The Lemon Fool

Dividends have accumulated and it is top-up time. I have enough money to top-up 1 or 2 shares.

The below is sorted by “Top Up Order”. I was wondering what people’s views are on the top few i.e. GSK, BP, BHP, RIO, VOD. Perhaps add a new share?

I was particularly looking at BP and HSBA as their value has dropped so much and dividend 'may' look promising. I realise HSBA is further down the top-up list.

A few months ago I sold: BT-A, CPG, LLOY, MARS and RMG due to cancelled dividend. Their values have since risen substantially.




TDM

There is something wrong with your RIO yield.

Including the special dividend of 66.77p, the total for the year was 408.37p, and with a price of 6028p, I make that a yield of 6.77%.

I suggest that you check that.

TJH

I have excluded GSK from further top ups until after its corporate split has been completed next year. And remember it has already told us the combined dividend from the two new companies will be less.

moorfield wrote:I have excluded GSK from further top ups until after its corporate split has been completed next year. And remember it has already told us the combined dividend from the two new companies will be less.

True but you can't yet know the future prices. Yields might be up then!

Any of the top six would make good topups. You might take note of the comment about GSK, but if that doesn't bother you, why not go with it?

Or pick a number from 1 to 6 and take that as the one to buy.

Arb.

tjh290633 wrote:There is something wrong with your RIO yield.

Including the special dividend of 66.77p, the total for the year was 408.37p, and with a price of 6028p, I make that a yield of 6.77%.

I suggest that you check that.

TJH

Thank you. I shall check the figures.

I got all my figures from the HYP Top-Up Spreadsheet and I believe 11.40% represents the latest forecast yield for RIO.

TDM

Arborbridge wrote:Any of the top six would make good topups. You might take note of the comment about GSK, but if that doesn't bother you, why not go with it?

Or pick a number from 1 to 6 and take that as the one to buy.

Arb.

But, does the Top Up order include the forecast yield in its calculation? If it does and the yield used does not factor in the announce cut then GSK may be in the top spot erroneously. The amount of the cut is not known, but if yield features in the calculation some sensitivity analysis may be helpful, eg is GSK still in top spot if the yield halves or does it drop a long way down the ranking?

TopOfDaMornin wrote:Dividends have accumulated and it is top-up time. I have enough money to top-up 1 or 2 shares.

The below is sorted by “Top Up Order”. I was wondering what people’s views are on the top few i.e. GSK, BP, BHP, RIO, VOD. Perhaps add a new share?

I was particularly looking at BP and HSBA as their value has dropped so much and dividend 'may' look promising. I realise HSBA is further down the top-up list.

A few months ago I sold: BT-A, CPG, LLOY, MARS and RMG due to cancelled dividend. Their values have since risen substantially.




TDM

I would be thinking about HSBC in your situation. Given the low yield is down primarily to the regulator it may well be that the dividend increases faster than many others in consideration.

Arborbridge wrote:
Or pick a number from 1 to 6 and take that as the one to buy.

... or why not just a monkey with a pin?

I frequently have various reasons to overrule a top up ranking (viz. GSK) and just move onto the next.

Edit: I make RIO's yield 5.7% btw, based on a dividend of 341.60p excluding the last special. Quite a difference.

moorfield wrote:

Arborbridge wrote:
Or pick a number from 1 to 6 and take that as the one to buy.

... or why not just a monkey with a pin?

I frequently have various reasons to overrule a top up ranking (viz. GSK) and just move onto the next.

Edit: I make RIO's yield 5.7% btw, based on a dividend of 341.60p excluding the last special. Quite a difference.

Because, monkey's need feeding.
I assumed when I wrote that, the people using the topup table would verify that there are no "funnies" in the top few yields of interest. I am not advocating blundering in and just accepting the numbers/percentages which spew from HYPTUSS.

Arb.

Arborbridge wrote: I am not advocating blundering in and just accepting the numbers/percentages which spew from HYPTUSS.

I've never used HYPTUSS tbh. Does it have a habit of "spewing" numbers out then?

moorfield wrote:

Arborbridge wrote: I am not advocating blundering in and just accepting the numbers/percentages which spew from HYPTUSS.

I've never used HYPTUSS tbh. Does it have a habit of "spewing" numbers out then?

HYPTUSS is really very simple.

It uses individual share capital values and forecast yields to suggest a top up ranking for a portfolio.

The capital values are always correct, as it uses current shares prices and the number of shares you own (assuming you enter this correctly!).

The Forecast yields are as good as the forecasts. They come from the Sharecast website (https://www.sharecast.com/) and are a consensus of analyst yield forecasts. If you don't believe them, or think you know better, then don't use HYPTUSS. The only issue for me is how quickly they get updated, so you should always do more research prior to buying to make sure you are happy with the forecast for an individual company.

At portfolio level, experience has shown HYPTUSS provides a fairly reliable guide of forecast HYP income.

funduffer wrote: If you don't believe them, or think you know better, then don't use HYPTUSS. The only issue for me is how quickly they get updated, so you should always do more research prior to buying to make sure you are happy with the forecast for an individual company.

At portfolio level, experience has shown HYPTUSS provides a fairly reliable guide of forecast HYP income.

A fairly accurate representation, but I'd say if the think you know better, use it but change the things you disagree about. During lockdown, there have been some clear points where I disagreed wih the forecasts, and these were reflected in the comparative charts I have published. Apart from those, I would always double check that the yield is arithmetically correct - it sometimes lags the published value of dividend/price due to update timing issues.

When choose a topup, non of this is onerous since one is generally only interested in the top few shares. I see no reason that these minor operational errors should discourage anyone from using HYPTUSS, but like all tools, you need to know what the limitations are.

Arb.

funduffer wrote:At portfolio level, experience has shown HYPTUSS provides a fairly reliable guide of forecast HYP income.

I think it would be even better if it used forecast dividends (to calculate yields) rather than forecast dividend yields. The continuous fluctuations in share price would then immediately affect the top-up rankings, which is important when deciding what to buy on the day. As it is, a bargain available because of a price drop only affects the top-up ranking if the weighting goes down enough.

Chris

funduffer wrote:The Forecast yields are as good as the forecasts. They come from the Sharecast website (https://www.sharecast.com/) and are a consensus of analyst yield forecasts. If you don't believe them, or think you know better, then don't use HYPTUSS. The only issue for me is how quickly they get updated, so you should always do more research prior to buying to make sure you are happy with the forecast for an individual company.

In this case, https://www.sharecast.com/equity/GlaxoSmithKline currently gives the company's yield as 5.9% "latest" and 5.9% forecast, so looks to be based on forecasts of a held or very nearly held dividend. Checking the numbers, it also gives the current share price as 1355p, and the company's historical dividend is 80p. That gives its yield as 80p/1355p = 5.9%.

Looking at mentions of the dividend in the company's Q1 results, they say "Dividend of 19p declared for Q1 2021. Continue to expect 80p/share for 2021" in the headlines and "The Board currently intends to maintain the dividend for 2021 at the current level of 80p per share, subject to any material change in the external environment or performance expectations" later on, so it's very reasonable for the forecasters to be basing their (1-year) forecasts on a held dividend, i.e. the data HYPTUSS is using are believable. But it goes on to say (with my bold):

"At our investor update on 23 June we plan to set out in detail the strategy, growth prospects and financial outlooks for New GSK, including an in-depth review of key marketed and pipeline growth drivers. Alongside these we will provide details of a new distribution policy which reflects the future investment priorities focused on delivering sustainable long-term shareholder value. We anticipate that this new policy will deliver competitive and attractive returns informed by appropriate earnings pay-out ratios through the investment cycle well covered by Free Cash Flow and, importantly, expected growth potential. We expect that aggregate distributions for GSK will be lower than at present. This new policy will be implemented for dividends paid in respect of 2022."

So a dividend cut has been clearly signalled - it's just that at present, it only reasonably affects 2-year forecasts, not the 1-year forecasts HYPTUSS is using. Annoyingly, the company only says that a cut is likely in 2022, without any guidance about how big a cut it's likely to be, and Sharecast no longer seems to show 2-year consensus forecasts. So basically, if one wants an idea of the size of the cut, one needs to form one's own opinion on the matter (i.e. produce one's own 2-year forecast), find some other source for 2-year forecasts, or wait a month for the company's investor update (which is not certain to give decent guidance on the issue, but if it doesn't, the statement that it will provide outlooks "in detail" would be rather misleading).

I suspect waiting a month will be the easiest of those options!

All in all, this is an excellent illustration of why funduffer is right to say that one should always do more research. HYPTUSS suggests which of one's existing shares one should top up and its suggestions are usually good ones. But always take a closer look at its suggestions, because it could be that it's picking up bad data, or (as in this case) picking up good data and functioning exactly as it's meant to, but data it's not designed to pick up paint a rather different picture.

Gengulphus

I'd suggest that one overtypes the HYPTUSS yield column for GSK with a value of 3% (approx 50% of current yield) and then re-assess the top up order.

The dividend cut has been telegraphed and a 50% cut might be pessimistic (or not) but it might sway the decision to other candidates.

Which ever way we play it, it looks as though the dividend is likely to be cut, so that would rule out GSK for topups as it would then become a slasher - unless that does not bother you. Interestingly, this has been on the cards for a while - a company which has had a stable dividend for so long is probably telling us it is struggling.

To anyone overloading with GSK you might even ask the question: can I justify being over invested in a share which I know is certain to cut its dividend? - Pprticularly as GSK's price has had a small Covid boost lately, the timing could be favourable. Or would that be an over-reaction?

In my case, I'm not overloaded, so I shan't worry.

Arb.

Arborbridge wrote:Which ever way we play it, it looks as though the dividend is likely to be cut, so that would rule out GSK for topups as it would then become a slasher - unless that does not bother you. Interestingly, this has been on the cards for a while - a company which has had a stable dividend for so long is probably telling us it is struggling.

To anyone overloading with GSK you might even ask the question: can I justify being over invested in a share which I know is certain to cut its dividend? - Pprticularly as GSK's price has had a small Covid boost lately, the timing could be favourable. Or would that be an over-reaction?

In my case, I'm not overloaded, so I shan't worry.

Arb.

There are few dates one can pick over the last 5 years that result in GSK being up in capital terms at the current price, so I am not convinced of the "favourable" timing point. As I said yesterday before topping up it would be worth doing some sensitivity analysis around the dividend to see what that does to the top up ranking (a point reiterated by monabri earlier today). Personally, GSK would not be a share I would buy for income alone at the moment and I would stand by my suggestion to also relook at HSBC having taken into account of the potential for the dividend to recover.

Disclosure: I hold both GSK and HSBC.

monabri wrote:I'd suggest that one overtypes the HYPTUSS yield column for GSK with a value of 3% (approx 50% of current yield) and then re-assess the top up order.

The dividend cut has been telegraphed and a 50% cut might be pessimistic (or not) but it might sway the decision to other candidates.

In my case, it pushes GSK from 14th to 28th place. It won't be the same for another HYP, naturally, but I think the general answer would be that the change is considerable. Indeed, if the yield is assumed to be 3%, there's no way it would get on to anyone's radar as I doubt many HYP's have a yield that low!

Problem solved: at 3% GSK goes out of the running. Out of sight, out of mind and one can stop thinking about it!

Arb.

Why there is all this talk about HYPTUSS and how it calculates what to use as a forecast dividend or yield beats me, it really does.

If one believes the dividend for a particular share to be at risk, surely one simply rejects that share and moves on to the next one in the list! Where is the problem?


Ian