Has the thinking on HYP dividend cover changed?

[Arborbridge]

Any comments on the evident decline?

The decline is evident

But, I'd say it bears out what other commentators have remarked upon. There are bears around who believe we should all be selling out, and the decline in cover is just one of the factors they mention. It could be that you have independently confirmed one of those factor changes.

Arb.

[funduffer]

Who would dare to call you pedantic Gengulphus?

The 40 companies I looked at were: ADN, ASHM, AZN, BBA, BLND, BP., BWY, CLLN, CNA, COB, CPI, DEB, ECM, EMG, GCP, GNK, GSK, HSBA, HSTN, IMB, ISAT, JLIF, MARS, MKS, MTO, OML, PFC, PHNX, PNN, PSON, RDI, RDSB, SBRY, SSE, TALK, TATE, ULVR, UU., VOD, WMH.

I summed the dividend cover for each of the above for 2012, and divided by 40. I then repeated the exercise for the four years that followed to derive the five means displayed in my comment above.

Any comments on the evident decline?

Not sure how relevant this is, but since 2012 the FTSE 100 PE ratio has risen from about 11 in 2012 to around 36 today. I think this is mainly the effect of the commodity squeeze in this period and the effect on company earnings. This must feed through to dividend cover, although I am no expert in company accounts. Obviously your list of HYP candidates are not all commodity companies, so there may be other things going on as well.

FD

[Ivyrobert]

2 times cover is easy to remember but only part of the picture.
I have, today taken the plunge with Unilever which is showing a dividend cover of 1.44. The P/E of 22 raised one eyebrow, but I have never felt the price attractive enough to buy in. At 3% the yield wouldn't stack up as HY but I have bought as small position to see if it "dives" now I have invested.
I feel that we are experiencing changes of unintended consequences and debt levels will continue to worry markets- are any of them safe?

[Gengulphus]

until freshly picked

- I meant "unless".

For future reference, when you notice such a typo immediately (both your first post and your correction were timed at 15:25), you can edit your post provided you do so within 8 minutes - there's a 'pencil' button up at its top right alongside the ! and " buttons. Or indeed delete it entirely, using the "x" button - you have to say why you're deleting it, but if for instance you'd made a complete hash of the post's formatting and weren't certain you could repair it in what's left of the 8 minutes, deleting it with a "completely misformatted - will reformat and repost" explanation would be reasonable.

Gengulphus

[Arborbridge]

Thanks Gengulphus - I hadn't realised that.

And I've just done an edit, just to practice!


Arb.

[Arborbridge]

but I have never felt the price attractive enough to buy in.

Ivyrobert - strange you should mention Unilever because I've been looking at it today.
True the yield isn't great, but it's one of those shares which never yields "high". However, it is now reaching a yield which is moderately good in its own terms. Currently, it's at the bottom of its acceptable level, I'd say at 3.3% historic or thereabouts.
In the past, I've topped up at 3.3% up to 4.27%.

Arb.

[Gengulphus]

Who would dare to call you pedantic Gengulphus?

Plenty of people, including me! ;-)

The 40 companies I looked at were: ADN, ASHM, AZN, BBA, BLND, BP., BWY, CLLN, CNA, COB, CPI, DEB, ECM, EMG, GCP, GNK, GSK, HSBA, HSTN, IMB, ISAT, JLIF, MARS, MKS, MTO, OML, PFC, PHNX, PNN, PSON, RDI, RDSB, SBRY, SSE, TALK, TATE, ULVR, UU., VOD, WMH.

Thanks, but I'm afraid that doesn't answer my question, which was basically about how you picked them. In particular, did you pick them because you think they're good HYP candidates now, or because you think they were good HYP candidates in 2012?

I summed the dividend cover for each of the above for 2012, and divided by 40. I then repeated the exercise for the four years that followed to derive the five means displayed in my comment above.

Any comments on the evident decline?

It may be connected with how you picked them - as I previously said, if you picked them for being good HYP candidates now, they could be shares that you've picked because they've got high yields, that have got high yields because the market is rating them lowly, and that the market is rating lowly at least partially because their dividend covers have been declining. I.e. you may have picked them for reasons that are indirect consequences of them having had declining dividend covers, in which case it would hardly be surprising that they have declining dividend covers!

It may be that general economic conditions have been placing pressure on company earnings and that companies have tried to keep dividends rising at about their historical rate. Which actually works OK provided the companies do so both when earnings growth is below the historical rate and when it's above it, so that dividend cover declines in the former case and rises in the latter, and provided that the company recognises reasonably early when they're in danger of not being able to keep it going... The trouble is companies that try to raise their dividends in line with earnings growth when earnings growth is high and in line with the historical rate when it is low: that's unsustainable long-term, and the overconfidence that leads to them doing it also tends to make them hang on too long when it really is going wrong...

Or it could be both of those or neither, with there being some other reason I haven't thought of. But all I can do without knowing how the 40 shares were picked is suggest possible reasons - trying to work out which of those possible reasons are true and which are not without knowing that is a hopeless task.

Gengulphus

[TUK020]

Any comments on the evident decline?

A very pertinent question.
Does it go hand in hand with an increase in gearing as companies adapt to a lower interest environment?
And what happens when rates start to rise?