Projected dividends

[Golam]

Have been thinking about my projected dividend income vs my expenditure. My conclusion is that I would be able to tolerate a reduction of 57.5% of my dividend income. To this end I am seeking the opinion of fellow HYPers. At this moment in time, given the limit of what we know, how far do you think current yields will drop ? My guess is that we are heading for a 50% drop. A guess !

My HYP portfolio is constructed in classical manner, the 22 constituents being generally common with those of other LF HYPers.
Opinions appreciated. G

[Dod101]

As I said on another thread I am reliant on my dividends because I live off them so take a particular interest in this. Shell seems to be indicating this morning that they would like to keep their dividend since they have announced a series of cost saving measures without mentioning the dividend anywhere that I could see. That is surely modestly encouraging.

The other big contributors for me such as HSBC, Legal & General, Unilever and the tobaccos have so far said nothing and most of those which have suspended their dividends are either the smaller companies, those with trading problems anyway or are particularly affected by the current situation. There are bound to be a lot more of them suspending dividends. I would expect the big ones I have mentioned to reduce their dividends if there is any change but I would be very surprised if any of them actually cancelled them.

I am taking what steps I can to reduce my expenditure by about 25%, not that that is really an indication of how I expect dividends to be reduced but what I think I can reasonably do. Any shortfall will have to be made up from cash reserves.

Some will say plan on no dividends but I think your 50% reduction is as good as any other opinion at this stage.

Dod

[monabri]

I reckon one should review our individual holdings and then guess what the effect might be on a company by company basis and then tot up the result.

Guesses

Increasers
Set to none

Holders
GSK
ULVR
RDSB
DGE
HSBA
LGEN
Utilities
VOD

25% Cutters
Aviva (I know what the last RNS said)

50% cutter


Complete cull
As per list on this board of companies already announced culls.
Transport
Hospitality

No real point in debating..we are just guessing and "grit" happens! ( or a word that rhymes).

[IanTHughes]

Have been thinking about my projected dividend income vs my expenditure. My conclusion is that I would be able to tolerate a reduction of 57.5% of my dividend income. To this end I am seeking the opinion of fellow HYPers. At this moment in time, given the limit of what we know, how far do you think current yields will drop ? My guess is that we are heading for a 50% drop. A guess !

My HYP portfolio is constructed in classical manner, the 22 constituents being generally common with those of other LF HYPers.
Opinions appreciated. G

I am beginning to pull together the end-of-year reports for the two virtual Portfolios: viewtopic.php?p=274972#p274972 and viewtopic.php?p=283484#p283484 based on pyad's selections on Stockopedia as reported here: viewtopic.php?p=214355#p214355

So far, only 2 of last year's dividends are definitively reported by the companies as being reduced, and one of those reductions, Vodafone Group PLC (VOD), occurred before this Corona Virus issue raised its ugly head!

Recent Dividend History |      |           |           |         |           |           |    
Company                 | EPIC | Year End  | Div'd CCY | GBP     | Change    | Div'd CCY | GBP
Vodafone Group          | VOD  | 31-Mar-19 |   -40.28% | -40.35% | Increase  |       11  | 13 
IG Group Holdings       | IGG  | 31-May-19 |     0.00% |   0.00% | Unchanged |        6  |  4 
Standard Life Aberdeen  | SLA  | 31-Dec-19 |     0.00% |   0.00% | Decrease  |        2  |  2 
Aviva                   | AV   | 31-Dec-19 |     3.00% |   3.00% |           |           |    
Imperial Brands         | IMB  | 30-Sep-19 |    10.00% |  10.00% |           |           |    
WPP                     | WPP  | 31-Dec-19 |     0.00% |   0.00% |           |           |    
HSBC Holdings           | HSBA | 31-Dec-19 |     0.00% |   6.87% |           |           |    
ITV                     | ITV  | 31-Dec-19 |   -67.50% | -67.50% |           |           |    
Royal Dutch Shell       | RDSB | 31-Dec-19 |     0.00% |   1.88% |           |           |    
BP                      | BP   | 31-Dec-19 |     1.23% |   4.04% |           |           |    
Land Securities Group   | LAND | 31-Mar-19 |     3.05% |   3.05% |           |           |    
British Land Company    | BLND | 31-Mar-19 |     3.06% |   3.06% |           |           |    
BHP Group               | BHP  | 30-Jun-19 |    12.71% |  18.95% |           |           |    
Pennon Group            | PNN  | 31-Mar-19 |     6.40% |   6.40% |           |           |    
GlaxoSmithKline         | GSK  | 31-Dec-19 |     0.00% |   0.00% |           |           |    
BAE Systems             | BA   | 31-Dec-19 |     4.50% |   4.50% |           |           |    
DS Smith                | SMDS | 30-Apr-19 |    10.20% |  12.81% |           |           |    
Carnival Corporation    | CCL  | 30-Nov-19 |     2.56% |   6.10% |           |           |    
Ibstock                 | IBST | 31-Dec-19 |    54.74% |  54.74% |           |           |

The above table is backward looking but, as far as I am aware, none of the companies listed, apart of course from ITV PLC (ITV), has yet indicated a future suspension of dividends.

Of course, the affects of the Corona Virus, or rather the Governments reaction to it, is still unfolding and there may well be further dividend suspensions coming up. The dividend for Carnival Corporation (CCL) is most definitely under threat thanks to suspension of operations by Princess Cruises but, apart from CCL and of course ITV, which others are more likely than not to suspend dividends for the whole of the next 12 months? I must confess that I cannot see any.

Therefore, for now at least, I believe that your forecast of a 50% drop in income is unduly pessimistic, for this portfolio at least.

Now, 12 months hence, we could still be grappling with the Corona Virus but I would suggest, based on the history of previous such outbreaks, that is unlikely. I am not a medical expert by any means but if I am wrong about this, I think falling stock values/dividends would be the least of society's problems!


Ian

[Dod101]

Again, I will not reproduce monabri's post but I think he is probably being too optimistic, but who knows? I think a discussion is worthwhile because someone might have an angle that I at least have not thought of. He has omitted any mention of the supermarkets.

I can well see Vodafone for instance cutting its dividend. The utilities a hold even although they could probably afford to increase them , ditto probably the supermarkets, although they will not want to be seen as tastelessly profiteering.

If there is any cutting from Aviva, or any of the others, I think it will be at least 50%. It is not worth the hassle to do anything less.

Dod

[Wizard]

Recent Dividend History |      |           |           |         |           |           |    
Company                 | EPIC | Year End  | Div'd CCY | GBP     | Change    | Div'd CCY | GBP
Vodafone Group          | VOD  | 31-Mar-19 |   -40.28% | -40.35% | Increase  |       11  | 13 
IG Group Holdings       | IGG  | 31-May-19 |     0.00% |   0.00% | Unchanged |        6  |  4 
Standard Life Aberdeen  | SLA  | 31-Dec-19 |     0.00% |   0.00% | Decrease  |        2  |  2 
Aviva                   | AV   | 31-Dec-19 |     3.00% |   3.00% |           |           |    
Imperial Brands         | IMB  | 30-Sep-19 |    10.00% |  10.00% |           |           |    
WPP                     | WPP  | 31-Dec-19 |     0.00% |   0.00% |           |           |    
HSBC Holdings           | HSBA | 31-Dec-19 |     0.00% |   6.87% |           |           |    
ITV                     | ITV  | 31-Dec-19 |   -67.50% | -67.50% |           |           |    
Royal Dutch Shell       | RDSB | 31-Dec-19 |     0.00% |   1.88% |           |           |    
BP                      | BP   | 31-Dec-19 |     1.23% |   4.04% |           |           |    
Land Securities Group   | LAND | 31-Mar-19 |     3.05% |   3.05% |           |           |    
British Land Company    | BLND | 31-Mar-19 |     3.06% |   3.06% |           |           |    
BHP Group               | BHP  | 30-Jun-19 |    12.71% |  18.95% |           |           |    
Pennon Group            | PNN  | 31-Mar-19 |     6.40% |   6.40% |           |           |    
GlaxoSmithKline         | GSK  | 31-Dec-19 |     0.00% |   0.00% |           |           |    
BAE Systems             | BA   | 31-Dec-19 |     4.50% |   4.50% |           |           |    
DS Smith                | SMDS | 30-Apr-19 |    10.20% |  12.81% |           |           |    
Carnival Corporation    | CCL  | 30-Nov-19 |     2.56% |   6.10% |           |           |    
Ibstock                 | IBST | 31-Dec-19 |    54.74% |  54.74% |           |           |

...
Therefore, for now at least, I believe that your forecast of a 50% drop in income is unduly pessimistic, for this portfolio at least...

For what it is worth, of those I would suggest the following as likely cutters or suspenders:
Aviva - claims impact (cut)
WPP - reduced marketing /advertising spend by clients (suspend)
BP - they do not have Shell's epic record to maintain and revenues must have gone off a cliff (cut)
Land Securities - REIT rules have an impact but revenue must be reduced (cut)
British Land - REIT rules have an impact but revenue must be reduced (cut)
BHP - must be lower demand from industrial customers (cut)
BAE Systems - impact on civil business (though not as bad as for Meggitt) (cut)
Carnival - not even sure the company will survive in its current form (suspend)
Ibstock - reduced demand for products due to house building slowing dramatically (cut)

[moorfield]

What I term Income (ntm - next twelve months) multiplies number of shares held, including bought ex dividend, by either (i) last dividends paid or (ii) last dividends paid and next dividends announced in the current year, excluding special dividends, and assumes the same will be paid in the next year. For the last decade I have been measuring that against a target line increasing by +7.2% year on year, through the combined effects of dividend increases or cuts and reinvested cashflow, from which I have been able to guesstimate a (natural yield) retirement income. I suspect that forecast will look ugly by year end, and that it may be rather pointless aspiring to any target through 2021, at least until the WHO declare an end to the pandemic. In the meantime, I plan to continue investing whatever cashflow keeps coming in, on a monthly basis, and perhaps into an IT such as CTY until the outlook for my individual holdings becomes clearer. No plans to sell anything though.

[monabri]

For what it is worth, of those I would suggest the following as likely cutters or suspenders:

Aviva - claims impact (cut)
WPP - reduced marketing /advertising spend by clients (suspend)
BP - they do not have Shell's epic record to maintain and revenues must have gone off a cliff (cut)
Land Securities - REIT rules have an impact but revenue must be reduced (cut)
British Land - REIT rules have an impact but revenue must be reduced (cut)
BHP - must be lower demand from industrial customers (cut)
BAE Systems - impact on civil business (though not as bad as for Meggitt) (cut)
Carnival - not even sure the company will survive in its current form (suspend)
Ibstock - reduced demand for products due to house building slowing dramatically (cut)

To counter:

Aviva
-Less drivers on the roads, less accident claims.
- People off work, confined, a reduction in burglary claims.

BA Systems
Programme timescales measured in years. MoD contracts might agree some stage payment concessions. Some payments might simply depend on submitting reports...work that can be done from home.

REITs - I agree, surely under great pressure.

BP - their breakeven price per barrel for oil is significantly lower than Shell's.

WPP - based on ITVs update this morning then maybe a possibility.

However, I don't want to see ANY (more) cutters.....

[Dod101]

I had not thought of that angle on Vodafone. I do not hold anyway. Aviva will not I think have much higher claims to worry about but I think judging by their announcement last week that they will very probably cut.

I think that Primary Health Properties (a REIT) will do just fine)

Dod

[monabri]

I had not thought of that angle on Vodafone. I do not hold anyway. Aviva will not I think have much higher claims to worry about but I think judging by their announcement last week that they will very probably cut.

I think that Primary Health Properties (a REIT) will do just fine)

Dod

When it comes to Aviva...they wrote as late as 17th March

"Aviva remains well capitalised, near the top of its working range. Based on the closing market position on 13 March 2020, our Solvency cover ratio is estimated at approximately 175%, after allowing for payment of our proposed final dividend (c.7 percentage points). The estimate does not allow for any increase in insurance claims or changes in experience or assumptions that may arise from Covid-19. We have expanded our hedging and ALM activity on equities, interest rates and credit spreads. As disclosed at our recent full year results, our centre cash position at the end of February was £2.4 billion.

It remains too early to quantify the potential impact on our financial performance arising from Covid-19. The effect on our financial results will depend on a range of factors, including the extent and duration of the period of disruption and the impact on the global economy. "

If they were to announce a cut I would question the value of the (or any) guidance given!

monabri (aka Grumpy ol' git)

[Arborbridge]

Some will say plan on no dividends but I think your 50% reduction is as good as any other opinion at this stage.

Dod

Only those which occupational pensions could plan for NO dividends - the rest of us would simply run out of cash, in that case.

Arb.

[88V8]

My concern is that suspending - weasel word - the divi may become the new normal. The more that BoDs see other companies 'suspending' the more they may think they should do the same.
'Conserve the cash in the business'.
Hard to argue with that rationale at the moment.

Be surprised if the fall over the next 12 months is less than 50%.

And will we then see a resumption of former levels? Pre-2008, cover of 2x was not unusual. Pre-C19 we were nearer 1.2x. Will companies want to sail so close to the wind in future?
So my expectation is a slower recovery to a lower level.

And then there's the tax. All this gubmt benevolence will have to be paid for. The last ten years were Austerity Lite. Now we may see the real thing.

Never mind; the sun's shining; Reasons to be cheerful.

V8

[Arborbridge]

My concern is that suspending - weasel word - the divi may become the new normal. The more that BoDs see other companies 'suspending' the more they may think they should do the same.

V8

The only thing in our favour is that Directors quite like receiving dividends too - and rather bigger ones than ours.

[Charlottesquare]

My concern is that suspending - weasel word - the divi may become the new normal. The more that BoDs see other companies 'suspending' the more they may think they should do the same.
'Conserve the cash in the business'.
Hard to argue with that rationale at the moment.

Be surprised if the fall over the next 12 months is less than 50%.

And will we then see a resumption of former levels? Pre-2008, cover of 2x was not unusual. Pre-C19 we were nearer 1.2x. Will companies want to sail so close to the wind in future?
So my expectation is a slower recovery to a lower level.

And then there's the tax. All this gubmt benevolence will have to be paid for. The last ten years were Austerity Lite. Now we may see the real thing.

Never mind; the sun's shining; Reasons to be cheerful.

V8

The interesting aspect with current spending is normally when a government does spend, spend, spend it needs to later retrench to deal with currency issues/its debt standing against its peers etc, but if all governments around the world spend, spend, spend does that imperative diminish post such an event- exchange rate are comparatives, if all equally bad then compared with one another no difference. So will government debt be the real issue?

What I possibly expect to happen post all this is very high inflation, if one in effect prints lots of money where else do economies go, but will governments tax or will we in effect take the pain through asset prices/interest?

[dealtn]

My concern is that suspending - weasel word - the divi may become the new normal. The more that BoDs see other companies 'suspending' the more they may think they should do the same.

V8

The only thing in our favour is that Directors quite like receiving dividends too - and rather bigger ones than ours.

I doubt that's true actually. Preserving cash, and keeping a business alive for longer, and the Director's remuneration associated with it, would I imagine, be a greater incentive.

[Wizard]

Some will say plan on no dividends but I think your 50% reduction is as good as any other opinion at this stage.

Dod

Only those which occupational pensions could plan for NO dividends - the rest of us would simply run out of cash, in that case.

Arb.

I guess people would just have to start liquidating the portfolio and living off capital. Probably not rely discussed much before, but when comparing an HYP to an annuity I guess that is the ultimate stress test scenario.

[monabri]

Some will say plan on no dividends but I think your 50% reduction is as good as any other opinion at this stage.

Dod

Only those which occupational pensions could plan for NO dividends - the rest of us would simply run out of cash, in that case.

Arb.

At least you've got ARBIT! (Arb's IT folio)

[Wizard]

Reflecting on this thread and the ever growing list of cancelled dividends I wondered if anyone had yet considered how they may respond over the coming months. In the past some people have sold out of those that have cut / cancelled, others have waited for the initial (over) reaction in terms of share price to subside before selling and others have hung on in for the eventual recovery. But that has usually be cuts / cancellations one at a time due to some company specific issue. In the financial crisis cuts were more widespread, but I suspect the response to Covid-19 is going to be far wider than even the financial crisis. I still believe some companies that do not have to cut will do so just to bring cover back in to line with a level management feel more comfortable with, so even some companies not directly impacted may cut.

What are people thinking they may do, consolidate in to a much smaller pool of dividend paying companies? Switch the capital invested in non-payers in to other asset classes to try and get a return? Or hang on in with a significantly reduced dividend income with the view the dividends will return quickly?

[Arborbridge]

Some will say plan on no dividends but I think your 50% reduction is as good as any other opinion at this stage.

Dod

Only those which occupational pensions could plan for NO dividends - the rest of us would simply run out of cash, in that case.

Arb.

At least you've got ARBIT! (Arb's IT folio)

Yes, hopefully ARBIT will act as some sort of core income.

It's going to be an interesting year. After all, those of us in the HYP game since the credit crunch or longer, have been planning for this - we knew a crash would come sooner or later. Now we'll see how robust our systems are, or whether it'll all get washed away with the flood. Exciting times.

Arb.

[Arborbridge]

Reflecting on this thread and the ever growing list of cancelled dividends I wondered if anyone had yet considered how they may respond over the coming months. In the past some people have sold out of those that have cut / cancelled, others have waited for the initial (over) reaction in terms of share price to subside before selling and others have hung on in for the eventual recovery. But that has usually be cuts / cancellations one at a time due to some company specific issue. In the financial crisis cuts were more widespread, but I suspect the response to Covid-19 is going to be far wider than even the financial crisis. I still believe some companies that do not have to cut will do so just to bring cover back in to line with a level management feel more comfortable with, so even some companies not directly impacted may cut.

What are people thinking they may do, consolidate in to a much smaller pool of dividend paying companies? Switch the capital invested in non-payers in to other asset classes to try and get a return? Or hang on in with a significantly reduced dividend income with the view the dividends will return quickly?

The answer will depend on how we see each company's prospects. I would be for as little tampering as possible - cutters stay down a long while, but swapping around can be fraught with difficulty and in normal times only pays about half the time. My planning is for at least five years before dividends payments exceed previous levels. I'll look at selling shares where the dividend vanishes completely, but I suspect the price will be so bad that they may not be worth selling.


Arb.