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HYP1 vs. Preference Shares

General discussions about equity high-yield income strategies
kempiejon
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Re: HYP1 vs. Preference Shares

#6944

Postby kempiejon » November 20th, 2016, 11:11 am

88V8 wrote:...now, in my HYP, I hold a lot of Prefs. REB, LLPC, LLPD, LLPC, ELLA, BBYB (which is still paying when Balfour's ords are not, I won’t go on and on about that as it will upset holders of the ords which unfortunately includes my wife, well it seemed a good idea at the time),
V8


Just a pointer on BBY ords (Balfour Beatty) - after a year and a bit off they are reinstating their dividends although this year's 2.8p hardly competes with the 14p in 2012 and 2013 and at a percent doesn't hold a candle to the perfs.

Wizard
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Re: HYP1 vs. Preference Shares

#7039

Postby Wizard » November 20th, 2016, 3:17 pm

Breelander wrote:
Gengulphus (in 2012) wrote:...it really does need to be able to grow the income like the other shares in the portfolio. The only way to do that with preference shares is to reinvest at least part of the dividend income they produce. (Not necessarily in the same share, by the way...
https://web.archive.org/web/20161111233 ... 58107.aspx

Four years ago it was still possible to find preference shares with yields high enough to make that practical. These days the gap between preference and dividend income has narrowed. Synthesising a growing income in this way today would be at the expense of a relatively unattractive 'yield'.


This was exactly my approach. I bought prefs when the yields were in some cases through the roof and I may say when many ords were cutting or passing on their dividends. And the whole income was reinvested in mosre prefs. Over time the prefs have risen to a point where the yield is little more than can be achieved by a moderately raced HYP, hence why I am now starting my equity HYP.

But I shan't be selling my prefs, the tax on the gains would be considerable and therefore reduce the pot available to reinvest by too much.

It is fair to say of course that in future prefs are much less likely to escape a similar banking crisis unscathed, which was the case with most of them last time.

Terry.

88V8
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Re: HYP1 vs. Preference Shares

#7439

Postby 88V8 » November 21st, 2016, 4:15 pm

My divis are spent, or reinvested opportunistically in a variety of equities or Prefs.

The advantage of Prefs is that you know what you're getting - there won't be any cuts and almost certainly won't be any passes. The disadvantage is the sector concentration and potential erosion by inflation.

Do agree that when the next crisis comes they may get bailed in. But only if the Ords are bailed in first - find it hard to believe any Govt is really going to allow millions of small shareholders to get canned. We shall see.

V8

taken2often
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Re: HYP1 vs. Preference Shares

#7507

Postby taken2often » November 21st, 2016, 7:18 pm

I stopped buying Prefs when the yield went back to my original yield level 6.5%. I will buy again when the yield is around 7-8%
I am getting this at present in US CEF's Closed end funds (out Investment Trusts). This is giving me access to a whole range of US shares.

At 71 I am no longer interested in Capital and Total Return. I only buy income. A 50% market swing down would be a good time to die. The saving on
IHT would nearly make it worth it. Income can roll on and on.

Bob

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Re: HYP1 vs. Preference Shares

#7515

Postby moorfield » November 21st, 2016, 7:52 pm

My excursions to lemonfool are at best sporadic at the moment. For some unfathomable reason my employers browsers block this site but not TMF. Must be something in the metadata. Thankyou all for your replies some interesting views I hope we've collected here for future reference.

The object of an HYP is to obtain a high and growing income. Preference shares are fixed interest and so defeat that object.

TJH


Not necessarily TJH. This is exactly the common generalization I was trying to test further with my question at the top of the thread and the HYP1 comparsion - which from that angle has arguably failed in its objective.

M

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Re: HYP1 vs. Preference Shares

#7579

Postby Lootman » November 22nd, 2016, 12:37 am

taken2often wrote:I stopped buying Prefs when the yield went back to my original yield level 6.5%. I will buy again when the yield is around 7-8%
I am getting this at present in US CEF's Closed end funds (out Investment Trusts). This is giving me access to a whole range of US shares.

I'm sure you know this but, just in case, know that although US closed-ended funds bear a number of similarities with UK investment trusts they also differ in a couple of ways.

Firstly, their tax treatment is different and they are compelled by US tax law to annually distribute realised capital gains. UK iT's can sell internally and no CGT is due until you sell. Probably every December those US CEFs will distribute capital gains as well as dividends. If you hold in a taxable account that can means some work in determining the gain to be declared and also adjusting the cost basis.

Also note that many of them are not classified as reporting funds by HMRC and therefore any capital gain may be taxed as ordinary income, whilst capital losses may not be offset against other capital gains.

Their dividends will be subject to a withholding tax that you probably cannot reclaim.

Finally, UK ITs are companies and come with certain protections that US CEFs do not have, by virtue of them being offshore funds and not onshore companies.


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