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New HYP - proposed rules

For discussion of the practicalities of setting up and operating income-portfolios which follow the HYP Group Guidelines. READ Guidelines before posting
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kempiejon
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Re: New HYP - proposed rules

#23281

Postby kempiejon » January 15th, 2017, 3:25 pm

Terry,

Thanks for your answers, seems you've a pretty strong plan. New money and de-mergers and other corporate actions could, depending upon your time horizon, push your total number of shares up. Some companies split in two and over time more, different high yielding shares become viable for purchase. I never set a limit but was probably aiming at the pyadic 15 to begin with, I topped 40 several years ago and have no mechanism to limit for the future. As for running out of higher yields, I've not really found that to be case in the years building my HYP.

moorfield
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Re: New HYP - proposed rules

#23331

Postby moorfield » January 15th, 2017, 8:21 pm

Terry

As a fellow "builder" it looks like we are thinking and operating along very similar lines!

Personally I would start with just these - I wouldn't box yourself in with too many rules to begin with, you will get a feel for what works/doesn't as various scenarios crop up over the next few years and refine them accordingly ...

Wizard wrote:
HYP Guidelines / Rules
1. Minimum size of HYP 20 shares
2. Maximum size of HYP 30 shares
4. No purchases to cause a sector** to exceed 15% of HYP income
5. No purchases to cause a share to exceed 8% of HYP income
6. No purchase of shares with a market cap below that of the 300th biggest share on the FTSE
* shares where there is a clear indication dividend will not be maintained in the foreseeable future
** sector definition a mixture of LSE main and sub sectors



By the way, what's your timescale to retirement?

M

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Re: New HYP - proposed rules

#23338

Postby Wizard » January 15th, 2017, 8:49 pm

moorfield wrote:Terry

As a fellow "builder" it looks like we are thinking and operating along very similar lines!

Personally I would start with just these - I wouldn't box yourself in with too many rules to begin with, you will get a feel for what works/doesn't as various scenarios crop up over the next few years and refine them accordingly ...

Wizard wrote:
HYP Guidelines / Rules
1. Minimum size of HYP 20 shares
2. Maximum size of HYP 30 shares
4. No purchases to cause a sector** to exceed 15% of HYP income
5. No purchases to cause a share to exceed 8% of HYP income
6. No purchase of shares with a market cap below that of the 300th biggest share on the FTSE
* shares where there is a clear indication dividend will not be maintained in the foreseeable future
** sector definition a mixture of LSE main and sub sectors


I can see the point re over complication with the rules from 11 onwards, but I can't see how 7. through 10. can be dropped as they are the basis for selecting purchases.

moorfield wrote:By the way, what's your timescale to retirement?

M

Anywhere between tomorrow and never. I had planned to be retired already by now, but have been doing part time consultancy for a while now. This fits from a lifestyle perspective and provides an income of about double what we need to live on so continues to contribute more funds to the pension pot. It also means all income from the pension pot can be reinvested. I also have a property development project that I will be starting shortly the timescales and profitability for that are rather hard to predict at this stage.

So short answer is I am not sure, it all depends how long I can find things to do that generate earned income that I don't hate doing.

Terry.

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Re: New HYP - proposed rules

#23356

Postby moorfield » January 15th, 2017, 10:53 pm

Wizard wrote:7. No purchases of shares with a yield of less than 80% of HYP
8. No purchases of shares with a cut in dividend in previous 3 years
9. No purchases of shares with less than 2% avg. annual growth in last 5 years
10. No purchases of shares with gearing in excess of 250%


I think 7-10 are needlessly restrictive.

7. Would you buy a share with a well covered dividend and approx. 5% pa dividend growth over last 7 years, but yielding 75% of HYP?
If you would, then this rule is pointless.
Example from my own HYP: IMI

8. Many opportunties of dividend recovery over the short-medium term can be missed with a rule like this.
Example from my own HYP: CNA (Centrica), currently yielding 5.2% (we'll see...)

9. Excludes preference shares (I've launched plenty of discussions about these elsewhere!).
Example from my own HYP: RE.B, AV.A

10. ... but don't forget to look at the interest cover ratio too.
Example from my own HYP: SVT (Severn Trent), very highly geared IIRC (sorry I don't have numbers to hand).

M

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Re: New HYP - proposed rules

#23361

Postby 77ss » January 15th, 2017, 11:45 pm

moorfield wrote:10. No purchases of shares with gearing in excess of 250%
I think 7-10 are needlessly restrictive.

10. ... but don't forget to look at the interest cover ratio too.
Example from my own HYP: SVT (Severn Trent), very highly geared IIRC (sorry I don't have numbers to hand).

M


I agree that 250% is too restrictive, if applied routinely. Last time I looked, BATS was about 300% - due to a sizeable acquisition. I have every confidence that it will fall significantly (barring further corporate activity).

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Re: New HYP - proposed rules

#23382

Postby Deev8 » January 16th, 2017, 2:36 am

Dividend cover is a tricky rule to formulate, because one size doesn't fit all.

Most HYPers are prepared to accept lower earnings cover for the dividends of utilities and "utility-like" companies who generally have more stable and predictable earnings then most other businesses (between regulatory reviews at least). Any any HYPer that wants to include a property company in their portfolio accepts a dividend cover of close to 1.1x - all the largest property companies are REITS and are obliged to pay out 90% of their property income to shareholders.

Dave

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Re: New HYP - proposed rules

#23392

Postby Dod1010 » January 16th, 2017, 7:26 am

I suspect that your rules are too many to be practical. This is the Practical Board after all not some theoretical what if? type of Board. How on earth are you going to remember all your rules?

In summary, 20/25 share is fine.

Yield per share on purchase not to be less than the average yield from the FTSE100.

Cover I do not think you can 'legislate' for. Utilities need a lower cover than a more volatile share for instance.

Equal waiting for value on purchase (if buying in one go)

Consider top slicing if value exceeds say twice average value.

Concentration by dividends is more difficult to police because it is not evident at a glance but you can take a look a couple of times a year and maybe do something if the concentration gets too rich (say more than 10% of divs from one share)

Per sector? I do not worry about that because most shares are very different anyway. Banks is the obvious area to worry about but then the choice is limited anyway.

In short I invest more by instinct and never by mechanical rules.

Dod

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Re: New HYP - proposed rules

#23402

Postby Wizard » January 16th, 2017, 8:57 am

Thanks for taking the time to provide input guys, much food for thought.

Terry.

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Re: New HYP - proposed rules

#23548

Postby vrdiver » January 16th, 2017, 4:42 pm

11. Special dividends to be considered on a case by case basis to the extent that they impact calculations pertaining to any other rule


My own rule on specials is to treat them as a return of capital if they come with a share reduction, recording it as a forced sale. Where there is no share reorganisation, then the special is banked as a divi. Whilst this may make the flow of dividends appear rather bumpy, it's as close to reality as I think I can get.

When looking at "low dividend payers" I do include their history of specials, along with a subjective view of whether more specials are likely.

VRD

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Re: New HYP - proposed rules

#23588

Postby tjh290633 » January 16th, 2017, 7:18 pm

Breelander wrote:
tjh290633 wrote:In the past it has been generally accepted that 15 holdings is the minimum that is acceptable for an HYP bought in one go...
... I would not set a maximum, but would be guided pragmatically.


As one who built my HYP gradually I found that, unless you choose to 'double-up' in sectors, once past about 20 shares it becomes increasingly difficult to find shares in new sectors without compromising on diversity. I found it virtually impossible to get beyond 30.


Oddly, when I effectively started again in 1999 to use an ISA, complementing my original PEP, I didn't have too much of a problem. I had about 20 shares in the PEP. The original portfolio had by then:

AstraZeneca plc
BAe Systems plc
BG Group plc
BOC Group plc
BP Amoco plc
British Telecom plc
Cadbury-Schweppes plc
Halifax plc
Hanson plc
Imp.Chem.Ind.plc
Imperial Tobacco Group plc
Lloyds TSB Group plc
Marconi plc
Marks & Spencer plc
Pilkington plc
Prudential Corp plc
Scottish Power plc
Tesco plc
Whitbread plc

19 shares in all. The initial choice for the ISA, which I decided should not duplicate shares, was:

Allied-Domecq plc
Blue Circle Ind plc
British Airways plc
Royal & Sun All Ins Gp plc
Stagecoach Hldgs plc
Tate & Lyle plc

ALLD soon split up, and I ended up with a small holding in BASS, which benefitted from the sale of ALLD when it was taken over.

Looking at duplication of sectors, Blue Circle, Hanson and Pilkington might be assumed to be in Building materials; Allied Domecq, Imperial Tobacco and Whitbread all had pub holdings and/or brewing interests; RSA and Pru were both insurers; Cadbury and Tate were both in the food sector; British Airways and Stagecoach were in different parts of the travel industry. BG Group and Scottish Power were both utilities, and SPW came when I sold Energy Group, split out of Hanson.

Stagecoach wasn't really HYP material, but this was 1999 before the principles had been enunciated.

But I agree, duplicating sectors, ideally with a share dissimilar from the original choice in that sector, made sense once you were past the upper teens.

TJH


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