worries, occasionally rational, like the fear of a Corbyn administration, but not invariably.

Taking the company years which ended in 2018, only four held their dividends from the previous year - BT.A, GSK, MARS and NG. Two had lower dividends per share than the previous year - SMDS to take account of a rights issue and WMH to maintain a level of cover. All other shares increased their dividends, some by paying special dividends. like BHP and RIO. The average increase including special dividends was 9.1%, the median increase was 3.9%, perhaps a more realistic measure.

TJH

[Alaric]

Interesting though thank you and it would be food to see the other 13 shares.

I used this data
https://www.dividenddata.co.uk/ftse-div ... et=ftse100

excluding those without ticks for both "Continuous dividend payments" and "Dividend Grown or Held".

The latter criterion may be a bit harsh. It's defined as

Dividend Held or Grown - indicates whether there has been a dividend cut during the analysed period. A ✘ indicates that the company has made at least one dividend cut since the year 2000 (or has forecast to make cuts to future dividends). Click the links to see cut details.

[IanTHughes]

I have gone through these and discounted those where the yield is under 4% (This is a High Yield Board after all)

My point though is that if you intend to re-invest the income, you could look for good performers in the dividend growth sense with yields below that of the FTSE average. It increasingly seems to me that screening on the basis of dividend yield just identifies Companies where the share price is in trouble.

What a shame that you will not consider making a selection of a virtual portfolio to test your idea more thoroughly. Without such a test and in the absence of any other evidence or mathematical proofs to back up your assertion about the benefits of your "Low Yield" alternative to HYP, one is forced to consider your ideas as completely unsubstantiated and without any foundation in reality. What a shame, you might have had something concrete there. Are you sure you cannot provide us all with a virtual portfolio to monitor?


Ian

[Alaric]

You are assuming that all shares with high yields have prices that have collapsed. That is not the case.

Here is a list of my portfolio, ordered by yield:

[pre]Rank EPIC Yield
1 TW. 10.07%
2 IMB 9.44%
3 SSE 9.39%
4 WMH 9.07%
5 BT.A 7.85%

Take the top 5 by yield

TW. price 29 May 2018 201.2 , 24 May 2019 168.3
IMB price 2686 in 2018, now 2049
SSE 1375 to 1038
WMH 327 to 132.3
BT.A 206.25 to 196.26

If someone had started a HYP a year ago, would these shares have been suggested?

William Hill (WMH) is an example of a share that's become high yield because the price has collapsed
https://www.stockopedia.com/share-price ... dividends/

[tjh290633]

Take the top 5 by yield

TW. price 29 May 2018 201.2 , 24 May 2019 168.3
IMB price 2686 in 2018, now 2049
SSE 1375 to 1038
WMH 327 to 132.3
BT.A 206.25 to 196.26

If someone had started a HYP a year ago, would these shares have been suggested?

William Hill (WMH) is an example of a share that's become high yield because the price has collapsed
https://www.stockopedia.com/share-price ... dividends/

You may have noticed that the FTSE100 has fallen from 7678 at 31st May 2018 to the present level of 7277, a fall of 5.2%.

WMH's fall is down to the change in regulations for fixed odds betting terminals.

Tobaccos have fallen because of competition from alternative substances and the threat of legislation.

Utilities have fallen because of the possibility of confiscation by Corbyn.

Housebuilders have been volatile for some time, yet they keep building houses and making more profit.

Compared with the market, BT.A has risen, having fallen only by 4.8%.

TJH