Aviva (TR v. HYP)

[Alaric]

Never mind the quality, feel the width, as was once said. Keep your eye on the dividend.

The market assessment would appear to be that they are paying the increasing dividends from capital. Otherwise the share price would likely go up at least in line with the dividend increases as seen in the histories of Diaego, Unilever, Compass etc.

If a stock drops to 80% of its previous value, you could have got an equal or higher valued outcome, by buying a lower yielding share that performed better in capital terms and then selling enough to make up the income shortfall. Hence the poor "total return" values for Aviva.

Moderator Message:
Moved from HYP Practical because that board is intended for those wishing to discuss practical matters relating their HYPs as defined in the guidelines rather than its merits as compared to other strategies. - Chris

[IanTHughes]

Never mind the quality, feel the width, as was once said. Keep your eye on the dividend.

The market assessment would appear to be that they are paying the increasing dividends from capital. Otherwise the share price would likely go up at least in line with the dividend increases as seen in the histories of Diaego, Unilever, Compass etc.

If a stock drops to 80% of its previous value, you could have got an equal or higher valued outcome, by buying a lower yielding share that performed better in capital terms and then selling enough to make up the income shortfall. Hence the poor "total return" values for Aviva.

But you would have received that income from AV without having to sell anything! So what is the problem for an HYP?

Or are you advocating that the HYP Strategy should involve reducing your future income by selling off the very holdings that produce it? How much will you have to sell the next year, bearing in mind that the income will be lower thanks to the first sale?


Ian

[Alaric]

But you would have received that income from AV without having to sell anything! So what is the problem for an HYP?

The simple enough point is this.

Anyone congratulating themselves on selecting Aviva five years ago needs to be aware that their wealth could be greater today had they selected a relatively wide choice of "something else", where "something else" included funds that tracked the FTSE 100 as a whole. If it matters that part of wealth has to be in cash, that aim could have been achieved by selectively selling the "something else".

It's those who show some concern for their total wealth who are the sceptics about the suitability of Aviva as an income producing share, as seen in the thread about the Aviva results and history.

[IanTHughes]

But you would have received that income from AV without having to sell anything! So what is the problem for an HYP?

The simple enough point is this.

Anyone congratulating themselves on selecting Aviva five years ago needs to be aware that their wealth could be greater today had they selected a relatively wide choice of "something else"

As I am sure you are aware, HYP is about Income, not Total Wealth. With that in mind, an HYPer will be pleased that the Income received form AV has increased every year by over 10%.

I know this part of the thread has been moved from the Practical board and is now on the HY Strategies board but please, before you come back on this point, be aware that I am only talking about this success from an HYP Strategy perspective.


Ian

[Alaric]

I know this part of the thread has been moved from the Practical board and is now on the HY Strategies board but please, before you come back on this point, be aware that I am only talking about this success from an HYP Strategy perspective.

You frequently dispute that a practical outcome of what you term "HYP Strategy" is to lose money. In the real world, total return matters, or at the very least return related to markets as a whole, regardless of what some TMF author may have written nearly twenty years ago.

[IanTHughes]

I know this part of the thread has been moved from the Practical board and is now on the HY Strategies board but please, before you come back on this point, be aware that I am only talking about this success from an HYP Strategy perspective.

You frequently dispute that a practical outcome of what you term "HYP Strategy" is to lose money.

Of course I dispute that, simply because I have not seen any evidence to back up that assertion. On the contrary, I have seen plenty of evidence that shows the exact opposite!

In the real world, total return matters, or at the very least return related to markets as a whole, regardless of what some TMF author may have written nearly twenty years ago.

My own HYP, which is most definitely not losing money by the way, is very much in the "real" world and is currently producing "real" income, which is growing each year, and in time I will draw down that "real" Income which will be needed for my "real" Retirement.

As a result I am baffled as to what you are taking about!


Ian

[Alaric]

As a result I am baffled as to what you are taking about!

Total Return, being the simple fact of life that losing 20% of share value over five years is an offset to dividends.

[tjh290633]

As a result I am baffled as to what you are taking about!

Total Return, being the simple fact of life that losing 20% of share value over five years is an offset to dividends.

And should the share price rise again, as it did after 2013, what is your answer then?

TJH

[Alaric]

And should the share price rise again, as it did after 2013, what is your answer then?

Your total return has recovered. HIgh yield stocks can be recovery shares as well and that's the problem. How do you tell the difference between a recovery share and a total basket case? One scenario for Aviva is that they will stop increasing the dividend, but instead improve the performance of the underlying businesses. If that causes the share price to recover, the dividend yield will slowly fall, causing it eventually to cease being a "HYP" share.

[IanTHughes]

As a result I am baffled as to what you are taking about!

Total Return, being the simple fact of life that losing 20% of share value over five years is an offset to dividends.

Well, no, I do not accept that.

The dividends received arrived into my "real" cash account. Actually, in my case they were used as part of more "real" share purchases. Contrarily, the value of my holding, a holding that I have no intention of selling, is simply the result of the random ups and downs of what is always to some extent a volatile market! Despite the downturn in value, I can still spend my dividend. In fact, my ability to use that cash is spectacularly unaffected, whatever the market does. Who knows, next year may see the market increasing the value significantly. But, even if it does, it will not affect the amount of dividend that I have received and will receive in the future. There is no such offset between the value of a holding and the dividends received from it, none at all! As I am sure any experienced investor already knows.


Ian

[Alaric]

There is no such offset between the value of a holding and the dividends received from it, none at all! As I am sure any experienced investor already knows.

Those who are rather less dogmatic are aware that shares can be transformed into cash and vice versa at low cost and the click of a mouse. Think portfolio value where portfolio includes cash.

It is my contention that if the value of portfolio A exceeds that of portfolio B for the same starting point, then portfolio A has been more successful whatever its mix of share value and cash.

[Bouleversee]

Ian H:

And will you look at things in the same way when you are withdrawing the dividends to fund your retirement and see your portfolio value going down?

[tjh290633]

There is no such offset between the value of a holding and the dividends received from it, none at all! As I am sure any experienced investor already knows.

Those who are rather less dogmatic are aware that shares can be transformed into cash and vice versa at low cost and the click of a mouse. Think portfolio value where portfolio includes cash.

It is my contention that if the value of portfolio A exceeds that of portfolio B for the same starting point, then portfolio A has been more successful whatever its mix of share value and cash.

Successful only in terms of total return. If the objective of the investor is to obtain and withdraw an income from his portfolio, then portfolio B could be the more successful. You will then say that you can achieve this by withdrawing capital, but that equates to your paying dividends out of capital, which you deplore.

Perhaps a few worked examples from actual history, rather than mere assertions, might be more convincing.

TJH

[IanTHughes]

There is no such offset between the value of a holding and the dividends received from it, none at all! As I am sure any experienced investor already knows.

Those who are rather less dogmatic are aware that shares can be transformed into cash and vice versa at low cost and the click of a mouse. Think portfolio value where portfolio includes cash.

It is my contention that if the value of portfolio A exceeds that of portfolio B for the same starting point, then portfolio A has been more successful whatever its mix of share value and cash.

Fine, if that is your contention then fine! However, you should be aware that I was not arguing that your higher value Portfolio A is not more successful than your lower value Portfolio B. Assuming you are measuring success by that overall value metric, how could you or anyone come to any other conclusion?

My measure of success for an HYP, not any other strategy you understand, is based on the Income received. So, as I accept your measurement for success applied to your portfolio, you must surely accept that my determination of success is based on an entirely different metric, income. Is that so hard for you to understand?



Ian

[Alaric]

You will then say that you can achieve this by withdrawing capital, but that equates to your paying dividends out of capital, which you deplore.

It is to be deplored when directors do it as it's misleading as to how well the Company is trading.

I do not see a major problem with investing at a 4.5% yield into a FTSE 100 tracker and then to top up to an income requirement by selling. In any event ITH is not drawing down the dividends, rather he is using them for top ups. I would have thought then the primary metric to use should be the value of invested assets immediately after a top up when there isn't any cash.

[IanTHughes]

Ian H: And will you look at things in the same way when you are withdrawing the dividends to fund your retirement and see your portfolio value going down?

Yes


Ian

[Alaric]

My measure of success for an HYP, not any other strategy you understand, is based on the Income received.

If you don't actually need the income and are reinvesting it, income received should be a secondary measure to total portfolio value after reinvestment.

It's a "white is black" argument, that if you compare two fully invested portfolios, one worth 110 being 109 of capital and 1 of dividend reinvestment, the other being 105 being 100 of capital and 5 of dividend reinvestment, to say that the latter has a better metric,

If you need 5 to live, you have to sell 4 from the first portfolio, but you would still have 105 v 100.

[IanTHughes]

You will then say that you can achieve this by withdrawing capital, but that equates to your paying dividends out of capital, which you deplore.

It is to be deplored when directors do it as it's misleading as to how well the Company is trading.

I do not see a major problem with investing at a 4.5% yield into a FTSE 100 tracker and then to top up to an income requirement by selling. In any event ITH is not drawing down the dividends, rather he is using them for top ups. I would have thought then the primary metric to use should be the value of invested assets immediately after a top up when there isn't any cash.

You are of course as entitled to your thoughts as I am to mine!

I am not suggesting that HYP is the best investment strategy for all circumstances. Nor am I even saying that anyone aiming for income, now or some time in the future, should only choose HYP. What I am trying to explain, with some difficulty I must confess, is that HYP, as a Strategy works for me, and no doubt others as well. Can you not accept that, instead of this constant denigrating, most of which is based on incorrect assumptions as to what HYP is?

If you seriously believe that using the HYP Strategy will inevitably lead to losing money as you indicated here:

viewtopic.php?p=242989#p242989

You frequently dispute that a practical outcome of what you term "HYP Strategy" is to lose money.

then prove it! Show us some real evidence! Not based on hindsight!

I for one would be thrilled if you could but unfortunately you cannot even be bothered to take up my challenge posted here:

viewtopic.php?f=31&t=18353&p=240436#p240436

So what about my challenge?

….but for most of the last ten years, investors in Unilever, Compass, Diageo and even just FTSE 100 trackers would have done much better than VOD investors despite the higher yield of the latter.

If you are so sure that the above is correct and of course will continue to be true, why do you not set up a test portfolio, reported on these boards, so that in future we can make a comparison between your Income Portfolio and those HYP's, both virtual and real, that are already reported. It really does not take much effort once the initial selections have been made.

There are several HYP's reported on these boards against which you could pit your own, no doubt well researched investment Strategy. I say well researched because you appear so dogmatic about it, I assume you must have something to back up your belief that HYP is bad for income seekers!

I will not hold my breath


Ian

[IanTHughes]

My measure of success for an HYP, not any other strategy you understand, is based on the Income received.

If you don't actually need the income and are reinvesting it, income received should be a secondary measure to total portfolio value after reinvestment.

You do what you must do but that is not for my HYP!

It's a "white is black" argument, that if you compare two fully invested portfolios, one worth 110 being 109 of capital and 1 of dividend reinvestment, the other being 105 being 100 of capital and 5 of dividend reinvestment, to say that the latter has a better metric,

If you need 5 to live, you have to sell 4 from the first portfolio, but you would still have 105 v 100.

And if it is the other way around? What if your carefully selected scenario does not pan out and the second portfolio outstrips the first? You cannot seriously be saying that you can "guarantee" that your growth portfolio will always allow for sales to supplement the income received from an Income Portfolio, without damaging future income? Of course you cannot and please do not pretend that you can!

Sorry, but without your taking the trouble to provide the evidence for your views, they will always be rejected my myself as unsubstantiated. HYP, on the other hand, has been proved successful on numerous occasions!


Ian

[Alaric]

I am not suggesting that HYP is the best investment strategy for all circumstances.

To go back to the original question, the reason that some investors didn't see Aviva as part of their income strategy was its patchy dividend record and loss of value.

You were the one defending Aviva on the grounds that capital value doesn't matter. You say it's hindsight, but the "HYP Strategy" in some form or other has been running approaching twenty years and surely it's reasonable to challenge the outcomes of decisions over share selections taken five years ago in order to improve the metrics for future selections.