The Lemon Fool

csearle wrote:

Moderator Message:
It seems we can't. One more try. - Chris

Ok I'll bite. Lets have one more try at resetting this discussion onto a more civil level.

IAAG and IanT are both clearly experienced investors who have something valuable to contribute to this place, in my view. Park their manners of delivery for a moment. I am genuinely interested in how IanT analyses and determines high yield dividend sustainability. If I have missed some post which expands on this, I'm struggling to find it, so I don't think I'm being unreasonable in asking for a link.

Looking for dividend sustainability with a new company, I'll have a look at the history to see how they have been able to maintain the dividend in the past. Look at the cover and the company forecasts to see whether dividend is covered now and going ahead and then have a look at any news coverage to see if there is a reason the yield is so high. From all that I then take a decision on whether to invest in the company.

daveh wrote:Look at the cover and the company forecasts ...

So how much cover do you like to see?
Used to be 2x. Those were the days.

V8

88V8 wrote:

daveh wrote:Look at the cover and the company forecasts ...

So how much cover do you like to see?
Used to be 2x. Those were the days

Before ranking I like to manipulate the dividend yields I use to assume the firms have a dividend cover of 2 (utilities are an exception). In this way I am factoring in a dividend cut for the very high yielders and effectively assuming they will do it. If they are still worthy of a top up then I have no qualms. C.

I think my approach to this question has changed over the years for two primary reasons.

One of those I've already covered, which relates to painful historical lessons when fishing in the ultra-high-yield arena, and not being convinced that there's a suitable process available that reduces that risk to a worthwhile degree when set against any potential work involved to do so, but I also wanted to mention the second reason that hasn't really been touched on yet, but which I think carries some real importance...

As the size of my income-portfolio has grown over the years, the larger levels of new regular purchases, either into top-ups or new holdings, is such that allowing myself to stay within more moderate areas of yield has still continued to deliver on my long-term income-related goals, as I hopefully head towards some level of part time working in the coming years.

I don't think it's any coincidence that on seeing the original table of very high yields in kempiejon's opening post, without even thinking about things too much my eye was drawn to Phoenix yield of 7.99% and an instinctive line was drawn at that point, where anything sat above it would not have interested me in the slightest, and having recently taken a quick look at my remaining HYP holdings, of which quite a few still remain, I find it instructive that none of my current HYP holdings actually have a forecast-yield above that 8% mark, so that level of yield feels like a bit of a natural break to me, between playing on the pavement at the side of B-roads and playing on the hard-shoulder of the motorway...

My view would be to ask myself 'why take the risk?' above that 8% yield level, and in my current position I would struggle to give an answer that forced me away from more moderate yields, given that my current plans are being broadly satisfied by not having to do so, and my 'sleep at night' level is probably the best it's ever been.

To be absolutely clear, I certainly see those two situations as being inextricably linked...

I thought this aspect of things was worth mentioning, because it's often the case with these types of discussions that 'stage of investment life' stuff isn't offered up often enough as part of peoples overall views and current approaches, I don't think, even though such aspects often carry quite a considerable personal weighting...

Cheers,

Itsallaguess

88V8 wrote:

daveh wrote:Look at the cover and the company forecasts ...

So how much cover do you like to see?
Used to be 2x. Those were the days.

V8

Worth noting that REITs can't have a dividend cover of 2. 1.1 is the figure that you're looking for.

MDW1954

Itsallaguess wrote:I don't think it's any coincidence that on seeing the original table of very high yields in kempiejon's opening post, without even thinking about things too much my eye was drawn to Phoenix yield of 7.99% and an instinctive line was drawn at that point, where anything sat above it would not have interested me in the slightest, and having recently taken a quick look at my remaining HYP holdings, of which quite a few still remain, I find it instructive that none of my current HYP holdings actually have a forecast-yield above that 8% mark, so that level of yield feels like a bit of a natural break to me, between playing on the pavement at the side of B-roads and playing on the hard-shoulder of the motorway...

Cheers,

Itsallaguess

All I would say is that one can buy a share at 4% yield, and then circumstances change, the share price goes down (think Ukraine, or 2008, or Brexit or whatever), and you're looking at an 8% forecast yield.

So you sell? Or hold on?

If the long term fundamentals look OK, I hold on, and sod the percentage FY.

MDW1954

MDW1954 wrote:
All I would say is that one can buy a share at 4% yield, and then circumstances change, the share price goes down (think Ukraine, or 2008, or Brexit or whatever), and you're looking at an 8% forecast yield.

So you sell? Or hold on?

If the long term fundamentals look OK, I hold on, and sod the percentage FY.

I agree, and I think this has been covered a little in some of the earlier posts, where I'm personally happy to make a clearer distinction regarding 'already held' investments, but then much more critically considering where fresh injections of new capital goes.

At portfolio level things are always likely to remain at least somewhat 'relative' even with your situations mentioned above, but I think we're talking about 'relative anomalies' here, aren't we, which would still exist in most market conditions anyway?

In an earlier post I made the point that the long-term benefits of keeping trading low in a long-term buy-and-hold strategy will carry some weight when considering any 'need' to trade out of existing holdings that are likely to have floating yields to some degree, and especially with market-impact events such as the ones you mention, which of course should always be taken into account anyway.

I've considered most of the discussion on this thread and the RIO one to primarily be about new funds, rightly or wrongly, and it's there that I'd always try to consider more moderate purchases than some of the ultra-high-yields at the top of kempiejon's opening table...

Having just taken a quick look, I did acknowledge your consideration in my first reply on this thread -

So that, to me, gives reason enough to perhaps justify maintaining current-positions in some income-investments that may make their way onto these types of ultra-high-yield tables, because the alternative of persistently trading around such occurrences may actually be, over the long term, more detrimental to the health of what's supposed to be a long-term buy-and-hold strategy than simply maintaining those current holdings and keeping a portfolio-level view of things where possible.

https://www.lemonfool.co.uk/viewtopic.php?f=15&t=34915#p509335

Cheers,

Itsallaguess

Here is my experience of buying 'ultra-high yield' shares in my HYP. For simplicity, I have considered any share I purchased with an historic yield >6%.

Galliford Try (GFRD) purchased at 10.3% (2017). Dividend Cut in 2018.
Imperial Brands (IMB) purchased at 7.4% (2019) and 7.71% (2022). Pandemic cut in 2020.
Abrdn (ABDN) purchased at 6.5% (2019). Pandemic cut 2021.
Vistry (VTY) purchased at 6.5% (2021). OK so far!
Sainsburys (SBRY) purchased at 6.5% (2014). Cut in 2015.
WPP (WPP) purchased at 6.5% (2019). Pandemic cut 2020.
Marstons (MARS) purchased at 6.4% (2018). Pandemic cut in 2020. Nothing since.
HSBC (HSBA) purchased at 6.2% (2015). Pandemic cut in 2020.
SSE (SSE) purchased at 6.1% (2017) and 7.1% (2018). Pandemic cut 2020.

So what do I make of that?

Six of the nine cut due to the pandemic, five of which are recovering.

Two cut within a year of purchase!

One is OK so far, but I have only held for a year.

I can rightly be accused of chasing the yield in some cases, and I have suffered for it.

I think another thread on dividend safety factors considered when purchasing could be interesting which I may start if I have time later!

FD

funduffer wrote:
Here is my experience of buying 'ultra-high yield' shares in my HYP. For simplicity, I have considered any share I purchased with an historic yield >6%.

Galliford Try (GFRD) purchased at 10.3% (2017). Dividend Cut in 2018.
Imperial Brands (IMB) purchased at 7.4% (2019) and 7.71% (2022). Pandemic cut in 2020.
Abrdn (ABDN) purchased at 6.5% (2019). Pandemic cut 2021.
Vistry (VTY) purchased at 6.5% (2021). OK so far!
Sainsburys (SBRY) purchased at 6.5% (2014). Cut in 2015.
WPP (WPP) purchased at 6.5% (2019). Pandemic cut 2020.
Marstons (MARS) purchased at 6.4% (2018). Pandemic cut in 2020. Nothing since.
HSBC (HSBA) purchased at 6.2% (2015). Pandemic cut in 2020.
SSE (SSE) purchased at 6.1% (2017) and 7.1% (2018). Pandemic cut 2020.

So what do I make of that?

Six of the nine cut due to the pandemic, five of which are recovering.

Two cut within a year of purchase!

Interesting data-points.

If we take the largest initial 'yield-anomaly' in that list of 10.3% then, and take a look at the subsequent yield and dividend history of Galliford Try from around the purchase time of 2017 to the present day -




Source - https://www.dividenddata.co.uk/dividend-history.py?epic=GFRD

Whilst it's clear that we should never start to assume single data-points will prove any sort of universal rule here, I think it's at least educational to add granular examples where crash-and-burns from great yield-based heights have been encountered, and so the question for me would then be to ask if we're more likely than not to experience similar results when fishing in the ultra-high-yield end of the market...

Cheers,

Itsallaguess

That doesn't give the full position of GFRDs dividend since it was a UHY share. When GFRD ran into trouble and had to cancel the dividend it also sold off its housebuilding division to Bovis, which became Vistry. GFRD shareholders received a significant holding in Vistry as payment and are therefore receiving significant dividends from their Vistry holding received due to holding GFRD. Therefore to get a true veiw on the outcome of buying GFRD you need to also account for the Vistry shares received.

MDW1954 wrote:

Itsallaguess wrote:I don't think it's any coincidence that on seeing the original table of very high yields in kempiejon's opening post, without even thinking about things too much my eye was drawn to Phoenix yield of 7.99% and an instinctive line was drawn at that point, where anything sat above it would not have interested me in the slightest, and having recently taken a quick look at my remaining HYP holdings, of which quite a few still remain, I find it instructive that none of my current HYP holdings actually have a forecast-yield above that 8% mark, so that level of yield feels like a bit of a natural break to me, between playing on the pavement at the side of B-roads and playing on the hard-shoulder of the motorway...

Cheers,

Itsallaguess

All I would say is that one can buy a share at 4% yield, and then circumstances change, the share price goes down (think Ukraine, or 2008, or Brexit or whatever), and you're looking at an 8% forecast yield.

So you sell? Or hold on?

If the long term fundamentals look OK, I hold on, and sod the percentage FY.

MDW1954

My answer of course is 'Know your share' as I have already said.

Dod

daveh wrote:
That doesn't give the full position of GFRDs dividend since it was a UHY share. When GFRD ran into trouble and had to cancel the dividend it also sold off its housebuilding division to Bovis, which became Vistry. GFRD shareholders received a significant holding in Vistry as payment and are therefore receiving significant dividends from their Vistry holding received due to holding GFRD.

Therefore to get a true view on the outcome of buying GFRD you need to also account for the Vistry shares received.

Thanks - that's a good point raised that's hopefully best answered by funduffer then, given that he's seen the complete round-trip of that large drop in GFRD yield and dividend, alongside the subsequent addition of his Vistry holding from that corporate action.

Hopefully funduffer is able to expand a little on how he felt the overall impact of that period affected that particular section of his income-portfolio then, taking the above into account?

I think with these things the simplest question to ask about these ultra-high-yield ventures is 'given what you know now regarding what's happened post-purchase, do you feel as though it was worth it?'....

Cheers,

Itsallaguess

Itsallaguess wrote:

daveh wrote:
That doesn't give the full position of GFRDs dividend since it was a UHY share. When GFRD ran into trouble and had to cancel the dividend it also sold off its housebuilding division to Bovis, which became Vistry. GFRD shareholders received a significant holding in Vistry as payment and are therefore receiving significant dividends from their Vistry holding received due to holding GFRD.

Therefore to get a true view on the outcome of buying GFRD you need to also account for the Vistry shares received.

Thanks - that's a good point raised that's hopefully best answered by funduffer then, given that he's seen the complete round-trip of that large drop in GFRD yield and dividend, alongside the subsequent addition of his Vistry holding from that corporate action.

Hopefully funduffer is able to expand a little on how he felt the overall impact of that period affected that particular section of his income-portfolio then, taking the above into account?

I think with these things the simplest question to ask about these ultra-high-yield ventures is 'given what you know now regarding what's happened post-purchase, do you feel as though it was worth it?'....

Cheers,

Itsallaguess

So have I, but at the moment I'm travelling home by train starting on the Esk Valley line so can't access my records. I'll have a look tomorrow, buts it's complicated by the fact that I topped up Vistry after receiving them from my GFRD holding.

Itsallaguess wrote:

MDW1954 wrote:Personally, I found Luni's approach to risk very persuasive.
It certainly mirrors what I now do in practice, and I'm indebted to Luni for helping me to crystallise those thoughts. But it didn't catch on, because -- hey -- the thought-police at the time judged otherwise.

The major problem I had with Luni's 'DangerZone' idea was that it was a very simple concept wrapped, at that time and as regularly demonstrated by him, in a set of huge up-front processes that turned the whole idea into a data-centric monster, when it really didn't need to be...

Point of order; All Luni required was five years of rising dividends and a yield within certain boundaries.
The data set was maintained so that a pick-list could at any time be created embracing those two criteria.
As you say, very simple really.
What the thought police - good phrase - could never get their heads around was that the Zones had fixed boundaries and sometimes shares zigzagged over those boundaries.

His Danger Zone began at 160% of the FTSE100. Moorfield's is 2x CTY. I think either would serve as a caution flag.

Looking at the OP's list, I have Rio, expecting a cut, had Antofagasta whose 'specials' were reliable until they weren't, have M&G which is a bit of a punt with no track record, have Phoenix, L&G and Imps all of which seem to be safe, fttb.

Don't hold Aberdeen because I am already heavy Financials, or Anglo because I already have RIO and BHP, and I don't buy housebuilders.

I also have a big chunk of DEC Diversified Energy whose well-hedged divi yields >10% pre-tax, a level excused by enthusiasts on the basis that 'the market doesn't understand the business model'.

DEC is a bit YOLO, but at my age and with our spare income I can afford it.
This is one thing sometimes missing when one is pondering a poster's thoughts, their risk appetite and where they are on the life/investment cycle.

V8

88V8 wrote:
Point of order; All Luni required was five years of rising dividends and a yield within certain boundaries.

The data set was maintained so that a pick-list could at any time be created embracing those two criteria.

As you say, very simple really.

Yeah, that's a fair point, but I distinctly thought during that period that it was a case of a really simple metric tail beginning to want to wag the whole income-strategy dog, and I much preferred the idea that someone could far more simply just add such a zone-checking yield-metric right at the end of their *normal* processes, thus creating much less fuss whilst benefiting from what I have honestly always thought of as a really quite valid idea at its heart...

There was also the additional issue I have with those sorts of regularly intensive data-centric models, that meant that it was never actually clear how a 'man off the street' income-investor could replicate or verify the initially large data-sets, and I'm very much of the mind that *enabling* people rather than *informing* people is the best long-term approach to these types of things, and whilst I'm of course someone who also regularly posts fairly large and regular data-sets, I have always where possible included links and clear instructions as to how such data can both be replicated and verified, but also importantly to me, those links and instructions then go on to allow people to have a go at similar processes whenever they might wish to, which has always been a key intent for most of my data-centric posts, which I would hope to perhaps be educational and informative at the same time...

Cheers,

Itsallaguess

Here is the raw data for Purchase Yields and subsequent dividend cuts/increases, within the ‘virtual‘ Drawdown Portfolio that I am currently managing.

EPIC      | Yield | Cut Y/N? | Cut %    | Next Yr % | Next Yr %
VOD       | 9.00% | Y        |  -40.35% |    -0.92% |    -0.79%
GSK       | 8.91% | N        |    0.00% |     0.00% |     0.00%
IGG       | 8.61% | N        |    0.00% |     0.00% |     0.00%
ABDN      | 7.97% | Y        |  -32.41% |     0.00% |     0.00%
HSBA      | 7.53% | Y        |  -39.13% |   -54.41% |    75.49%
AV        | 7.32% | Y        |  -48.33% |    35.48% |     5.00%
IMB       | 7.16% | Y        |  -33.33% |     0.99% |     0.30%
WPP       | 7.13% | Y        |  -62.17% |     5.73% |   252.88%
Portfolio | 6.32% |          |          |           |          
ITV       | 6.25% | Y        |  -67.50% |  -100.00% |   126.92%
SHEL      | 6.00% | Y        |  -66.55% |    34.08% |    22.92%
BP        | 5.63% | N        |  -38.04% |   -20.64% |    11.11%
LAND      | 5.33% | Y        |  -49.07% |    16.38% |    37.04%
BLND      | 5.26% | Y        |  -48.50% |    -5.79% |    45.74%
BHP       | 5.11% | Y        |  -12.86% |    65.33% |    32.63%
BA        | 4.53% | N        |    2.16% |     5.91% |     0.00%
SMDS      | 4.34% | Y        | -100.00% |    74.69% |    23.97%
CCL       | 3.96% | Y        | -100.00% |     0.00% |     0.00%
IBST      | 3.73% | Y        |  -66.32% |   -50.00% |   368.75%

A few points to consider:

1. Where dividends are declared in USD or EUR, the above calculations are based upon the GBP value received.
2. Where a drop of 100% is followed by a rise, I have calculated the % change as the new dividend as a percentage of that before the cut.
3. Where the final column refers to an unfinished year, a forecast has been used.

As far as I can see, in this portfolio at least, there is no correlation that can be drawn with regard to the level of Purchase Yield and subsequent changes in dividend through the pandemic. Indeed the only 100% cuts have been at the lower purchase yields.

Enjoy!


Ian

On a slightly different tack, here is a list of the shares which I currently own, ranked by start yield and showing IRR to date:

Epic   Share                            Start Yld   IRR    
IMI    IMI plc                              7.82%    42.90%
UU.    United Utilities Group plc           7.12%    10.03%
LGEN   Legal & General Group plc            6.72%    10.25%
SSE    Scottish & Southern Energy plc       6.69%    11.05%
ADM    Admiral Group plc                    6.63%    12.81%
AV.    Aviva plc                            6.53%     6.34%
VOD    Vodafone Group plc                   6.09%     6.21%
RIO    Rio Tinto plc                        6.08%    32.98%
MARS   Marstons plc                         5.72%    -1.50%
IMB    Imperial Brands plc                  5.71%    21.33%
BLND   British Land plc                     5.50%     6.07%
LLOY   Lloyds Banking Group plc             5.50%    16.76%
TATE   Tate & Lyle plc                      5.46%    12.82%
GSK    GlaxoSmithKline plc                  5.34%     8.77%
BT.A   BT Group plc                         5.31%     9.97%
BP.    BP plc                               5.03%    11.40%
IGG    IG Group Holdings plc                4.79%   -12.03%
BATS   British American Tobacco plc         4.76%    11.22%
NG.    National Grid plc                    4.73%    13.92%
AZN    AstraZeneca plc                      4.37%    16.10%
DGE    Diageo plc                           4.37%    15.21%
PSON   Pearson plc                          4.36%     3.82%
TW     Taylor Wimpey plc                    4.26%     3.74%
SGRO   Segro plc                            4.23%     9.67%
SMDS   DS Smith plc                         4.09%    12.67%
RB.    Reckitt Benckiser Group plc          4.08%    11.55%
PHP    Primary Health Properties plc        3.94%     1.99%
RDSB   Royal Dutch Shell plc B              3.77%     8.55%
ULVR   Unilever plc                         3.72%     9.51%
KGF    Kingfisher plc                       3.47%     5.47%
S32    South32 Ltd                          3.19%    19.05%
TSCO   Tesco plc                            3.08%     6.52%
BHP    BHP Group Ltd                        2.86%    10.75%
BA.    BAe Systems plc                      2.13%    12.23%
MKS    Marks & Spencer plc                  2.06%     3.74%
CPG    Compass Group plc                    1.18%    13.11%
WDS    Woodside Energy Ltd                  0.00%   917.83%

Woodside at the bottom has only been held for a few days.

Then I have a list of the shares no longer held, this time with the addition of the days held:

Epic       Share                                   Start Yld   IRR       Days Held
BRE        Brit Insurance Holdings NV                  7.90%   129.25%     161.00 
INDV       Indivior plc                                7.82%    21.35%    1280.00 
PFL        Premier Farnell plc                         6.62%    10.48%    3071.00 
ITV        ITV plc                                     6.34%    -0.51%    4974.00 
WMH        William Hill plc                            6.20%     9.15%    4682.00 
TOMK       Tomkins plc                                 5.76%     7.63%    1431.00 
MAY        Mapeley Ltd                                 5.59%   -88.99%    3355.00 
TNI        Trinity Mirror plc                          5.43%   -10.95%     699.00 
PRU        Prudential Corp plc                         5.41%    12.45%    7175.00 
RTO        Rentokil Initial plc                        5.25%     0.34%    1353.00 
BG.        BG Group plc                                5.20%    15.80%    7121.00 
DSGI       DSG International plc                       5.01%   -37.46%    1167.00 
PILK       Pilkington plc                              4.61%    10.53%    9545.00 
RSA        RSA Insurance Group plc                     4.52%     2.37%    6225.00 
BAY        British Airways plc                         4.42%   -33.69%    1276.00 
SPW        Scottish Power plc                          4.25%    10.99%    3157.00 
REX        Rexam plc                                   4.10%    10.41%    4582.00 
SCTN       Scottish & Newcastle plc                    3.94%    30.20%     409.00 
SXC        Six Continents plc, formerly Bass plc       3.88%     3.86%    1288.00 
MAB        Mitchells and Butler plc                    3.83%    38.20%    1272.00 
CTT        Cattles plc                                 3.69%   -81.53%    1014.00 
IHG        Intercontinental Hotels Group plc           3.64%    35.51%     866.00 
BCI        Blue Circle Industries plc                  3.63%    20.74%     735.00 
MONI       Marconi                                     3.40%     7.67%    4837.00 
HBOS       HBOS plc                                    3.30%     4.69%    4021.00 
ICI        Imp.Chem.Ind.plc                            3.25%    10.64%   13841.00 
CBRY       Cadbury Schweppes plc                       3.25%    11.40%    7619.00 
WTB        Whitbread plc                               3.21%    10.77%    3008.00 
BOC        BOC Group plc                               2.76%    11.69%    6952.00 
HNS        Hanson plc                                  2.65%    11.75%    7542.00 
PFD        Premier Foods plc                           2.52%   -46.29%    1163.00 
Energy     Energy Group                                2.13%    34.42%     466.00 
NFDS       Northern Foods plc                          1.82%    -2.36%    1808.00 
YULC       Yule Catto plc                              1.56%    29.56%     907.00 
SGC        Stagecoach Holdings plc                     1.53%    22.32%    3150.00 
CNA        Centrica plc                                0.00%   -97.24%      17.00 
ALLD       Allied Domecq plc                           0.00%   115.52%     372.00 
Syngenta   Syngenta AG                                 0.00%   -92.88%      10.00 
OOM        O2                                          0.00%   161.82%      31.00 
THUS       Thus Group plc                              0.00%    30.78%    2401.00 
AAL        Anglo American plc                          0.00%    38.04%     498.00 
CLLN       Carillion plc                               0.00%   -93.54%     789.00

Some of those at the botton were only held for a few days, others never paid a dividend while I held them. In the current context we are looking at the shares with the highest initial yield. Those which stand out are IMI and RIO among those still held, and some of the numbers speak for themselves. Brit Insurance was held for a short time until taken over. Indivior was sold once the intention to stop dividends was announced.

TJH