HYP Report 2017

[Smautf]

This is my first post on The Lemon Fool. I was only a very occasional poster on TMF - but a frequent reader since the late 1990s, and like everyone else, I was much saddened by the demise of the message boards. I hope this replacement will be a success, and I’m posting this annual update as a modest contribution to that end !

My last update can - for the time being - be found here : http://boards.fool.co.uk/another-hyp-re ... 14604.aspx. That post contains links to previous reports.

There was less activity in 2016. The main news is that I lost patience with Tesco in September (of course, just before the price started to recover somewhat) and sold it to buy (after adding accumulated dividends) a full size holding in Berkeley Group (after which, of course, the price declined - and, more importantly, they altered their dividend policy). But in general I am happy to have made this change.

My HYP is held in a YouInvest SIPP and now has 22 holdings, as follows :



Or, viewed by sector :



I do not add new money to my HYP (I belong to an occupational final salary pension scheme, and the rest of my retirement savings are directed at trackers and held (mostly) in an ISA). The value of the (accumulation) units has moved like this since I started in 2010 :

October 2010 : 10
January 2013 : 12.38
January 2014 : 13.98
January 2015 : 14.22
January 2016 : 14.14
January 2017 : 16.32

Income, expressed as pence per unit, has progressed like this :

January 2013 : 53
January 2014 : 54
January 2015 : 58
January 2016 : 60
January 2017 : 66

Trailing yield - by which I mean the value at 31 December 2016 (shares + as-yet-unspent cash) divided by the income received during the preceding calendar year - was 4.04%.

The “running yield” - calculated by HYPTUSS, and so using forecast yields - is higher, at 4.53%.

I have read some of the discussion about the income performance experienced by various HYPers in 2016 and this increase in income seems to be at the high end of the scale.

So, I thought some might be interested to see this list of income per holding for 2016 expressed as a percentage of 2015’s income for that holding :



Comments on this list are :

- BHP Billiton was my only cutter.
- Income from GSK included the special dividend of 20 pence - without this it was flat at 80 pence for the year.
- Some increases were the result of exchange rates : HSBC, Shell, Unilever
- Others the result of more recent purchases coming “on stream” - Imperial Brands and Schroders
- Aviva and Legal and General both increased their payouts healthily, most others much more modestly
- RB's increase is slightly illusory - they have been adjusting the ratio of their interim and final payments and this makes up for the consequent drop in 2015
- basically, I seem to dodged a few bullets (for a change)

I feel that I now have a strategic decision to make. Up to now, I have been buying a full unit of a new share at median value when the dividend income has piled up high enough to allow this. This typically means a purchase about once a year - unless, as in 2016, I tinker...

However, I am fairly comfortable with the diversification that I now have, and so I am considering moving to a top-up system which would enable me to get money invested more regularly, and so producing income more quickly. Using my broker’s “regular investment” option (£1.50) it would be cost effective to buy several times a year. But it would mean missing out on the cyclical bargains that a more sporadic and lumpy approach might throw up. I welcome any thoughts !

Chris

[grimer]

Hi Chris,

Thanks for posting.

Are you reinvesting all dividends or taking some income? It looks like you've had a compound annual growth rate of 8.15%, which is certainly better than anything available in a bank account.

When are you planning to retire? Was this a lump sum investment that you're planning to use for additional pension cash?

Grimer

[Gengulphus]

I feel that I now have a strategic decision to make. Up to now, I have been buying a full unit of a new share at median value when the dividend income has piled up high enough to allow this. This typically means a purchase about once a year - unless, as in 2016, I tinker...

However, I am fairly comfortable with the diversification that I now have, and so I am considering moving to a top-up system which would enable me to get money invested more regularly, and so producing income more quickly. Using my broker’s “regular investment” option (£1.50) it would be cost effective to buy several times a year. But it would mean missing out on the cyclical bargains that a more sporadic and lumpy approach might throw up. I welcome any thoughts !

If it's cost-effective to buy several times per year, then it's just as cost-effective to do so for a new holding as for an existing one. So why not just buy several times per year, and on each purchase look around the market to see whether it has thrown up a sufficiently good bargain? If it has, buy that bargain; if it hasn't, top something up.

The one drawback that I can see is that for a short-lived bargain, you'll sometimes end up with only a well-under-median amount purchased before it ceases to be a bargain. That won't happen for a yearly full-unit purchase - but it will sometimes end up missing a bargain entirely!

E.g. consider bargains that only remain bargains for six months. With yearly full-unit purchases, you can expect to buy a full unit of 50% of such bargains, and to miss the other 50%, depending on just when the bargain arises during the year. With quarterly quarter-unit purchases, you can expect to be able to buy for two quarters no matter when the bargain arises, and so to end up buying a half unit of all such bargains - I don't see that that's any worse.

If you use a top-up system like tjh290633's, by the way, ending up buying much less than a full unit will probably be pretty rare, because while you've still only made one purchase, the holding is very likely to be one of the smallest in the portfolio and thus to be high in the top-up rankings. And while that's not a certainty, if you think through the few cases where you do make just one purchase and then the holding doesn't get topped up, I think you'll generally find they involve you either being glad that you bought something before the major share price rise, or that you didn't buy more before the major dividend cut...

Gengulphus

[Smautf]

Are you reinvesting all dividends or taking some income? It looks like you've had a compound annual growth rate of 8.15%, which is certainly better than anything available in a bank account.

When are you planning to retire? Was this a lump sum investment that you're planning to use for additional pension cash?

I'm reinvesting all dividends, and have done so from the start. I'm always a bit hazy about the correct way to calculate annual growth rate, but I'll take your word for it ! I use a Numbers spreadsheet on macOS to track the HYP and I haven't quite worked out the correct function to use - if anyone can point me in the right direction, feel free...

I don't really have firm retirement plans. I'm in my late 40s and doing a job I genuinely like (and which many other people would say barely qualifies as work at all), but I anticipate stopping well before State Pension Age (67 for me). In as much as I have a plan, it would be to work full-time until 55, then work part-time or on a consultancy basis after that, perhaps drawing on some HYP income at that point if necessary.

The lump-sum I used to buy the HYP in the first place came from a transferred Scottish Equitable personal pension that I had been contributing to for the previous 10 years or so. So, yes, it's definitely intended to be part of my pension, combined with the other sources as they come on stream.

Thanks for responding,

Chris

[Smautf]

If it's cost-effective to buy several times per year, then it's just as cost-effective to do so for a new holding as for an existing one. So why not just buy several times per year, and on each purchase look around the market to see whether it has thrown up a sufficiently good bargain? If it has, buy that bargain; if it hasn't, top something up.

It's exactly this kind of insightful comment that makes this forum so valuable. Reading it, I realise that I have been focused very strongly on the idea that HYPs should be equally weighted. But I see now that that rule, if such it is, is more relevant to the initial all-in-one-go lump sum purchase - indeed, I followed it at that point - than it is to the deployment of subsequent income.

And, as you suggest, it's probably better to have a small slice of an intermittently-available bargain than none at all !

Thanks,

Chris

[monabri]

Chris,
I suppose one way of looking at the calculation of interest is a simple "how much did I start with" , "how much do I have now" and then calculating the interest over the number of years held. If you are 40 now, I could well imagine that over the next 20 years you will do very well as you expand and diversify your HYP portfolio.

I intend to do the same (reinvest divvis , buying into new sectors). Unfortunately for me I'm a little older than 40!!

You mentioned a final salary pension scheme - is there any opportunity to buy "added years" with your scheme?

monabri.