A parting of the ways?

[Arborbridge]

In the first few weeks of the Covid-19 crash we saw share prices dropping and dividends being cut. Income and capital were both being hit hard. Over the last few days share prices seem to be recovering but we still hear of more companies culling their dividends, in some cases the act of announcing a dividend cut seems to have helped push share prices higher. I wonder if we are now seeing the first signs of a divergence with a relatively quick recovery in capital values but a slower recovery in dividends.

Is this similar to what happened after the banking crisis? How would those who have experienced previous 'shocks' suggest it should influence how an HYP is practically managed going forward?

The short answer is we know nothing about Before the banking crisis, the share price reached a high in the Autumn of 2007 and this was not exceeded until May 2013. According to TJH's dividend values, the dividend income took around 7 years to recover after a bit of a boost and relapse after five year (I think). Whatever - I'm expecting something similar, but I would expect if some companies re-establish dividends more quickly, the share price will recover in tandem.

An eyeopener to me was that capital values and dividends dropped by broadly similar amounts whereas the rhetoric had always been that dividends would be less volatile than capital. It is less volatile on a small time scale, but not in major shocks like this one.

As for managing HYP going forward - I'll just carry on doing what I've been doing for the past ten years.

Arb.

[MDW1954]

I will probably, time constraints allowing, do a little more investigation on this.

To be clear, I was responding to the original question, which was phrased as "income". I was therefore referring to dividends in the aggregate -- ie, total income received over a quarter, or year.

That is what HYPers are primarily interested in.

It is not especially interesting to know that individual cuts can be steeper than the fall in the FTSE. In 2008-2009, the FTSE fell by 47% or thereabouts. A number of companies cut their dividend to zero.

But I don't recall HYPers' annual incomes falling by 47% (or whatever the figure was).

Thank you for pointing me to that data source, by the way. I may come back to you by PM; it sounds useful.

MDW1954

[tjh290633]

The short answer is we know nothing about Before the banking crisis, the share price reached a high in the Autumn of 2007 and this was not exceeded until May 2013. According to TJH's dividend values, the dividend income took around 7 years to recover after a bit of a boost and relapse after five year (I think). Whatever - I'm expecting something similar, but I would expect if some companies re-establish dividends more quickly, the share price will recover in tandem.

That is my data, but if you look at Luni's baskets of ITs, you may get a different perspective.

TJH

[Wizard]

I think this is quite typical. There is quite a lot of talk in the newspapers about some countries loosening the lockdown and allowing some businesses to reopen before long. Austria is the most notable but also the Nordic countries are discussing the same. That of course is not to say there may not be a second wave which could throw everything into reverse. Markets always look forward and investors do not want to miss out so markets tend to move ahead of news on the ground. I suspect that we will see more dividend cuts but that is now more or less expected and so the market does not put great stress on that now.

My attitude to managing a HYP going forward is to do nothing. It will be some time before dividend levels are restored to pre Coronavirus levels, probably at least two years and maybe more depending on whether and how deep a recession becomes. There is huge disruption all round and many companies will be facing at least 3/6 months of lost business by the time they take account of winding down and getting back up to full production.

Just my guess going forward.

Dod

Thanks for those thoughts Dod. But of course you are not a typically HYPer as IIRC you have shunned 'diworsification' in favour of a smaller number of companies you see as being of higher quality. It will be extremely interesting to see how your income stands up through this compared to more typical HYPs with larger numbers of shares.

My two-pennyworth: Dod may not be a typical HYP investor - whatever that is! - but not for the reason you mention. The avoidance of diworsification is built into the HYP method and comes out of the safety guiedance on sustainability of dividend. I believe Pyad once wrote that listing the shares etc is only a starting point for further investigation. No one is obliged to invest in a share if it does not pass the criteria, and if that means one does not have a member of any given sector, and therefore slightly lower diversity, then so-be-it.
If Dod has tighter criteria than you or I, that does not make his approach unHYP: HYP is not a scatter-gun, even though it leans on the safety of the portfolio effect.


Arb.

Indeed not every sector, but I thought the mantra was at least 15, whereas I get the impression Dod is not worried about having that many sectors. But maybe I am wrong on one or both of those

[Dod101]

I certainly do not have 15 sectors and in fact scarcely look at the sector. I am much more interested in what I think (or thought anyway) were good and reliable shares. Thus I hold L & G, Phoenix and Chesnara plus HSBC and fund manager Schroders all I suppose in the financial sector. Admiral is also there I suppose.

It will be interesting to see how this works out re dividends. The capital values are looking quite good and encouraging but we will see. Much too early I am sure.

Dod

[Arborbridge]

I certainly do not have 15 sectors and in fact scarcely look at the sector. I am much more interested in what I think (or thought anyway) were good and reliable shares. Thus I hold L & G, Phoenix and Chesnara plus HSBC and fund manager Schroders all I suppose in the financial sector. Admiral is also there I suppose.

It will be interesting to see how this works out re dividends. The capital values are looking quite good and encouraging but we will see. Much too early I am sure.

Dod

If you only have these sectors, the Wizard is at least half-right! However, I'm not sure what the solution to the discussion is, supposing one cannot convince oneself that other companies are not "safe" dividend payers, one is not obliged to buy them to qualify as a HYPer. You're a conviction investor rather than a bog-standard HYPer, perhaps. HYP is promoted for those who are not knowledgeable - or perhaps Pyad might say, those who know they don't know So now we are just getting into semantics, I suppose.

Arb.

[Dod101]

I have others but am not going to put out the full list at the moment, certainly not on this Board because I am only just HYPish I think.

Dod

[Wizard]

The next 12 to 24 months will give interesting insight into the benefits or otherwise of diversification. But we can only speculate now. Anyway the key thing is to that everyone is healthy and still indeed of the income, so stay safe all.

[Arborbridge]

The next 12 to 24 months will give interesting insight into the benefits or otherwise of diversification. But we can only speculate now. Anyway the key thing is to that everyone is healthy and still indeed of the income, so stay safe all.

Thanks - you too.

[monabri]

The next 12 to 24 months will give interesting insight into the benefits or otherwise of diversification. But we can only speculate now. Anyway the key thing is to that everyone is healthy and still indeed of the income, so stay safe all.

I'd replace "interesting " with "miserable ".....

Diversification...we have little diversification in shares in terms of asset allocation ...they are just different apples in different sectors..but still apples. Some people have bonds, BTL, gold,cash to increase their asset diversification.

(I'm going for miserable ol' git of the year)

[miner1000]

In the first few weeks of the Covid-19 crash we saw share prices dropping and dividends being cut. Income and capital were both being hit hard. Over the last few days share prices seem to be recovering but we still hear of more companies culling their dividends, in some cases the act of announcing a dividend cut seems to have helped push share prices higher. I wonder if we are now seeing the first signs of a divergence with a relatively quick recovery in capital values but a slower recovery in dividends.

Is this similar to what happened after the banking crisis? How would those who have experienced previous 'shocks' suggest it should influence how an HYP is practically managed going forward?

There is an argument that says HYPers should abandon purchases for dividend yield at the moment and go instead for recovery plays. As someone said above, you could earn 5 year's dividend income from, for example, LGEN or Aviva if you buy them and their share price goes back to pre-Covid levels.

This should of course (if adopted) be a very short term strategy and would need to be actioned while the market is still down at current or lower levels.

[Wizard]

In the first few weeks of the Covid-19 crash we saw share prices dropping and dividends being cut. Income and capital were both being hit hard. Over the last few days share prices seem to be recovering but we still hear of more companies culling their dividends, in some cases the act of announcing a dividend cut seems to have helped push share prices higher. I wonder if we are now seeing the first signs of a divergence with a relatively quick recovery in capital values but a slower recovery in dividends.

Is this similar to what happened after the banking crisis? How would those who have experienced previous 'shocks' suggest it should influence how an HYP is practically managed going forward?

There is an argument that says HYPers should abandon purchases for dividend yield at the moment and go instead for recovery plays. As someone said above, you could earn 5 year's dividend income from, for example, LGEN or Aviva if you buy them and their share price goes back to pre-Covid levels.

This should of course (if adopted) be a very short term strategy and would need to be actioned while the market is still down at current or lower levels.

But if they are that good at knowing which shares will rise in value in the short term they would never have needed to buy an HYP in the first place, they would have made a fortune from trading and living off that

[MDW1954]

Extract from a press release that arrived in my inbox at 9:24am today:

The UK Dividend Monitor from Link Group has comprehensively analysed the impact of the Covid-19 pandemic on UK dividends. UK companies have already scrapped payouts to shareholders worth a staggering £28.2bn between now and the end of December this year. This represents over one third (34.5%) of the dividends Link had expected UK plc to pay over the rest of this year before the crisis struck.

By April 8th, 45% of Britain’s listed companies had already axed their payouts or are certain to do so. Link flags a further £23.9bn it judges to be at risk for this year, equivalent to 29% of 2020’s April-December payouts. The rest, just £29.6bn, Link judges to be safe. In its worst case scenario analysis for 2020, Link Group forecasts a 53% fall in dividends to £46.5bn.

The full release can be found below and the report attached. Please note, in light of yesterday’s news on insurers cancelling dividends, Link Group updated the UK Dividend Monitor with new figures. The report (attached) is accurate as of 5th April.

I haven't yet read the Link report, though. (Link used to be called Capita -- it's basically just the usual re-badged quarterly Capita report.)

MDW1954

[ursaminortaur]

In the first few weeks of the Covid-19 crash we saw share prices dropping and dividends being cut. Income and capital were both being hit hard. Over the last few days share prices seem to be recovering but we still hear of more companies culling their dividends, in some cases the act of announcing a dividend cut seems to have helped push share prices higher. I wonder if we are now seeing the first signs of a divergence with a relatively quick recovery in capital values but a slower recovery in dividends.

Is this similar to what happened after the banking crisis? How would those who have experienced previous 'shocks' suggest it should influence how an HYP is practically managed going forward?

There is an argument that says HYPers should abandon purchases for dividend yield at the moment and go instead for recovery plays. As someone said above, you could earn 5 year's dividend income from, for example, LGEN or Aviva if you buy them and their share price goes back to pre-Covid levels.

This should of course (if adopted) be a very short term strategy and would need to be actioned while the market is still down at current or lower levels.

But if they are that good at knowing which shares will rise in value in the short term they would never have needed to buy an HYP in the first place, they would have made a fortune from trading and living off that

With the current general fall in prices the chances of a gamble on buying what looks like a fundamentally good company's shares in the hope of it recovering when the crisis is over coming good will be much better than in more normal times.
(In the quote above I think Miner1000's "This should of course (if adopted) be a very short term strategy" refers to executing this "recovery" strategy during the relatively (hopefully) short period of this crisis (and then switching back to a more HYP like strategy) rather than the short term buying and selling typical of a trading strategy.)

[dundas666]

There is an argument that says HYPers should abandon purchases for dividend yield at the moment and go instead for recovery plays. As someone said above, you could earn 5 year's dividend income from, for example, LGEN or Aviva if you buy them and their share price goes back to pre-Covid levels.

This should of course (if adopted) be a very short term strategy and would need to be actioned while the market is still down at current or lower levels.

But if they are that good at knowing which shares will rise in value in the short term they would never have needed to buy an HYP in the first place, they would have made a fortune from trading and living off that

With the current general fall in prices the chances of a gamble on buying what looks like a fundamentally good company's shares in the hope of it recovering when the crisis is over coming good will be much better than in more normal times.
(In the quote above I think Miner1000's "This should of course (if adopted) be a very short term strategy" refers to executing this "recovery" strategy during the relatively (hopefully) short period of this crisis (and then switching back to a more HYP like strategy) rather than the short term buying and selling typical of a trading strategy.)

Yes my thoughts exactly, and in the last couple of days I have topped up and gone overweight on AV, LGEN, GSK, BLND, HSBC, RDSB and PHNX.

It's a short-term strategy, however (if it works!) then I won't be selling them after a recovery to quickly re-balance the HYP, because the whole point is to bag their juicy yields for the long term; instead I plan to more slowly re-balance by topping up the other constituents in the HYP later.

I don't expect all of them to recover in the next 12 months though, so those that don't will be reduced back to a normal weighting.

Incidentally I think this is similar to the opportunity of investing in good quality companies whose yields are not normally considered for the HYP, but have risen (temporarily) into HYP territory. Now may be a good time to add sector diversification with shares that don't usually pop up.

[PinkDalek]

I haven't yet read the Link report, though. (Link used to be called Capita -- it's basically just the usual re-badged quarterly Capita report.)

If of interest, the Link to the Link Q1 dividend monitor was provided in a separate Topic earlier today:

viewtopic.php?f=15&t=22865

[Wizard]

There is an argument that says HYPers should abandon purchases for dividend yield at the moment and go instead for recovery plays. As someone said above, you could earn 5 year's dividend income from, for example, LGEN or Aviva if you buy them and their share price goes back to pre-Covid levels.

This should of course (if adopted) be a very short term strategy and would need to be actioned while the market is still down at current or lower levels.

But if they are that good at knowing which shares will rise in value in the short term they would never have needed to buy an HYP in the first place, they would have made a fortune from trading and living off that

With the current general fall in prices the chances of a gamble on buying what looks like a fundamentally good company's shares in the hope of it recovering when the crisis is over coming good will be much better than in more normal times.
(In the quote above I think Miner1000's "This should of course (if adopted) be a very short term strategy" refers to executing this "recovery" strategy during the relatively (hopefully) short period of this crisis (and then switching back to a more HYP like strategy) rather than the short term buying and selling typical of a trading strategy.)

We seem to have a different understanding of miner1000's post. To my mind he talking about capital gains as a substitute for dividend income, which can only be realised if there is an at least partial disposal. I think what dundas666 is saying is consistent with your point, but I believe miner1000 is saying something else. Just look at the section I have highlighted above.

[xeny]

Diversification...we have little diversification in shares in terms of asset allocation ...they are just different apples in different sectors..but still apples. Some people have bonds, BTL, gold,cash to increase their asset diversification.

Of those I'd observe cash gives little return and has for some time, and anecdotally I know people with BTL who are currently sweating non payment of rent. It's an ill wind for many people at present.

WRT bonds and gold, you need to look at returns over the whole cycle - they're good places to be at present, how good have they been in the past few years?

[MDW1954]

I haven't yet read the Link report, though. (Link used to be called Capita -- it's basically just the usual re-badged quarterly Capita report.)

If of interest, the Link to the Link Q1 dividend monitor was provided in a separate Topic earlier today:

viewtopic.php?f=15&t=22865

I've now read it. IAAG also covered it in a post, in more detail. The bottom line: it's bad, but how bad, we don't yet know. They might by the time the next report is published.

MDW1954

[miner1000]

But if they are that good at knowing which shares will rise in value in the short term they would never have needed to buy an HYP in the first place, they would have made a fortune from trading and living off that

With the current general fall in prices the chances of a gamble on buying what looks like a fundamentally good company's shares in the hope of it recovering when the crisis is over coming good will be much better than in more normal times.
(In the quote above I think Miner1000's "This should of course (if adopted) be a very short term strategy" refers to executing this "recovery" strategy during the relatively (hopefully) short period of this crisis (and then switching back to a more HYP like strategy) rather than the short term buying and selling typical of a trading strategy.)

We seem to have a different understanding of miner1000's post. To my mind he talking about capital gains as a substitute for dividend income, which can only be realised if there is an at least partial disposal. I think what dundas666 is saying is consistent with your point, but I believe miner1000 is saying something else. Just look at the section I have highlighted above.

Not really. What I am saying is that in the current climate where a dividend is likely to be cut or suspended, one could focus more on recovery for a very short period. So let us take the very extreme (almost impossible) case where someone has a HYP where all dividends are cut or suspended and they might be faced with a long period without income.
We all (I think) on this board, believe that share prices will recover and dividends will be reinstated over time. The gains to be made in share price recovery will come before dividend returns in many cases. So, I can see a number of shares (most already highlighted above) like LGEN, AV., GSK, SMDS, PHNX, and even some FTSE 250 shares, good companies that have been dragged down with the general market. Capital gains could (in extreme circumstances, replace dividend income for a short while. Of course if one can afford to, one can hold onto those shares after the recovery, but knowing that the dividend income from them might take time to come.