Dividend Yield on FTSE 100

[Alaric]

The dividenddata site quotes the dividend yield on the FTSE 100. It's 4.42% as of writing excluding specials, 4.91% with.

High dividend yields are a feature of the higher capitalisations, the FTSE 250 yield, also quoted, comes out at 2.97% or 3.23% with Specials

Providing FTSE 100 Trackers track correctly and have minimal charges, that gives a benchmark for what a "buy the index" strategy might achieve and a comparison for alternative more selective high yield strategies.

[tjh290633]

Providing FTSE 100 Trackers track correctly and have minimal charges, that gives a benchmark for what a "buy the index" strategy might achieve and a comparison for alternative more selective high yield strategies.

OK, Give us some examples to prove your point.

TJH

[Alaric]

OK, Give us some examples to prove your point.

What do you want examples of? It's a simple statement of fact that the dividenddata site records the dividend yield on the FT100 and FT250 shares. It's not a giant leap of faith to suggest that if selecting shares from that universe, a valid comparison is against investing in that market subset as a whole which could be achieved with a low cost Tracker. Trackers have the advantage that they automatically pick winners and the disadvantage that they automatically pick losers as well.

[funduffer]

Not sure of your point, alaric, but HYP proponents usually aim for around 1.5x FTSE 100 yield at portfolio level.

Those with income IT portfolios may aim a little lower than this.

FTSE 100 yield is a good benchmark for any UK income strategy, because as you say, you can achieve it by just buying a tracker.

Once you look overseas, a suitable benchmark is not so obvious.

FD

[tjh290633]

OK, Give us some examples to prove your point.

What do you want examples of? It's a simple statement of fact that the dividenddata site records the dividend yield on the FT100 and FT250 shares. It's not a giant leap of faith to suggest that if selecting shares from that universe, a valid comparison is against investing in that market subset as a whole which could be achieved with a low cost Tracker. Trackers have the advantage that they automatically pick winners and the disadvantage that they automatically pick losers as well.

Yes, we know the yield on the FTSE100. Now give us the yield on some of the tracker funds.

TJH

[Alaric]

Now give us the yield on some of the tracker funds.

If they are doing what they are supposed to do, it should be much the same as the yield on the index, give or take charges and tracking error.

[Gengulphus]

Now give us the yield on some of the tracker funds.

If they are doing what they are supposed to do, it should be much the same as the yield on the index, give or take charges and tracking error.

But are they doing what they are supposed to do? No amount of evidence about what the FTSE100 yield is will establish that on its own - there needs to be evidence of both the FTSE100 yield and the tracker funds' yields to do that.

Gengulphus

[Lootman]

Now give us the yield on some of the tracker funds.

If they are doing what they are supposed to do, it should be much the same as the yield on the index, give or take charges and tracking error.

But are they doing what they are supposed to do? No amount of evidence about what the FTSE100 yield is will establish that on its own - there needs to be evidence of both the FTSE100 yield and the tracker funds' yields to do that.

I don't usually look at the yield on tracker funds, but I do look at the historical tracking error. For the large fund providers working with the major market indices, they track very faithfully i.e. within a few basis points. For some of the smaller providers (I'm thinking ETFs here) the tracking error can be wider.

If the tracking error is very low then I can't see how the resultant yield would ever be much different either. For major market ETFs they are typically very low (0.1% or less). But some open-ended tracker funds can have an expense ratio as high as 1%, which would cause a tracking error of at least that much. Obviously a shrewd investor would avoid those.

Other possibilities for a yield divergence are:

1) You are tracking a foreign index and that country applies a withholding tax. So for example, an ETF that tracks the S&P 500 will yield 15% less than the underlying index.

2) ETFs can go to a premium or discount. This is nowhere like the case with an investment trust, but it does happen on some days, sometimes as much as 3% but usually much lower.

3) The methodology for computing and quoting the running yield is different. So for instance one might include special dividends whilst the other might exclude them.

[kempiejon]

Not a tracker but a similarly mechanical low cost collective is the ETF ishares FTSE100 ISF and it has a distribution yield of 4.54%. The distribution yield represents the ratio of distributed income over the last 12 months to the fund’s current NAV.
details here https://www.ishares.com/uk/individual/e ... rough=true

[petronius]

From vanguardinvestor.co.uk:

FTSE 100 UCITS ETF (VUKE)

Ongoing charge 0.09% (transaction costs apply)

Distribution frequency: Quarterly

Yield As at close 30 Sep 2019: 4.83%

https://www.vanguardinvestor.co.uk/inve ... stributing

[Alaric]

Hmmm, that's interesting.

Also from the Vanguard site

Yield (30/09/19) on FTSE 250 UCITS ETF 3.14%
https://www.vanguardinvestor.co.uk/inve ... stributing
On FTSE All Share Unit Trust 3.61% (Accumulation Units)
https://www.vanguardinvestor.co.uk/inve ... ion-shares

The Vanguard funds seem to marginally underperform the index they follow by the amount of charge. That's what you would expect. Both the 100 and 250 are replicators. In other words they buy in proportion to the capitalisation in the index, outstanding performers and dogs alike.

[Arborbridge]

OK, Give us some examples to prove your point.

What do you want examples of? It's a simple statement of fact that the dividenddata site records the dividend yield on the FT100 and FT250 shares. It's not a giant leap of faith to suggest that if selecting shares from that universe, a valid comparison is against investing in that market subset as a whole which could be achieved with a low cost Tracker. Trackers have the advantage that they automatically pick winners and the disadvantage that they automatically pick losers as well.

It's not a giant leap of faith

Wow! You are very trusting of fund management groups

[88V8]

Surely the base expectation with a tracker is that it will marginally underperform the Top 100. Expenses dear boy, expenses.
So, if one is happy with the Top 100 minus a bit, that's fine.
As part of a mix of ITs, and individual HYP shares, why not, if that floats one's boat.

Not sure of your point, alaric, but HYP proponents usually aim for around 1.5x FTSE 100 yield at portfolio level.

Dunno about that. 150% of the 100 is the top of the goldilocks range, not the median. Those who pursue their HYP hobby with the aim of a 150% performance are in for a bumpy ride.

V8

[Alaric]

Surely the base expectation with a tracker is that it will marginally underperform the Top 100. Expenses dear boy, expenses.

As demonstrated by the past performance of the Vanguard funds, particularly of those that are replicators. In other words where their investment rule is to hold stocks in exactly the same proportions as the index they follow, the performance will follow the index except for the effect of charges.

[IanTHughes]

Not sure of your point, alaric, but HYP proponents usually aim for around 1.5x FTSE 100 yield at portfolio level.

Subject only to my diversification criteria, I invest in the share or group of shares which, at the time of purchase, offers the highest yield where I consider the dividend to be sustainable.

I do not have any target or aim for a portfolio yield relative to the FTSE 100 yield. Not at all.


Ian

[Lootman]

Surely the base expectation with a tracker is that it will marginally underperform the Top 100. Expenses dear boy, expenses.

As demonstrated by the past performance of the Vanguard funds, particularly of those that are replicators. In other words where their investment rule is to hold stocks in exactly the same proportions as the index they follow, the performance will follow the index except for the effect of charges.

Note that that effect is gradually being eroded away, as the major market ETFs' expense ratio is tending to zero, and the tracking error and spreads are already razor thin.

Stock lending revenues can also reduce the frictional costs. In some cases ETFs may even have a negative expense i.e. they out-perform the index.

[Arborbridge]

Not sure of your point, alaric, but HYP proponents usually aim for around 1.5x FTSE 100 yield at portfolio level.

Subject only to my diversification criteria, I invest in the share or group of shares which, at the time of purchase, offers the highest yield where I consider the dividend to be sustainable.

I do not have any target or aim for a portfolio yield relative to the FTSE 100 yield. Not at all.


Ian

I think FD can be allowed this: he only made a small forgivable error in writing "usually" There will be some (perhaps "many") who follow the idea that a higher yield begins to look too good to be true, even when other measures say it is sustainable.
Luni left his mark on some of us which is where the 1.5x came from, I suspect.

Arb.

[IanTHughes]

Not sure of your point, alaric, but HYP proponents usually aim for around 1.5x FTSE 100 yield at portfolio level.

Subject only to my diversification criteria, I invest in the share or group of shares which, at the time of purchase, offers the highest yield where I consider the dividend to be sustainable.

I do not have any target or aim for a portfolio yield relative to the FTSE 100 yield. Not at all.

I think FD can be allowed this: he only made a small forgivable error in writing "usually" There will be some (perhaps "many") who follow the idea that a higher yield begins to look too good to be true, even when other measures say it is sustainable.
Luni left his mark on some of us which is where the 1.5x came from, I suspect.

When funduffer mentioned the aim of "most HYP proponents" I assumed that was a reference to those that follow the High Yield Portfolio (HYP) strategy. My mistake, sorry.


Ian

[tjh290633]

I suspect that what is being overlooked is the diversity aspect. For the first 15 selections or so, only one share per sector is chosen, and the cut off point is the current yield on the market. Looking at my own 35 shares, here they are sorted by yield:

Rank   EPIC   Yield 
   1   IMB    11.92%
   2   TW.    10.86%
   3   BT.A    7.98%
   4   RIO     7.44%
   5   BATS    7.12%
   6   AV.     6.96%
   7   RDSB    6.42%
   8   BP.     6.32%
   9   ADM     6.30%
  10   BHP     6.23%
  11   MKS     6.20%
  12   SSE     6.11%
  13   LGEN    6.05%
  14   MARS    6.00%
  15   BLND    5.66%
  16   LLOY    5.51%
  17   NG.     5.34%
  18   S32     5.21%
  19   KGF     5.15%
  20   VOD     4.92%
  21   UU.     4.72%
  22   GSK     4.71%
  23   WMH     4.57%
  24   SMDS    4.17%
  25   TATE    4.15%
  26   BA.     3.94%
  27   IMI     3.67%
  28   ULVR    3.10%
  29   AZN     3.02%
  30   RB.     2.97%
  31   TSCO    2.89%
  32   PSON    2.80%
  33   SGRO    2.28%
  34   DGE     2.21%
  35   CPG     1.92%

They all started off with yields at or above the market level at the date of purchase. Taking that as 4.5% at the moment, there are 23 above that level and two above twice that level, 6 above 1.5 times that level. It is noticeable that tobaccos and miners, for example, are in the upper echelons. That is a feature of current market sentiment. It could all change in a few months' time.

TJH

[gryffron]

Providing FTSE 100 Trackers track correctly and have minimal charges, that gives a benchmark for what a "buy the index" strategy might achieve and a comparison for alternative more selective high yield strategies.

What truly matters to investors is overall return.

The FTSE100 includes both "high yield" and "growth" stocks. The latter are generally filtered out by HY criteria. So comparing only dividends between your HYP and FTSE100 is a poor comparison. In order to have favourable comparison in overall return, almost certainly, your HYP must generate significantly more dividends than FTSE100, to compensate for the lack of growth.

Gryff