Supposing you were starting a new HYP today

[Fluke]

Given all the cutting and chaos going on all around us, supposing you had a lump sum and you were wanting to start a new HYP today. What would it look like?

[gryffron]

The problem with that is the historic yield figures are now virtually useless. Many companies having already cut dividends, and more likely to do so. The normal HYP buying criteria are pretty much useless in such a chaotic market.

Staying strictly on track, HYP also says "dividend covered by earnings". How can you possibly know that is the case for ANY company today?

Gryff

[Dod101]

Given all the cutting and chaos going on all around us, supposing you had a lump sum and you were wanting to start a new HYP today. What would it look like?

I wouldn't. If absolutely forced to then all you can do is try to identify the strongest companies in financial terms and buy those but it will not I suspect by a HYP portfolio in the conventional sense of the term. Buying a portfolio now is really just a form of gambling. Better to wait until the smoke clears and then see what is left standing.

Dod

[tjh290633]

I have a feeling that it would be 100% cash for the time being. Would you go for those that might carry on paying dividends? Would you skip those which might pause for thought? Would you rule out some that are in danger? I think I would give it a little time, despite the attraction of very low prices.

Just looking at my top 20 ranked by weight, we have:

NG.
RIO
DGE
SGRO
UU. Duplicates NG.
BP.
ULVR
BATS
AZN
GSK Duplicates AZN
LGEN
ADM Duplicates LGEN
VOD
SSE Duplicates NG. and UU.
PHP
TATE
BA.
RB. Duplicates ULVR
AV. Duplicates LGEN and ADM
RDSB Duplicates BP.

Further down I have SMDS, KGF, PSON and CPG are not duplicates. I do not consider PHP and SGRO to be duplicates, as they are so different. That would give 17 to pick, most of which are likely to be survivors.

TJH

[OLTB]

Afternoon all.

I just wanted to make my own observations about the HYP concept and thoughts about when would it be best to start construction.

As a builder, I am despondent when I see how far my portfolio has fallen in value and really cheesed off that the one tiny glimmer of hope of a dividend stream to top up at these low levels has been taken away by the decisions of the companies to cancel/defer dividends.

I am, however, still working (hence building) and this doesn't affect my day to day life too much (other than mental anguish!). I think about what would have happened if I had been following TLF/TMF as a lurker for many years, making the decision that HYP would be the best way to go and retired in Jan/Feb this year. If I had taken my pension funds at this time, invested into a HYP in one lump sum and sat back to reap the dividends I think I would be absolutely distraught at the moment (hopefully I would have kept an emergency cash fund of 2 years of income somewhere!).

This is where I think that starting a HYP before retirement and going through the experience of downturns like this is so important - these feelings will stick with me and when I do come to retire, I will always be thinking what will the next Coronavirus-like event be and how will I prepare for it.

Just my musings on a Friday pm. and if anyone did retire in Jan/Feb and buy a HYP at this time, I am sorry...

Cheers, OLTB.

[monabri]

Given all the cutting and chaos going on all around us, supposing you had a lump sum and you were wanting to start a new HYP today. What would it look like?

I would not invest a lump sum at the moment unless you were certain of a dividend..the whole purpose of HYP is to generate an increasing, reliable dividend. Since very few dividends are looking probable where a note to that effect has been formerly (e.g. LGEN, SLA) then the rest is all a guess.

I would be looking "elsewhere" - on one of the other Lemon boards.

Of course, one might be thinking "I don't need the income immediately this year, maybe I'll bag a few typial HYP shares on the cheap hoping that divis will resume as normal next year" ? That too is a punt. Companies might take this opportunity to rebaseline their dividends to establish a warm fuzzy glow of a dividend cover approaching 2.0.

[kempiejon]

I would not invest a lump sum at the moment unless you were certain of a dividend..the whole purpose of HYP is to generate an increasing, reliable dividend. Since very few dividends are looking probable where a note to that effect has been formerly (e.g. LGEN, SLA) then the rest is all a guess.

Wan't it always so? Last year utilities looked under the cosh, this year they look steady, pharms had a patent cliff a while back today look cut free. A decade ago weren't tobaccos doomed. Industries move out of favour some more than others. I will have a lump sum for a new ISA so I'll have to look at this question realistically rather than abstractly soon enough. Looking at the pages of cutters I see my choices will be different this year as many of those feature in my portfolio.

[TUK020]

Afternoon all.

I just wanted to make my own observations about the HYP concept and thoughts about when would it be best to start construction.

As a builder, I am despondent when I see how far my portfolio has fallen in value and really cheesed off that the one tiny glimmer of hope of a dividend stream to top up at these low levels has been taken away by the decisions of the companies to cancel/defer dividends.

I am, however, still working (hence building) and this doesn't affect my day to day life too much (other than mental anguish!). I think about what would have happened if I had been following TLF/TMF as a lurker for many years, making the decision that HYP would be the best way to go and retired in Jan/Feb this year. If I had taken my pension funds at this time, invested into a HYP in one lump sum and sat back to reap the dividends I think I would be absolutely distraught at the moment (hopefully I would have kept an emergency cash fund of 2 years of income somewhere!).

This is where I think that starting a HYP before retirement and going through the experience of downturns like this is so important - these feelings will stick with me and when I do come to retire, I will always be thinking what will the next Coronavirus-like event be and how will I prepare for it.

Just my musings on a Friday pm. and if anyone did retire in Jan/Feb and buy a HYP at this time, I am sorry...

Cheers, OLTB.

OLTB,
some return Friday pm musings aided by a G&T fit to stun an elephant.

Markets
Chap on TMF used to post under the moniker 'Munroman'. Folk seemed to take exception to him but he did post a few gems
There are only a few rules in finance.
Markets are volatile, get used to it.
No one really knows what is going on, so join the club.
Dividends keep companies a bit more honest.
Compound interest works.
Diversification reduces risk.
Which kind of sums up the "HYP" mentality.
In particular, Markets are volatile, get used to it. We hunt in these waters because we can get superior returns compared to the bank deposit rate. Volatility is the price we pay.

The attitude and outlook we choose
We try to make the best decisions we can, based on the information we have at the time.
Once we have made a decision, there is no point agonising over what could have been. I could be a brilliant investor with some hindsight.
As I survey the wreckage of my portfolio over a G&T, the right response is to consider that I could be lying on a trolley in a hospital corridor, gasping for breath, waiting for a ventilator to come free.
He takes another sip - life is pretty good really

Timing for reinvestment
Also depends on when you have cash available.
I have taken my first foray back in - about 1/3 of my liquid funds (sold gold and bonds to fund) about 10 days ago.
Going to fire another 1/3 in April.
Wait on the remainder. Most bear markets in the last century have had a peak to trough lasting 3 months to 3 years.
I suspect that I have jumped too soon as at the last time.

Ah, my G&T needs refreshing

[OLTB]

Thanks TUK020

I really appreciate your response and I do agree with what you have said. It’s still quite difficult to go through though at the current time. I will persevere...

I maintain that the experience of this episode is very valuable and will make me a better investor in the longer run.

Cheers, OLTB.

[Wizard]

Given all the cutting and chaos going on all around us, supposing you had a lump sum and you were wanting to start a new HYP today. What would it look like?

You don't say whether this would be an HYP that would be for immediate drawdown or the start of the building phase for the HYP. If there was a period of building to follow I would suggest not using an HYP as my personal view is that there are better ways to build a 'pot' for future retirement income generation. If for immediate drawdown I think again you need to consider what the required income is versus the size of the lump sum available. In the current climate it is pretty pointless looking at trailing yields, as you have mentioned there have been a large number of dividend suspensions and I am pretty sure we will see more in coming weeks and months.

If it were me I would be looking at the following:
Unilever
Diageo
British American Tobacco
National Grid
Shell
HSBC

IMHO the top 5 have a decent chance of not suspending the dividend and whilst HSBC has I think it will likely resume at the planned level as soon as the BoE allows. The problem of course is that the above do not give much diversification and a portfolio spread just across these would be way too concentrated for many. They also do not give a great yield* so the income may not be sufficient from the available lump sum.

Anyway, just my opinion as ever DYOR and don't take any of the above as advise it is merely my musings on a Monday morning.

* I think the concept of only looking at shares with a yield above the FTSE100 yield is impossible to apply at this time. The trailing FTSE100 yield is clearly massively higher than the future yield and that future yield is particularly difficult to take a view on right now. For all we know Diageo at c. 2.75% may well be above what the FTSE100 will pay in the next 12 months.

[kempiejon]

* I think the concept of only looking at shares with a yield above the FTSE100 yield is impossible to apply at this time. The trailing FTSE100 yield is clearly massively higher than the future yield and that future yield is particularly difficult to take a view on right now. For all we know Diageo at c. 2.75% may well be above what the FTSE100 will pay in the next 12 months.

Technically one doesn't exclusively pick yields above the FTSE100, one ranks the FTSE100 by decreasing yield and picks shares with sustainable dividends, low debt in diverse sectors. I agree getting a feel for a realistic forecast FTSE100 yield is a bit tricky with available details today.
If I was starting over I'd like to try and find 15 suitable candidates and start with investigating this lot from the FTSE100
BT
Imperial Brands/BATs
Standard Life Aberdeen
Marstons
Aviva/Legal and General
Royal Dutch Shell/BP
BHP or RIO
Informa
DS SMiths
National Grid
3i group
Mondi
Glaxosmithkline/Astrazeneca
United Utilities/Pennon

Then a look at the biggest 250 members like
Direct Line
Tate
HICL infrastructure
Greencoat
Britvic
IG Group
Bellaway
TRIG
Tritax Big Box
Babcock

I've not done the leg work on debt and I'd be surprised if there aren't more cuts to come, some of those above might be in trouble over the next couple of years as the general depression in global business ripples down. Technically banks would be excluded for cutting but I might make the judgement call that this is a suspension thrust upon them and they'd like to re-instate so HSBC and Lloyds or another big bank might be an option though the government meddling might be too much. It's a risk with other industries like the utilities too and I'm happy enough with that.

[Wizard]

* I think the concept of only looking at shares with a yield above the FTSE100 yield is impossible to apply at this time. The trailing FTSE100 yield is clearly massively higher than the future yield and that future yield is particularly difficult to take a view on right now. For all we know Diageo at c. 2.75% may well be above what the FTSE100 will pay in the next 12 months.

Technically one doesn't exclusively pick yields above the FTSE100, one ranks the FTSE100 by decreasing yield and picks shares with sustainable dividends, low debt in diverse sectors. I agree getting a feel for a realistic forecast FTSE100 yield is a bit tricky with available details today.

The guidance for this board continues to say.

...If selected, such shares should have a dividend yield above the average for the FTSE100 index and be drawn from the constituents of the FTSE 350 index...

Considering the FTSE100 yield as a benchmark may not be part of your process, but it is advocated for HYPs for this board.

[Wizard]

* I think the concept of only looking at shares with a yield above the FTSE100 yield is impossible to apply at this time. The trailing FTSE100 yield is clearly massively higher than the future yield and that future yield is particularly difficult to take a view on right now. For all we know Diageo at c. 2.75% may well be above what the FTSE100 will pay in the next 12 months.

Technically one doesn't exclusively pick yields above the FTSE100, one ranks the FTSE100 by decreasing yield and picks shares with sustainable dividends, low debt in diverse sectors. I agree getting a feel for a realistic forecast FTSE100 yield is a bit tricky with available details today.
If I was starting over I'd like to try and find 15 suitable candidates and start with investigating this lot from the FTSE100
BT
Imperial Brands/BATs
Standard Life Aberdeen
Marstons
Aviva/Legal and General
Royal Dutch Shell/BP
BHP or RIO
Informa
DS SMiths
National Grid
3i group
Mondi
Glaxosmithkline/Astrazeneca
United Utilities/Pennon

Then a look at the biggest 250 members like
Direct Line
Tate
HICL infrastructure
Greencoat
Britvic
IG Group
Bellaway
TRIG
Tritax Big Box
Babcock

I've not done the leg work on debt and I'd be surprised if there aren't more cuts to come, some of those above might be in trouble over the next couple of years as the general depression in global business ripples down. Technically banks would be excluded for cutting but I might make the judgement call that this is a suspension thrust upon them and they'd like to re-instate so HSBC and Lloyds or another big bank might be an option though the government meddling might be too much. It's a risk with other industries like the utilities too and I'm happy enough with that.

I agree on one of the big Pharma, I would add that to my list as well.

[kempiejon]

The guidance for this board continues to say.

...If selected, such shares should have a dividend yield above the average for the FTSE100 index and be drawn from the constituents of the FTSE 350 index...

Considering the FTSE100 yield as a benchmark may not be part of your process, but it is advocated for HYPs for this board.

Well thank you Wizard, seems I've been wrong with the process for this board. However, since I've been posting here I've always bought shares above my portfolio average to hopefully increase my yield which has always been at or above the FTSE100 and today I don't think I'd have a difficulty beating it by the method I described. Getting a feel for what the FTSE100 average yield is likely to be for the next 12 months as you said is difficult, I'd guess 3.x% is in the ball park rather the 5.x% quoted.

[jackdaww]

Given all the cutting and chaos going on all around us, supposing you had a lump sum and you were wanting to start a new HYP today. What would it look like?

=======================

i wouldnt start one at the best of times, certainly not now.

i might invest in some hyp type shares eg

legal and general

shell

bhp/rio

but not many obvious choices now.

[Fluke]

Pyad was fond of saying the time to invest is today, it was today yesterday, it's today today and it will be today tomorrow. If he were still running his newsletter I wonder which 15-20 shares he would select and on what basis, given that many of the regulars have failed the 5 year test and many others would surely fail his 'smell' test. I wonder if he would concede that this global crash, unlike previous ones, has shown that the strategy in its original form is fatally flawed? Or would he plough on further into the the FTSE 250 perhaps to make up the 15. Or would he, like many here, say I can't recommend anything in this current market so I'm downing tools.

[kempiejon]

Pyad was fond of saying the time to invest is today, it was today yesterday, it's today today and it will be today tomorrow. If he were still running his newsletter I wonder which 15-20 shares he would select and on what basis, given that many of the regulars have failed the 5 year test and many others would surely fail his 'smell' test. I wonder if he would concede that this global crash, unlike previous ones, has shown that the strategy in its original form is fatally flawed? Or would he plough on further into the the FTSE 250 perhaps to make up the 15. Or would he, like many here, say I can't recommend anything in this current market so I'm downing tools.

Not sure about pyad but I think one could pick 15 from this lot from tjh.

NG.
RIO
DGE
SGRO
UU. Duplicates NG.
BP.
ULVR
BATS
AZN
GSK Duplicates AZN
LGEN
ADM Duplicates LGEN
VOD
SSE Duplicates NG. and UU.
PHP
TATE
BA.
RB. Duplicates ULVR
AV. Duplicates LGEN and ADM
RDSB Duplicates BP.

Further down I have SMDS, KGF, PSON and CPG are not duplicates.

or these I suggested

BT
Imperial Brands/BATs
Standard Life Aberdeen
Marstons
Aviva/Legal and General
Royal Dutch Shell/BP
BHP or RIO
Informa
DS SMiths
National Grid
3i group
Mondi
Glaxosmithkline/Astrazeneca
United Utilities/Pennon

or these from further down the index

Direct Line
Tate
HICL infrastructure
Greencoat
Britvic
IG Group
Bellaway
TRIG
Tritax Big Box
Babcock

[moorfield]

Given all the cutting and chaos going on all around us, supposing you had a lump sum and you were wanting to start a new HYP today. What would it look like?

It wouldn't.

Those needing a reliable income for the next 2-3 years I imagine would opt for Investment Trusts or an Annuity.

As a builder, my spreadsheet is telling me today none of my 21 holdings are topup-able for various reasons (yield too high, yield too low, income ntm forecast is zero, sector overweight) so I am looking either to add a new holding (SMDS was a candidate, not now) or just sit on my hands and cash for the forseeable future.

[Wizard]

Given all the cutting and chaos going on all around us, supposing you had a lump sum and you were wanting to start a new HYP today. What would it look like?

It wouldn't.

Those needing a reliable income for the next 2-3 years I imagine would opt for Investment Trusts or an Annuity.

As a builder, my spreadsheet is telling me today none of my 21 holdings are topup-able for various reasons (yield too high, yield too low, income ntm forecast is zero, sector overweight) so I am looking either to add a new holding (SMDS was a candidate, not now) or just sit on my hands and cash for the forseeable future.

Or adjust the definition of yield too low?

[Wizard]

Pyad was fond of saying the time to invest is today, it was today yesterday, it's today today and it will be today tomorrow. If he were still running his newsletter I wonder which 15-20 shares he would select and on what basis, given that many of the regulars have failed the 5 year test and many others would surely fail his 'smell' test. I wonder if he would concede that this global crash, unlike previous ones, has shown that the strategy in its original form is fatally flawed? Or would he plough on further into the the FTSE 250 perhaps to make up the 15. Or would he, like many here, say I can't recommend anything in this current market so I'm downing tools.

No chance. It would be interesting to have some posts from him at this time, but personally I am not sure we will. Maybe he is too busy with all the calls he is getting from Doris and her friends