Bena48 wrote:Thanks for all the replies. To no ones surprise there is a spread of outcomes across peoples HYP's. We seem to have those that have performed roughly on par with the year before and others that are down by 30 to 35%. Although mine is near the bottom of his range there are factors that make the result more palatable. I sold 15% of my shares in March last year and traded in some creaky looking high yielders (e.g BATS) for other shares that I hope will last the course but do not have the equivalent yields. My yield for the portfolio roughly 14 months ago was 5.5% and has declined to 4.95% now. Perhaps asking for peoples overall improvement/decline in dividend yield would have a better question?
No, I don't think that would have been a better question. The yield of a HYP can change either because the income it produces changes or because its capital value changes. So for instance:
* A HYP worth £80k and producing £4k income a year ago, and now worth £100k and producing £4.4k has seen its yield drop from 5.0% to 4.4%, but its income has grown by 10%.
* A HYP worth £100k and producing £5k income a year ago, and now worth £80k and producing £4.4k has seen its yield increase from 5.0% to 5.5%, but its income has shrunk by 12%.
Yields can increase either because the dividend income increases (good) or because the capital value decreases (not good (*)), or for a mixture of those reasons. Similarly, yields can decrease because the dividend income decreases (bad) or because the capital value increases (not bad (*)), or again a mixture of those reasons. And if capital and income move in the same direction, you get a mixture of one causing the yield to increase and the other causing it to decrease, with the outcome depending on which has the stronger effect. So basically,
any change to yield can happen for reasons that might be anywhere on the awful/bad/poor/neutral/mediocre/good/excellent scale, and so tells you nothing much about how the HYP is doing, and therefore I would suggest that HYPers should totally ignore
changes to yield. Looking at changes to income generated and/or changes to capital value can each tell you something useful about how the HYP is doing, but changes to yield mix up the effects of changes to income generated and capital value to produce figures that are not useful (**).
For an individual HYPer, the percentage change to the dividend income generated by the HYP is a perfectly good measure of progress towards the primary HYP goal of income generation (***). But for comparing between HYPers, it has the problem you indicate that it's affected by what purchases and sales the HYPer does in the year - and how significantly it's affected depends heavily on the HYPer's circumstances. E.g. if the HYPer is building up their HYP by investing £20k per year in an ISA, and they've just finished their second year of that, they would sort-of-expect their dividend income to have risen 100% or more between their first and second years, and be rather disappointed if it hadn't risen by at least that. If on the other hand they've already been building up their HYP for several years, they should be very surprised and pleased to get anything like a 100% year-on-year increase to income!
Percentage changes to dividend income per income unit are still vulnerable to some distortions for what additions/removals of capital individual HYPers do, but generally a lot less so than percentage changes to dividend income, so they're quite a good thing to ask for from the point of view of comparing between HYPers. But they suffer from the disadvantage that many HYPers don't unitise (or only do accumulation unit unitisation), and doing income unit unitisation from scratch be quite a bit of work - so if you ask for that, you may not get many responses!
One other possibility I can think of for what you might ask: ask people to split the shares they held during the year into three groups, which I'll subsequently call groups H, A and D for short:
Holds) Shares they held at the start of the year and still held at the end of the year.
Acquisitions) Shares they didn't hold at the start of the year, but did hold at the end of the year.
Disposals) Shares they held at the start of the year, but no longer held at the end of the year.
To be clear, I mean "shares" in that, not "holdings". E.g. if one held 250 AstraZeneca shares at the start of the year and trimmed the holding down to 200 during the year, that's 200 AstraZeneca shares in group H and 50 in group D, not a varying-size AstraZeneca holding in group A and nothing in either of the other groups.
Then determine five dividend totals: the previous year's dividends from groups H and D, and this year's dividends from all three groups. Then ask for each of this year's dividends from group H, this year's dividends from group A, and both the previous year's dividends and this year's dividends from group D, all as percentages of the previous year's dividends from group H. The idea is that the first of those percentages (this year's dividends from group H as a percentage of the previous year's dividends from group H) tells one about the 'natural' percentage change delivered by the part of the HYP which wasn't affected by the HYPer's actions, while the other three add information about the changes to dividends 'artificially' generated by changes to the HYP.
Generating that information still involves some work, but I think it would usually be quite a bit less than doing income unit unitisation for a HYP that hadn't previously been unitised - so it might be more palatable to some HYPers.
But I think the real answer is that HYPers vary enormously about how much they keep in the way of records, what calculations they already do, and how much extra work they're willing to put into for the sake of answering a question like this. So I suspect the best question would be something along the lines of "Please provide any information you're willing and able to about how the dividends you've received / will receive in the 2020/2021tax year compare with the dividends you received in the 2019/2020 tax year. In doing so, please be clear about just what the information you're providing is - e.g. percentage change to dividends received, or percentage change to dividend income per income unit, or various other possibilities - and please mention significant changes to the HYP for context."
(*) A HYPer who strongly and genuinely thinks that "capital doesn't matter" would regard both of these cases as "neutral" rather than "good" or "bad"; a HYPer who believes "capital is of secondary importance" would regard them as "bad" and "good" respectively. I've chosen the wordings "not good" and "not bad" to apply to either of those beliefs.
(**) One might wonder what the point of high yield is if one is not to look at changes to yield. The answer (or at least my answer) is that its point is basically restricted to yields at the point of purchase (and at the point of sale if you sell). At that point, the yield tells you how much income you will get for the capital you're investing (or giving up for the capital you're extracting). Or put another way, the "HY" in "HYP" refers to what a HYP's investments are (shares that are high yield at the point of purchase), not to an investment objective about the HYP's portfolio yield being high.
(***) Just to be clear, I am
only saying that's the primary goal of the strategy. Whether it's the primary goal of the
HYPer is up to each HYPer to decide for themselves!
Gengulphus