Current market drop - any bargains?

[spiderbill]

With the Trump threat having revived on the FBI meddling the markets seem to have taken fright and a few HYP standards have begun to look enticing. e.g. Aviva at 420p, Glaxo at 1535p (partly on going ex-div), Petrofac have plummeted to 772p.

Portfolio balance aside, is anyone else eyeing any possiible bargains or do people think this drop has more to come?

Spiderbill (who bought some Vodafone the other day and is now wishing he'd held off a bit longer)

[ReformedCharacter]

[i]Portfolio balance aside, is anyone else eyeing any possiible bargains or do people think this drop has more to come?[/i]

The drop has more to come fairly soon I think, given the number of uncertainties at the moment. I know 'market timing' is considered a no-no but I'm not buying right now.

It's good to be here among 'old friends'.

RC

[Charlottesquare]

I have done worse than not buy, I have actually sold about 50% of everything and am currently half in cash and half invested. I did the same pre the referendum vote and then bought back in post initial drops.

I am not an HYP purist, in fact likely I am not an HYP anything, I am sure strategic ignorance works for some but I just do not have the faith; sorry.

The only commandments I appear to follow are I do like a decent yield , I do like dividend cover and high gearing scares me.

(Now , if we get a Trump victory I need to find a company that makes shovels )

[TangerineKeith]

It's a little bit painful to look at the slide in my portfolio value over the last fortnight.

I am accumulating at present so it looks like next months top up might be cheap. I know that is suppose t make me feel better, but it still sucks to be losing money, on paper at least. Red is a bad colour and my portfolio has been red all week

Practical HYP investing is not without emotional impact it seems...

Ap8889

To avoid this sadness, do not look at the changes in your portfolio over one week, or even two weeks.

It is an addiction -- try to wean yourself off it. Try to hang on for a month without looking, then three months. Before you know where you are, you'll be able to go a whole year without looking, and much happier for it.

[77ss]

Portfolio balance aside, is anyone else eyeing any possiible bargains or do people think this drop has more to come?

Bargains? Who knows?

There may well be more 'drop' to come -it has been nearly 10 years since the last crash.

However, I note that at the current share price (2058p) Diageo is offering a prospective dividend of over 3%.

Not a particularly high yield, but I don't have anything in the drinks sector and have been patiently waiting for the market to offer me a reasonable buying opportunity. I'll be doing some thinking about this over the w/e.

Bargain hunting is not really what I am after here - just a reasonable home for some of my cash in these troubled times.

I am also keeping an eye on Astra Zeneca - if it falls much more, then a top-up is on the cards.

[argoal]

I've noticed that a number of the UK Equity Income investment trusts are trading at around a 10% discount at the moment.

I can't remember the discounts being as large before so they are well worth a look if you are starting out or want to add a bit of instant diversity to your HYP. Yields are in the 3.6-4.5% range so worth considering as an alternative to individual shares

[Raptor]

I've noticed that a number of the UK Equity Income investment trusts are trading at around a 10% discount at the moment.

I can't remember the discounts being as large before so they are well worth a look if you are starting out or want to add a bit of instant diversity to your HYP. Yields are in the 3.6-4.5% range so worth considering as an alternative to individual shares

I noticed that too. Waiting for the last divi to get to my account. Have DIG and MRCH, but do not consider them part of my HYP for the purposes of this forum.

Raptor.

[88V8]

The yields on Fixed Interest - bank preference shares - are moving towards 7%. I shouldn't be a buyer as we already have over 30% in Financials, but...

V8

[Julian]

I've noticed that a number of the UK Equity Income investment trusts are trading at around a 10% discount at the moment.

I can't remember the discounts being as large before so they are well worth a look if you are starting out or want to add a bit of instant diversity to your HYP. Yields are in the 3.6-4.5% range so worth considering as an alternative to individual shares

I noticed that too. Waiting for the last divi to get to my account. Have DIG and MRCH, but do not consider them part of my HYP for the purposes of this forum.

Raptor.

I'm trying, along with many others, to get the Investment Trusts & Unit Trusts board set up here so hopefully we'll soon have somewhere to discuss this in as much detail as we want. Glad for the heads up though. I haven't been paying attention recently and my ISA has some money to invest. I'm deliberately skewing my ISA towards ITs, including some international ones but also UK ones, as a bit of extra diversification relative to my main HYP.

- Julian

[pyad]

...and yield is a shade higher once all the buybacks are accounted for.

I have no comment on the merits of Coca Cola but your above statement is incorrect and you are fooling yourself if you think buybacks add to yield. As you know, yield is simply the dividend against the share price. And that's all it is.

Pernicious buybacks, which shaft the small shareholder in favour of the institutional shareholders who control most of the shares, have nothing to do with yield at all. I've seen this argument before, that buybacks are some kind of additional yield but as small investors never see that money, it is a travesty to call that wasted cash "yield".

I've noticed that a number of the UK Equity Income investment trusts are trading at around a 10% discount at the moment.

I can't remember the discounts being as large before so they are well worth a look if you are starting out or want to add a bit of instant diversity to your HYP. Yields are in the 3.6-4.5% range so worth considering as an alternative to individual shares

It won't add much diversity because any mainstream UK equity income IT is going to have a large proportion of the same shares which form the basis of an HYP. I''d say that such ITs should be avoided by anyone building an individual shares HYP. To add genuine equity income diversity to an HYP using funds like ITs or whatever would require one that does not invest in UK big caps, perhaps US equity income for example.

[Dod1010]

But pyad you know as well as anyone that share buybacks reduce the number of shares in issue and given the same quantum of dividend being distributed remaining the same, it can be spread over fewer shares, thus marginally increasing the dividend per share. All things being equal (which they will never be) that will increase the yield. That is I assume what the OP is referring to.

This can be seen in reverse if you happen to hold Cobham, where the Company was able to say that they are holding the interim dividend, but then distributed it after the rights issue, effectively reducing the dividend per share quite significantly as I can testify.

[pyad]

I didn't read the original message that way, he seemed to be adjusting the ostensible yield for buybacks in some way that's unclear, so as to see it as higher than the simple yield calculation revels. In any event it is very hard to understand why there are buyback apologists on the HYP board.

Buybacks can only impair dividends, because the cash wasted on buying in shares could instead be paid out in dividends and thus all shareholders benefit equally and not just the company's institutional mates.

Alternatively, the cash toileted in buybacks could be used to reduce debt and gearing, thereby reducing risk. As it is, money spent on buybacks increases gearing, thereby increasing risk to the investor.

Or any combination of the two.

In most cases, with a few special situation exceptions, buybacks are the bane of the income investor. Why anyone here would in consequence defend this nefarious practice beats me.

[Lootman]

Alternatively, the cash toileted in buybacks could be used to reduce debt and gearing, thereby reducing risk. As it is, money spent on buybacks increases gearing, thereby increasing risk to the investor.

The mention of debt there is significant. Some companies actually borrow money to buy back shares. While other companies do buybacks out of earnings and may not even have any debt. The former I regard as a black mark, but the latter can have merit, and I note that even your blanket criticism acknowledges some exceptions. It's best to assess each case on its individual merits rather than make grand generalisations.

As for whether you can call it "yield" or not, that is another matter. But I don't think that it matters so much. One can posit different kinds of yield, e.g. dividend yield, earnings yield, buyback yield and so on. As long as the word is qualified and its meaning is clear, then the rest is just semantics.

There are some types of situation where I like buybacks. One would be where I seek to avoid or defer the income tax I'd have to pay on dividends. Another is a case where a company is spinning off excess cash (like some tech companies) and the alternative would be a dubious acquisition. And a company in a sustained growth pattern will profit from extra operational gearing.

Finally buybacks can be stopped if the situation demands without the kind of shareholder outrage that typically happens when a dividend is cut.

[BT63]

I think the outlook for high-yield dividends remains tough and we shouldn't be too optimistic about how much we'll get paid. Being too greedy will probably cost both income and capital.

I have a holding in GSK (one of the companies mentioned in the opening post) but their dividend cover is weak to the point where I've already come to terms with the significant chance that I'll lose a quarter of my income from that source within two or three years (a 25% cut would allow dividend cover to improve to a satisfactory and sustainable level a little under 2x).
However, even if GSK cut from 80p to 60p, the yield would still be close to 4%.

Ironically, nowadays, probably due to our bizarre economic situation, non-cutters seem more likely to cut within a few years of appearing on the HYP radar, while cutters sent into exile by HYP-ers seem more likely to subsequently build a decent run of dividend growth.

With a historic yield around 4%, covered around 3.7x, and now several years post crash so much of the bad stuff is dealt with and/or well known, I think LLOY might be a useful up-and-comer for a HYP. Unfortunately, by the time LLOY rebuild a good dividend history spanning a decade to attract HYP-ers, it'll probably be time for another once-every-decade-or-two banking crisis or a once-per-decade recession to blemish the record again.

[spiderbill]

Looking at the various companies at HYP-able yields available, GSK, Astra Zeneca, Aberdeen Asset Management, Phoenix Group, Berkeley, RDSB, HSBC all look tempting.

GSK is already 5% of my holdings otherwise I'd be a buyer, but it's my only Pharma so I've been watching Astra's heavy drop with interest.
I confess I just don't know what to make of Aberdeen and as I'm quite heavy in financials overall I've kept away so far.
Berkeley is one that looks tempting, despite the way housebuilders have been talked down since June- I have what was a median holding in Taylor Wimpey that's dropped substantially so I have mixed feelings there, but as long as they hold the dividend then I should be happy enough. RDSB is one where I should have ignored the doommongers and bought more when it was on the floor simply on its historic strength. Now that it's receovered to some extent I'm less sure - oil price could go either way.

Thanks for your thoughts AP8889

[spiderbill]

However, I note that at the current share price (2058p) Diageo is offering a prospective dividend of over 3%.

Not a particularly high yield, but I don't have anything in the drinks sector and have been patiently waiting for the market to offer me a reasonable buying opportunity. I'll be doing some thinking about this over the w/e.

Bargain hunting is not really what I am after here - just a reasonable home for some of my cash in these troubled times.

I am also keeping an eye on Astra Zeneca - if it falls much more, then a top-up is on the cards.

Diageo is one of those shares you always feel would be advisable to have but seldom has an attractive yield (cf: Unilever) so I can see your point there. Will add it to the watch list and consider it - as I just said in an earlier reply Astra in already on that list.

cheers

Spiderbill

[tjh290633]

I judge whether a share is currently worth buying by using my top-up ranking, but that only compares currently held shares with the rest of my portfolio.

The top twelve are currently:

1 CLLN
2 PSON
3 LLOY
4 TW.
5 BLND
6 MKS
7 AV.
8 BT.A
9 LGEN
10 WMH
11 MARS
12 RDSB

and I suspect that most of those would be good buys for anyone not holding, or not constrained by my own self-imposed limits (not exceeding 5% of portfolio cost and not exceeding 5% of portfolio income). Those limits rule out the first four for me.

Another way of looking at it is to see how much share prices have fallen over a given period, like from the start of the year. The biggest fallers are:

Epic Change
TW. -30.23%
WMH -26.97%
BLND -24.87%
LLOY -24.10%
MKS -23.94%
BT.A -23.35%
MARS-20.42%
AV. -18.82%
CLLN -17.76%
AZN -5.38%
VOD -3.33%
LGEN -3.25%
SMDS-3.08%
SGRO-1.96%
PSON -1.36%
UU. -1.28%

Most of the same companies appear in that list.

Just a thought.

TJH

[spiderbill]

Just a thought.

Your thoughts are always worth listening to Terry.

Legal & General has been near the top of my top-up list for a while (despite my three purchases all being down) as I believe they are oversold.
I hold TW (though there's room for a top-up there) and avoid WMH for ethical reasons, but BLND is one worth looking at as I hadn't realised they'd dropped as much as that and 4.8% is a nice yield. Will definitely look more closely at that.

I have quite a bit of Aviva and enough Lloyds that any increase in either share price or dividend will do well for me.

Carillion is one I keep looking at to see if there's any signs of recovery but they seem to keep on being shorted - my two existing blocks are both 30% down. I keep hoping to see the chance of what happened with HSBC, where I was well under water and they kept on sliding until there came point where they almost had to rise. Bought in July and am 27% up with a nice dividend locked in (barring Chinese calamity). So that's under constant watch.

BT might be a useful hedge to set off against VOD in case there's one or the other shows signs of winning in that sector, as well as for its current current yield. Along with the afore-mentioned Astra Zeneca that gives me plenty to think about.

Much obliged

Spiderbill

[pendas]

It's a Halifax Sharebuilder purchase day tomorrow.

I'm topping up Lloyds, M&S and Marstons.

[idpickering]

Good evening,

It was my intention to buy some more BT Group this month in my HYP(ISA), but I think I'll wait until nearer the date (22 Nov) until I make my mind up. There's a lot going on what with the election over in the good old USA, which is clouding my thinking at the moment.

Regards,

Ian.