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HYP and Preference Shares

General discussions about equity high-yield income strategies
Breelander
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Re: HYP and Preference Shares

#22553

Postby Breelander » January 12th, 2017, 4:35 pm

Lootman wrote:In the context of 88V8's earlier claim that preference shares come with the "virtual certainty of no cuts" did you take the view that a 12% yield can ever be that safe?


No, quite the opposite :) The situation in 2011 when I bought (at well under par) was that the payments HAD been cut due to an EU ruling regarding state assistance.

It is written into the Prospectus of LLPD that payments took precedence over ordinary dividends, and that, if suspended, payments had to be restored for a full 12 months before any ordinary dividends could be paid. With Lloyds wanting to resume dividends it was an odds-on certainty that payments would be resumed, as they indeed were.

Payments received so far add up to 61% of what I paid to buy them, plus their capital value is now more than 80% up.

Wizard
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Re: HYP and Preference Shares

#22609

Postby Wizard » January 12th, 2017, 7:48 pm

tjh290633 wrote:
Wizard wrote:So does that come out as an average mean increase of c.7.2% across the period covered? If so it does not conflict with the assumption of 10% growth in the original calculations, and whilst a healthy margin above 5% also consistent with the assertion that 10% average growth over a ten year period is unlikely to be achieved in the real world?

I wasn't sure if you had posted your increases to support the OP's point or refute it.

Terry.


The average of the medians is 5.13% and of the means it is 8.04%. Take whichever answer suits your meaning. The average of both medians amd means is 6.6%, so I'm not sure where your 7.2% comes from. Oops, apologies. I see that I have since edited the table to exclude shares which had been sold for another purpose, so your figure may well be correct.

The OP was looking at the propect of a 4% yield increasing by 10% annually. I gave an actual example of the increases in dividends per share achieved from an HYP with over 30 holdings. I think that he was over-optimistic.

TJH


In which case we may be violently agreeing :lol:

My take was that the OP compared preference shares to a bundle ordinary shares and said that even with an assumed 10% annual rate of growth in the ordinary share's dividend, over 9 years the preference shares would generate more income. He then said 10% growth was probably unrealistic, which your data bears out. What he then left unsaid, but I inferred was that as the 10% assumptions was overly optimistic (as was the assumption of reinvesting at the original purchase price for the ordinary shares), the time it would take the ordinary shares to 'catch up' with the preference share would in the real world be much longer than his modelling suggested.

In other words, in some cases preference shares may be a better investment option than an HYP ordinary share portfolio.

However, there is a wider point about starting dividends and dividend growth, i.e. it will take some time for a low starting point with higher growth to catch up with a higher starting point and lower growth. This is a point that I will keep in mind even when choosing between HYP candidates.

Terry.

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Re: HYP and Preference Shares

#22635

Postby kempiejon » January 12th, 2017, 9:05 pm

Breelander wrote:
Gengulphus wrote:..I have no wish to suppress discussion of preference shares in HYPs more generally...

Nor me, though just after the financial crisis the case for prefs was much more compelling - double-digit yields, roughly double that of equities at that time.
...And while I don't have any in my main HYP at present...


I have the one, LLPD bought in 2011 with the promise of a yield of more than 12% - plenty large enough to 'synthesise' a growing income (though I tend to reinvest its surplus income in other things).


I chose the LLPE and LLPC breeds, bought the same time, sub par, initially for capital appreciation, they've gone up nicely and I even topped up late 2015 as cash proxy park for a maturing savings bond. The income is too good to miss so I'm keeping hold, at least for now, just last year I bought some Standard Chartered STAB again the yield was compelling and they'd slipped back in price to just about par - I guess fears over the parent. However they're not part of investments I call my HYP, it's a different strategy. I have a couple of ITs and ETFs that pay an above FTSE100 yield, again not part of my HYP. My HYP is pretty pyadic, I'm not convinced the prefs are enough like the large FTSE350 shares with a good record of increasing dividends and other factors, safety, diversification etc that I use to pick candidates for my HYP strategy.

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Re: HYP and Preference Shares

#27899

Postby taken2often » January 31st, 2017, 5:14 pm

Late to this but I see this as simple. Only Dividend Growth Shares you have a Hype. When you introduce anything else that produces income
You have an Income Fund. I could never claim to be a Hyper. But then my yield on cost is 6.3%. Yield on current value 6.9%.

Bob


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