AsleepInYorkshire wrote:I've read the guidance for posting on HYP boards provided by Clariman. Hopefully I've understood it well enough and I am posting to the correct board.
Within that guidance is a comment indicating that shares in a HYP picked for inclusion on the HYP Board should be above the FTSE average yield. I'm sort of crossing T's I think - or if you prefer "overthinking" but what about those yields which actually aren't going to be paid (because of profit reductions) near the top of the yield table? Should they be discounted or included please?
That guidance doesn't say which form of yield you should use (***). The two main forms both have their disadvantages. Historical yield (dividends actually paid by the company for its last completed financial year, divided by the current share price) is inevitably out of date, not taking at least some recent news into account - i.e. basically the issue you raise. Forecast yield (the forecast dividend for the company's financial year that is currently not yet completed, divided by the current share price) is highly dependent on which analyst's forecasts you use - or more likely, rather less dependent on which data source's 'consensus forecast dividend' (*) one uses - and is still liable to be somewhat out of date, because news about the company will take some time to feed through into all the individual analysts' forecasts. Personally, I recommend using both, looking for the reason for any unusual relationship between them (forecast dividend below historical dividend or unusually highly above it)
and checking the company's recent RNS announcements for any news that might not yet have got into the forecasts.
By the way, on a point of detail, when I talk about "completed" financial years in the above, I really mean "completed and reported on": for example, quite a few companies use March 31st financial year ends, so will have completed their 2018-2019 financial year a bit over a couple of weeks ago, but we won't know what their historical dividend is for that year until they report their final results, probably sometime next month. So even immediately after they do report those results, their historical dividend could be regarded as a month or two out of date, and at the moment, their historical dividend figures are for their 2017-2018 financial year and their forecast dividend figures for the already-over 2018-2019 financial year.
That guidance also says:
"
Selection criteria may include the yield, the dividend record and a history of increases. Debt level and free cash flow should be considered. Personal feelings can affect the choice, including ethical considerations. Additional criteria may be used by individuals."
I.e. you're entirely at liberty to do any further checks you feel appropriate on the company and take them into account when discussing it, and indeed the guidance encourages you to take account of debt level and free cash flow. Personally, I prefer (**) the old
TMF guidance's wording that "
With high dividend yields, and safety factors that suggest that their dividend income is sustainable and will hopefully grow. Typical safety factors used are one or more of high market capitalisation, good dividend cover, a good record of dividend growth, and low gearing. HYP strategies vary in which safety factors they use, so no individual safety factor is essential - but having some of them is!", since that made it clear that doing some checks on the sustainability of the dividends is not an optional extra.
However, I would
not recommend altering the yield figures produced by the normal calculations, because that's simply begging for readers to post querying why your figures differ from the ones they're getting. Far better IMHO to post the straightforwardly calculated figure in the table and say e.g. "
However, I consider Galliford Try's historical dividend highly likely to be cut, given its recent profit warning, so I'm discounting its apparent high yield for being too unsafe" in text afterwards.
(*) In quotes because they're really a variety of average rather than a consensus. E.g. if half the analysts are forecasting that the company will hang on and maintain its dividend, while the other half are forecasting that it will give in to the financial pressure it's under to cut and decide to cut by 40%, the consensus forecast will be for the dividend to be 20% down on the previous dividend - even though no analyst might be forecasting anything near that! IMHO the only way to properly use the word "consensus" to describe that situation is to say that there is no consensus between analysts...
(**) But then I would! - TMF used (with my permission) my wording on that with at most minor editing.
(***) Edit: I think either would be accepted, but discussing why inevitably goes into a subject area
forbidden on TLF, so I won't.
Gengulphus