Income recovery expectations

[moorfield]

Following HYP1's ~37% drop in income in 2009 - not too dissimilar to that suffered by many here last year I hazard (my own was 26%) - it took another 4 years to recover to 2008's level, in 2013. My gut feeling last year was it would take a similar length of time out of the coronavirus pandemic, to 2024 or 2025, and some articles surfacing today are anticipating the same.

https://www.investmentweek.co.uk/news/4 ... link-group

https://www.thetimes.co.uk/edition/busi ... -sv6zjff93 (behind paywall)

How long do you think it will take for your portfolio income to recover? Will you be tinkering (low to high yield) to help ratchet it up?


Edit: 37% !

[funduffer]

My decrease in income per unit was 33% in 2020, compared to 2019.

I expect that by the end of Q1 2021, the previous 12 months income per unit will be more like 40% down, as I have a few more already announced cuts for Q1 2021, compared to Q1 2020.

After that, I expect a slow recovery, maybe over 3 years or so, if I do nothing.

I do however have some dead wood in my portfolio, which I will probably trade out for higher yielding shares, which hopefully will accelerate the recovery.

My dead wood: Marstons (MARS), Stagecoach (SGC), South32 (S32).

I have given a stay of execution to: HSBC (HSBA), LLoyds (LLOY), and Vistry (VTY), on the basis that they should restart dividends shortly at a decent level. We will have to see at what level. WPP is also a disappointment, but will probably hold as it is all I have in this sector (Media).

FD

[dundas666]

I suspect it will depend on which shares you have.

I've divided my cutters into 3 categories:
1) those companies in sectors so badly hit by the pandemic that I'm doubtful they will restore dividends any time soon
2) those that have permanently re-based their dividends and we're not expecting them to restore them to previous levels
3) those that may fully (or mostly) restore dividends to previous levels in the near-ish future

Personally I've ditched my category 1) and 2) shares already, and I consider those in category 3) to be on the 'naughty step' and will also be sold if they don't restore dividends to close to previous levels or indicate that they intend to do so in the next year or two.

Sometimes though it's not easy to decide, for example I bought DS Smith 9 months ago and although the interim dividend has been cut, the yield on my original purchase price is still about 4.3%, so even if I thought they were not going to reinstate the dividends to previous levels any time soon it might be worth holding on, especially as they're a good diversification share for my HYP.

[Arborbridge]

My decrease in income per unit was 33% in 2020, compared to 2019.

I expect that by the end of Q1 2021, the previous 12 months income per unit will be more like 40% down, as I have a few more already announced cuts for Q1 2021, compared to Q1 2020.


FD

Oh dear, you have me worried, what have I missed, because I have not noticed any more cuts recently. My forecasts for this year are showing an overall increase, though clearly not to 2019 levels.

Arb.

[funduffer]

My decrease in income per unit was 33% in 2020, compared to 2019.

I expect that by the end of Q1 2021, the previous 12 months income per unit will be more like 40% down, as I have a few more already announced cuts for Q1 2021, compared to Q1 2020.


FD

Oh dear, you have me worried, what have I missed, because I have not noticed any more cuts recently. My forecasts for this year are showing an overall increase, though clearly not to 2019 levels.

Arb.

For Q1 2021, I see the following cuts coming through in my HYP:

Marstons (MARS): 4.8p in Q1 2020, zero in Q1 2021
Stagecoach (SGC): 3.8p in Q1 2020, zero in Q1 2021
Royal Dutch Shell (RDSB): 36.4p in Q1 2020, to be announced in Q1 2021, but likely around 12p

It may be that you have already built these into your income calculations, but I use a strictly backward looking view of dividends received (or not) in the preceding 12 months.

FD

[kempiejon]

I suspect it will depend on which shares you have.

I've divided my cutters into 3 categories:
1) those companies in sectors so badly hit by the pandemic that I'm doubtful they will restore dividends any time soon
2) those that have permanently re-based their dividends and we're not expecting them to restore them to previous levels
3) those that may fully (or mostly) restore dividends to previous levels in the near-ish future

Personally I've ditched my category 1) and 2) shares already, and I consider those in category 3) to be on the 'naughty step' and will also be sold if they don't restore dividends to close to previous levels or indicate that they intend to do so in the next year or two.

Sometimes though it's not easy to decide, for example I bought DS Smith 9 months ago and although the interim dividend has been cut, the yield on my original purchase price is still about 4.3%, so even if I thought they were not going to reinstate the dividends to previous levels any time soon it might be worth holding on, especially as they're a good diversification share for my HYP.

dundass666, I admire your system and conviction. I've never been one to sell my HYP shares 'cept those unsheltered to move in shelter. I don't believe I'm anymore likely to sell the no hopers that go on fail or those that go on to recover. By now the damage has mostly been done and I'm a feared of selling at the bottom or anything I switch into comes a cropper on some future unknown bump.

category 1, so badly hit they can only go up from here and who knows might be paying dividends in 18 months?
Category 2 reset dividends to a lower level, share price been hammered by reduction in trade still yielding high.
category 3 promising it be OK shortly just hang on.
Actually cat 3 I can find examples in my own HYP where they cancelled dividends and have since restored, promised to restore or even paid back lost income.

[Arborbridge]

My decrease in income per unit was 33% in 2020, compared to 2019.

I expect that by the end of Q1 2021, the previous 12 months income per unit will be more like 40% down, as I have a few more already announced cuts for Q1 2021, compared to Q1 2020.


FD

Oh dear, you have me worried, what have I missed, because I have not noticed any more cuts recently. My forecasts for this year are showing an overall increase, though clearly not to 2019 levels.

Arb.

For Q1 2021, I see the following cuts coming through in my HYP:

Marstons (MARS): 4.8p in Q1 2020, zero in Q1 2021
Stagecoach (SGC): 3.8p in Q1 2020, zero in Q1 2021
Royal Dutch Shell (RDSB): 36.4p in Q1 2020, to be announced in Q1 2021, but likely around 12p

It may be that you have already built these into your income calculations, but I use a strictly backward looking view of dividends received (or not) in the preceding 12 months.

FD

Luckily, I don't have MARS or SGC, and I have already allowed a reduction in RDSB. So that accounts for our different POV.

[daveh]

In 2009 my dividends per accumulation unit dropped by 27% compared with the 2008 value and were back to a value above that in 2008 in 2012. For income units the drop was 31% and they didn't pay more than the 2008 dividend until 2013.

In 2020 the drop was 33% for accumulation units and 36% for income units . I'm hoping the dividends will be restored a little quicker this time as a number of companies have already restarted payments and some have paid the missed dividends from earlier in the year. HYPTUSS is predicting I should be get back 3/4 of the lost dividend amount this year, so I'm hoping the dividend will be back to 2019 levels in 2022.

I've not sold any of the non payers because they are non-payers, but have sold WMH because it is a non payer and is being taken over for cash with payment not due until march at the earliest. I amy have a rethink about the non-payers when it becomes clear they are not going to re-start payments anytime soon.

[tjh290633]

My income fall in 2009-10 was over 45%, this year it looks like being 28%, and much better prospects of recovery. In the previous hiatus my income did not recover without some considerable change to the portfolio. Left alone, it never would have.

This time I do not expect to have to make anything like the same number of changes, if any.

TJH

[idpickering]

I mentioned in another thread that my income from dividends fell 32% in 2020 compared to 2019. I took some draconian actions early last year, dropping some of the main culprits like Smith (DS), and others. I brought on board what I believed seemed like more reliable shares such as Primary Health Properties and Tritax Big Box. I did take advantage of the fact that RDSB and BP. had been hammered by buying more of their shares, despite the dividend cuts both had carried out. The main thing I learnt from last year, as a HYPer, is to accept the new normal, and stop chasing shares with what could turn out to be unrealistic high yields. Going forward, I'm staying on course, with my monthly top ups of my holdings, starting with my highest yielders. Today, I'm topping up my GSK holdings.

Ian.

[Dod101]

In my HYPish portfolio I was down around 15% in cash terms. I was hit by the cancellation from HSBC and the big cuts from Shell and Imperial Brands. Across my entire portfolio I hope and have some reasonable expectation that I can more or less restore these this year.

Dod

[Steveam]

I did little in 2008/9 and will do little this time round. The HYPish portfolio is only one leg of my income and it’s one which I generally leave be. The real stinkers like Marstons and Rolls are are now so damaged I can do little about them. Others I expect/hope will recover. I’m annoyed that I’ll be forced into taking some purchase actions as Tesco, RSA and Signature Aviation are all going to be pushing cash towards me. I’ll probably top up D S Smiths to a full holding and reinvest the Tesco money back into Tesco. Not sure what I’ll do with the RSA cash - perhaps move it to the ETF/IT portfolio with an emphasis on Asia.

Best wishes,

Steve

[daveh]

My income fall in 2009-10 was over 45%, this year it looks like being 28%, and much better prospects of recovery. In the previous hiatus my income did not recover without some considerable change to the portfolio. Left alone, it never would have.

This time I do not expect to have to make anything like the same number of changes, if any.

TJH

I made no changes (as in sales of cutters and purchase of new companies) in 2009/10 I just kept on reinvesting dividends and adding similar amounts of new money as I had been up to then. Interestingly some of the cutters have since been my better performers eg SEGRO (+1000%), PSN (+496%) and SMDS (+289%) and conversely some other cutters have have performed less well eg BT. (+52%), LLOY (-47%) DC. (-58%), NWG (RBS as was -76%). I'm not sure I could tell which to keep and which to sell at the time. Some of the cutters came back quiet well, but have fallen again (eg BT). So I'm quite slow deciding if and when to cull poor performers. Does mean I kept CLLN to the bitter end though. SGRO has been top sliced twice now as it was making up too large a percentage of the portfolio. It may get snipped back again too as its back over 6% of the portfolio.

[Dod101]

My income fall in 2009-10 was over 45%, this year it looks like being 28%, and much better prospects of recovery. In the previous hiatus my income did not recover without some considerable change to the portfolio. Left alone, it never would have.

This time I do not expect to have to make anything like the same number of changes, if any.

TJH

I made no changes (as in sales of cutters and purchase of new companies) in 2009/10 I just kept on reinvesting dividends and adding similar amounts of new money as I had been up to then. Interestingly some of the cutters have since been my better performers eg SEGRO (+1000%), PSN (+496%) and SMDS (+289%) and conversely some other cutters have have performed less well eg BT. (+52%), LLOY (-47%) DC. (-58%), NWG (RBS as was -76%). I'm not sure I could tell which to keep and which to sell at the time. Some of the cutters came back quiet well, but have fallen again (eg BT). So I'm quite slow deciding if and when to cull poor performers. Does mean I kept CLLN to the bitter end though. SGRO has been top sliced twice now as it was making up too large a percentage of the portfolio. It may get snipped back again too as its back over 6% of the portfolio.

I think you are illustrating that a cut dividend is usually an indication, but often no more than that, of possible trouble. You need to delve into why the dividend was cut. Is it a generally weak business as in the two banks and BT and of course Carillion, or is it likely to be simply a temporary blip? If after some expensive experience you still are unable to form an opinion, then you might as well leave things alone or maybe better, move into an investment trust and leave that sort of decision to a professional manager.

Dod

[Arborbridge]

I think you are illustrating that a cut dividend is usually an indication, but often no more than that, of possible trouble. You need to delve into why the dividend was cut. Is it a generally weak business as in the two banks and BT and of course Carillion, or is it likely to be simply a temporary blip? If after some expensive experience you still are unable to form an opinion, then you might as well leave things alone or maybe better, move into an investment trust and leave that sort of decision to a professional manager.

Dod

Was Lloyds a weak business or just forced to cut against the management will?

As Daveh mentions, cutters sometimes recover to go on to better things, so how could one tell beforehand? It doesn't seem too easy to me.
I think the HYP idea is that overall, you may a well not worry about finessing it in that way. Just let the market sort things out because most of us are as likely to be wrong as right - and that is my own experience.

Arb.

[Dod101]

I think you are illustrating that a cut dividend is usually an indication, but often no more than that, of possible trouble. You need to delve into why the dividend was cut. Is it a generally weak business as in the two banks and BT and of course Carillion, or is it likely to be simply a temporary blip? If after some expensive experience you still are unable to form an opinion, then you might as well leave things alone or maybe better, move into an investment trust and leave that sort of decision to a professional manager.

Dod

Was Lloyds a weak business or just forced to cut against the management will?

As Daveh mentions, cutters sometimes recover to go on to better things, so how could one tell beforehand? It doesn't seem too easy to me.
I think the HYP idea is that overall, you may a well not worry about finessing it in that way. Just let the market sort things out because most of us are as likely to be wrong as right - and that is my own experience.

Arb.

I guess I basically agree Arb but I do think that Lloyds is and was a weak, much too dependent on the UK market for a start but of course badly hit by the PRA like all the other UK banks.

Dod

[csearle]

Personally I've ditched my category 1) and 2) shares already, and I consider those in category 3) to be on the 'naughty step' and will also be sold if they don't restore dividends to close to previous levels or indicate that they intend to do so in the next year or two.

One little niggle I have with this technique of pressing ahead just with shares this particular world crisis didn't hit, although closely mimicking the way a virus evolves, might make one overly vulnerable to a future crisis that hits your chosen subset of shares. C.

[moorfield]

Personally I've ditched my category 1) and 2) shares already, and I consider those in category 3) to be on the 'naughty step' and will also be sold if they don't restore dividends to close to previous levels or indicate that they intend to do so in the next year or two.

One little niggle I have with this technique of pressing ahead just with shares this particular world crisis didn't hit, although closely mimicking the way a virus evolves, might make one overly vulnerable to a future crisis that hits your chosen subset of shares. C.

Well consider from another angle: A new HYPster starting today would presumeably also discount shares in dundas666's categories 1) and 2) and be prescribed a course of strategic ignorance to treat their little niggle?

[tjh290633]

: A new HYPster starting today would presumeably also discount shares in dundas666's categories 1) and 2) and be prescribed a course of strategic ignorance to treat their little niggle?

If starting an HYP ab initio today, the shares in Catgory 1 would not get a look in.

1) those companies in sectors so badly hit by the pandemic that I'm doubtful they will restore dividends any time soon
2) those that have permanently re-based their dividends and we're not expecting them to restore them to previous levels
3) those that may fully (or mostly) restore dividends to previous levels in the near-ish future

Category 2 might suit, if the yield is good enough, although the dividend history at that level would be too short. Nevertheless, IMB for example might justify inclusion, with its yield of over 8%.

Category 3 are a "wait and see" category. A short suspension because of government dictat could be excused.

TJH

[StepOne]

Hi all,

My income in 2020 was down 23% from 2019. I had 5 cutters

British Land BLND - down 75%. Expect gradual increases from here
BHP - Down 50%, but this was only from a high payout with special in 2019. They were still above the 2018 total, so no issue there really.
BP - down 23%. Expecting a further drop this year - must have already been announced.
HSBA - down 100%. Expect a decent recovery here when they re-start
SSE - down 18%

Vod was also very slightly down but that must have been due to exchange rate.

Overall , like a lot on here I am doing nothing. Will see how that goes next year


StepOne