monabri wrote:
"Too high" is a floating number, not fixed at say an arbitrary value (eg "2xCTY").
But the '2 x CTY yield' metric
is also a floating number, and isn't '
fixed at an arbitrary value' at all, and that
market-related variability is actually at the heart of the
simplicity of this proposal...
We can take a look at the useful variability of the CTY historic yield in the following 5-year yield chart, where I've also tried to align a 5-year FTSE chart underneath so we can see why the '2 x CTY' yield 'too high' metric is being proposed -
Sources - https://www.dividenddata.co.uk/dividend-yield.py?epic=CTYhttps://www.google.com/finance/quote/UKX:INDEXFTSE?window=5YIf we broadly agree that
any company yield is likely to '
float' to some degree by way of it's underlying share-price, then hopefully we can also agree that there are both
company-level drivers that are likely to influence that share price and also
market-level drivers that are likely to more widely affect
many company share prices as the FTSE 100 sentiment also floats around, often due to wider economic sentiment.
And we can see the effects of that '
market driven' influence on the underlying CTY yield in the above two charts, where the early-2020 COVID-induced drop in the FTSE 100 led to a 'spike' in the underlying yield of CTY during the same period.
But all that time,
during that turbulent market-driven period, we might agree that no matter
where the value of the CTY yield actually spiked to, we could perhaps, at all times, still consider it '
relatively normal' in terms of the
underlying CTY yield, because if we can agree for the sake of this example that the underlying
dividends were to continue to be paid out, as they actually did go on to be as seen in the CTY dividend-history chart (
https://www.dividenddata.co.uk/dividend-history.py?epic=CTY), then the 'useful variability' of the
changeable '2 x CTY' metric then hopefully becomes apparent, because it can still then potentially be used as a
variable marker to highlight 'outlier' yields
at any market level, because whilst the above chart examples show the CTY yield history during that process, all other high-yield options are likely to have gone through the same 'yield spike' during that early-2020 period, so what the '2 x CTY' yield metric is looking to do is to maintain a level of 'variable normalcy' for 'normal'
market-driven yield ranges, whilst still maintaining a '2 x CTY' variable-yield metric to then be available 'at all times' through which '
outlier too-high yields' can still be made '
visible'
outside of that market-driven 'yield variability' range...
monabri wrote:
If a business is generating the free cash flow it can afford the dividend otherwise it is making dividend payments that are funded by adding debt. Possibly acceptable if it's a one off or there is a reason such as wanting to invest in the business. If it is a low margin business it might not be able to service the debt and then has the further problem of paying the debt down and then might go cap in hand back to it's investors.
Which all makes complete sense, of course, but as we can see from reading the Carillion thread linked to yesterday (
https://www.lemonfool.co.uk/viewtopic.php?f=15&t=2950&start=320), the wider market often sees and understands company-level 'issues' much sooner than individual investors do, and in fact that linked CLLN thread could perhaps be seen to be crucial reading from start to unfortunate-finish in that regard, as it's a recorded history-lesson in how such market-driven 'too high yields' often play out, whilst individual investors eventually realise with wide-eyed horror that the market understood the issues much clearer, and much sooner than they did, and I would urge anyone interested in this concept of '
too high yields' to read that CLLN thread from first-page to last and see that
enticing 'too high' yield-based process in action...
monabri wrote:
Maybe one should not simply reject a company because of 'rateism'.
Maybe not, but I think on this particular thread some of us are still trying to work that one out, and it's interesting if you go back to the very first post on this 'too high' thread, and look at the table of 'available' high yields that were originally listed back in June 2022, and then also look at the recent 'one year later' information from June 2023 that I added to that original table (
https://www.lemonfool.co.uk/viewtopic.php?f=15&t=34915&start=160#p597573), because I've got to be honest and say that looking at that 'one-year-later' data below, people can perhaps then decide for themselves if, in this particular example, whether '
yield-driven-rateism' might have been useful or not, because when the original table was posted the CTY yield was around 5%, which would have given a '2 x CTY' yield marker of around 10% as being highlighted as potentially '
too high'...
Share EPIC Original Yield 12-month dividend change
Rio Tinto RIO 13.2% -37.96%
Persimmon PSN 12.87% -74.47%
Antofagasta ANTO 9.94% -58.11%
M&G MNG 9.46% 7.10%
Abrdn ABDN 9.00% 0.00%
Phoenix Group Holdings PHNX 7.99% 3.89%
Legal & General Group LGEN 7.82% 4.99%
Anglo American AAL 7.72% -31.49%
Imperial Brands IMB 7.68% 1.65%
Taylor Wimpey TW. 7.36% 9.56%
Barratt Developments BDEV 7.23% 8.46%
And finally, given the above 'one-year-later' data, I think it's also worth mentioning something that's often forgotten in these types of interesting debates, because if we consider the above top three companies, there's often a level of 'even so' discussion about the
potential for some of these 'ultra-high-yielders' to still maybe deliver
aggregate levels of multi-year underlying dividends that,
even taking account of the above types of issues, still perhaps manage to 'deliver' long-term dividend 'amounts' that still might be higher over longer periods than some of their less-volatile, lower-yielding 'neighbours' in such lists.
And what I'd say to such proposals is that they might well be true, but it then highlights the question of how important
income-volatility might be to a particular income-investor, who might well be content to give up *some* level of underlying long-term income if,
by doing so and avoiding the type of huge dividend-volatility seen in some of the above examples, they perhaps maintain a more settled and
reliable long-term income stream from their portfolios...
Cheers,
Itsallaguess