Factors for future increasing dividend

[Gengulphus]

There's good reason to try to study all of them - but studying them properly requires a large investment of time and effort and careful design of the study to avoid hindsight bias and confirmation bias. Few private investors can afford that investment, far fewer are willing to prioritise it over other uses of the time and effort, and even fewer have the detailed understanding of the various pitfalls required to do the design properly. And the net result is that we don't have even one proper "'quantum theory' paper" about Luniversal's yield < 1.5 * (FTSE AllShare yield) test, let alone similar ones about other tests.

Completely agree with all of the above, but I think it's over-complicating my position on the topic.

Not certain how it can be, because it's not even trying to present your position on the topic! It's presenting mine - and it's a pretty simple position: for private investors, doing such studies is basically in the "too difficult" category.

No argument with any of what followed - indeed, I think it's a reasonably close match to my "Personally, I would keep things simple: have a decent set of checks / analysis that one applies to all candidates. After doing them, one either decides "safe enough" or "too dangerous"." conclusion to my last post.

Gengulphus

[Itsallaguess]

Personally, I would keep things simple: have a decent set of checks / analysis that one applies to all candidates. After doing them, one either decides "safe enough" or "too dangerous".

Gengulphus

For the avoidance of doubt, I completely agree with you.

The point I was trying to make here was specifically related to Luni's 150% FTSE-yield 'Zonal System', where I was suggesting that anyone that thought it was a good idea didn't need the whole 'Zonal Theory' side of things, and could simply carry out due-diligence on a case-by-case basis once a set of potential candidates had been gathered.

Your point about doing such due-diligence anyway, no matter what the yield might be, is one I agree with, but I was really directing my thoughts on this thread towards anyone who 'followed' Luni's specific 150% FTSE-yield idea specifically.

Cheers,

Itsallaguess

[Gengulphus]

... Strange how your "mindset" changes as you start to look at taking income........

Mine didn't, at least as far as I can tell.

But I am in the fortunate position of having a HYP which provides me with a very ample income. What I think changes one's "mindset" is shifting to being in a precarious income position - i.e. income above outgoings, but not by enough to free one from real worries about chunks of the income disappearing. The timing of my retirement was driven not by the growth of my HYP, but by my decision that I'd done all I wanted to do in my job and now wanted to do something else. By that point, I had no real worries about the adequacy of my HYP income.

Obviously, there were (and are) still 'nightmare' worries about a really high level of dividend cuts shrinking it sufficiently drastically, but that sort of worry is unavoidable. In particular, they are there before retirement as well, since a sufficiently high level of dividend cuts could be accompanied by losing one's job as well - and that doesn't even make the combination all that less likely, as the most likely cause of that sort of level of dividend cuts is really serious economic disruption, serious enough to put just about any job at major risk...

Not saying that being in my position of taking income but being free of real (as opposed to 'nightmare') worries about chunks of the income disappearing is fully feasible for most HYPers - I don't think it is. But the big change that happens when one retires is that one's total income shrinks by what one used to get from salary, which inevitably makes it more precarious (or closer to being precarious if one happens to be in the same sort of fortunate position as me). It's how much more precarious it becomes that drives the change in thinking - the less leeway there is for dividend cuts, the more likely one is to prioritise avoiding them over maximising expected income.

Gengulphus

[Bubblesofearth]

Interesting that the discussion so far has focussed on measurable financial factors rather than consideration of the underlying business. This makes it a bit like Plato's cave in that you are looking at factors driven by something not being considered. I'm thinking, specifically, of risks that are business specific and may not appear on examination of past financial metrics. For example, a period of stable commodity prices might give a misleading impression of the future dividend security of miners and oil shares. A lack of recent regulatory activity might do the same for utilities or companies such as IGG. And, lest we forget, there are huge specific risks in banking that are easily forgotten (financial cries have happened before) over a long enough period of stability.

If you really want to understand what the likelihood of dividend cuts will be you need to look at the nature and probability of big risks to the earnings of the business.

BofE

[tjh290633]

I think that's somewhat over-complicating it. IMHO we should be un-trusting of all high yields - that's why the HYP approach requires checks / analysis about dividend safety.

I'm with you there. I recall being tempted by Rolls Royce back in the 1970s, when their historic yield was very high. Of course it didn't last and they went bust.

We have to be sceptical.

TJH

[Dod1010]

The 150% of the FTSE average yield is simply a sign to me that I should look further at why the yield is what it is. No need for any further complication there. Then come the other factors like the underlying business and its prospects, either company specific (say Centrica) or sector specific (say miners a couple of years ago)

BTW I was not pinching Luni's idea as my own; it must have been a form of osmosis.

So although the heading of the thread is 'Factors for future increasing dividend' I think we are agreeing that it is easier to see factors for questioning the future dividend than it is to see factors for an increasing dividend.

Dod

[Itsallaguess]

Interesting that the discussion so far has focussed on measurable financial factors rather than consideration of the underlying business. This makes it a bit like Plato's cave in that you are looking at factors driven by something not being considered. I'm thinking, specifically, of risks that are business specific and may not appear on examination of past financial metrics. For example, a period of stable commodity prices might give a misleading impression of the future dividend security of miners and oil shares. A lack of recent regulatory activity might do the same for utilities or companies such as IGG. And, lest we forget, there are huge specific risks in banking that are easily forgotten (financial cries have happened before) over a long enough period of stability.

If you really want to understand what the likelihood of dividend cuts will be you need to look at the nature and probability of big risks to the earnings of the business.

BofE

I'm not sure that's a fair criticism of what's being discussed.

I think what people are talking about here is initial-filter work, with the sort of due-diligence that you're talking about perhaps coming at the tail-end of that process, once the weeding has been done, especially where a company may be foreseen as paying a relatively high yield compared to some alternatives.

To try to carry out the sort of work you're calling out for being missed, on a whole swathe of 'initial candidates' would be too large a task for most people, so if it's carried out then I'd expect it to be done at the end of any previous selection-processes, so that potentially more time-consuming considerations such as the ones you suggest aren't needed to be carried out for shares that might not then get through those initial filters.

Cheers,

Itsallaguess

[Bubblesofearth]

So although the heading of the thread is 'Factors for future increasing dividend' I think we are agreeing that it is easier to see factors for questioning the future dividend than it is to see factors for an increasing dividend.
Dod

Not really. If you read Adam Smith's 'Wealth of Nations' you will find the factors for increased earnings, and hence dividends, listed and explained. Look at how many of those factors can be applied to the business in question and that will give you an idea of the probability and magnitude of future dividend increases.

BofE