too high?

[BullDog]

Just a quick heads-up for anyone looking for potential entry points for the type of ultra-high-yielders being discussed on this thread, that Persimmon is currently now 'yielding' around 13.4%, following today's RNS trading update and subsequent share price drop this morning of around 6%...

One of my best performing shares. Cost me x now worth 2.75x and has paid me 2.4x in "dividends" (PSN often calls them capital returns but they are treated as dividends).

What's not to like.

To be fair, I don't think historical performance is as relevant to a thread like this than performance from the date that the thread was initiated, given that the topic is specifically related to the potential risks associated 'going forwards' with the types of 'ultra high yield' shares listed in the table in the opening post...

Cheers,

Itsallaguess

Quite. It's the outlook for tomorrow and the days that follow that the market sets the value of a company by. You can't buy history.

[daveh]

Just a quick heads-up for anyone looking for potential entry points for the type of ultra-high-yielders being discussed on this thread, that Persimmon is currently now 'yielding' around 13.4%, following today's RNS trading update and subsequent share price drop this morning of around 6%...

One of my best performing shares. Cost me x now worth 2.75x and has paid me 2.4x in "dividends" (PSN often calls them capital returns but they are treated as dividends).

What's not to like.

To be fair, I don't think historical performance is as relevant to a thread like this than performance from the date that the thread was initiated, given that the topic is specifically related to the potential risks associated 'going forwards' with the types of 'ultra high yield' shares listed in the table in the opening post...

Cheers,

Itsallaguess

Quite. It's the outlook for tomorrow and the days that follow that the market sets the value of a company by. You can't buy history.

Which I discussed in the half of my post that isn't included in the quote.

[BullDog]

It's a funny old world. Tempus rates Persimmon shares an "avoid" rating this morning. I'm a nobody, but I agree.

[moorfield]

It's a funny old world. Tempus rates Persimmon shares an "avoid" rating this morning. I'm a nobody, but I agree.

Does the high yield put you off ....?

[BullDog]

It's a funny old world. Tempus rates Persimmon shares an "avoid" rating this morning. I'm a nobody, but I agree.

Does the high yield put you off ....?

Of course not. Higher than market yield means nothing. Apparently

[Alaric]

Tempus rates Persimmon shares an "avoid" rating this morning

Seemingly the background on Persimmon's dividemd is that the distributuiion is based on profits, therefore no assumption on continuation at the current level should be made. Also part of the dividend represents a return of capital, so not really an income yield except in the annuity sense.

[Gersemi]

Tempus rates Persimmon shares an "avoid" rating this morning

Seemingly the background on Persimmon's dividemd is that the distributuiion is based on profits, therefore no assumption on continuation at the current level should be made. Also part of the dividend represents a return of capital, so not really an income yield except in the annuity sense.

Unlike other companies that don't need to make a profit in order to pay dividends . . .

Nothing is guaranteed and obviously higher interest rates and squeeze on incomes will affect their sales, so its no wonder that the share price is well down, pushing the quoted yield higher. What matters is the medium term view and who knows where that will go. I can't see housing going out of fashion any time soon though.

[Alaric]

Unlike other companies that don't need to make a profit in order to pay dividends . . .

It's not unknown for Companies to susdain dividends without making profits, or only to report profits by accounting sleight of hand. When there are ultra high yields it can be a signal that the "market" thinks that may be going on.

[IanTHughes]

It's a funny old world. Tempus rates Persimmon shares an "avoid" rating this morning. I'm a nobody, but I agree.

Does the high yield put you off ....?

Of course not. Higher than market yield means nothing. Apparently

A higher than market yield, means that the equity in question will provide a higher potential reward. Definitely!

Don't be embarrassed though, that is the point of a forum like this. To spread knowledge about investment and, with regard to this particlar board, knowledge with regard to investing in high yield equities. Keep reading and you should pick it up yourself in no time.

Lesson #1 - A higher than market yield means, a higher potential income than that offered by the market yield.


Ian

[Charlottesquare]

It's a funny old world. Tempus rates Persimmon shares an "avoid" rating this morning. I'm a nobody, but I agree.

Does the high yield put you off ....?

Of course not. Higher than market yield means nothing. Apparently

A higher than market yield, means that the equity in question will provide a higher potential reward. Definitely!

Don't be embarrassed though, that is the point of a forum like this. To spread knowledge about investment and, with regard to this particlar board, knowledge with regard to investing in high yield equities. Keep reading and you should pick it up yourself in no time.

Lesson #1 - A higher than market yield means, a higher potential income than that offered by the market yield.


Ian

Tautology.

A higher yield can mean a number of things, one of which is the market perceives a higher risk re earnings/dividends etc re the particular share, one can ignore the market or take special care when the market gives such a signal . It is not so much that high yield confirms higher risk but it instead may more be a warning flag that greater than normal care needs taken re selecting a particular share.

Personally I think in most cases it can be very difficult to spot some of the danger signs just using published accounts, debt of course can be one (though not all increased debt is always bad) ever increasing non cash assets another etc.

If I was prepared to use one main metric it likely would be comparing profits declared compared with cash generated, if cash generation, year after year, lags declared profits then caveat emptor.

[IanTHughes]

Tautology? Well yes of course it is. Making the statement that:

A higher than market yield, means that the equity in question will provide a higher potential reward.

Is almost like stating:

A higher than market yield, means that the equity in question will provide a higher than market yield!

How much more ‘tautological’ can one get?

However, in this instance, when faced with a statement from a poster that appears to believe that:

Higher than market yield means nothing. Apparently

I thought it an appropriate response, indeed a required response.

This is the High Yield Portfolio (HYP) practical board, so a claim in a post that indicates to me an ignorance as to what “Yield” is, has to be called out. Other readers of such a post, maybe similarly ignorant with regard to matters relating to equity investment, must be warned that such posts are nonsense!

A high yield does of course mean that the ‘market’ is demanding/offering a higher reward for a sale/purchase, but an individual investor still has to determine, as best he/she can, what the underlying risk is that prompts the ‘market’ to make such a high demand/offer. Furthermore, I would say that it is always difficult to “spot some of the danger signs just using published accounts”.

However, in the absence of a Profit Warning, a bad Trading Update, or another message from the company in question indicating trouble ahead, what other information does one have apart from the published accounts?


Ian

[Charlottesquare]

Tautology? Well yes of course it is. Making the statement that:

A higher than market yield, means that the equity in question will provide a higher potential reward.

Is almost like stating:

A higher than market yield, means that the equity in question will provide a higher than market yield!

How much more ‘tautological’ can one get?

However, in this instance, when faced with a statement from a poster that appears to believe that:

Higher than market yield means nothing. Apparently

I thought it an appropriate response, indeed a required response.

This is the High Yield Portfolio (HYP) practical board, so a claim in a post that indicates to me an ignorance as to what “Yield” is, has to be called out. Other readers of such a post, maybe similarly ignorant with regard to matters relating to equity investment, must be warned that such posts are nonsense!

A high yield does of course mean that the ‘market’ is demanding/offering a higher reward for a sale/purchase, but an individual investor still has to determine, as best he/she can, what the underlying risk is that prompts the ‘market’ to make such a high demand/offer. Furthermore, I would say that it is always difficult to “spot some of the danger signs just using published accounts”.

However, in the absence of a Profit Warning, a bad Trading Update, or another message from the company in question indicating trouble ahead, what other information does one have apart from the published accounts?


Ian

Analyst presentations are sometimes also worth a look, again one does not need to fully believe them but they will possibly flag areas that might cause concerns.

Personally when I did buy more individual shares when reading the accounts I mostly looked at :

1. How much in the way of intangibles supporting the balance sheet
2. Pension scheme note in accounts.
3. Cashflow statements
4. Trying to actually understand what the business did/how it operated (rather than just running with my preconceptions of what they did/how they operated- looking at financial obligations/leasing notes etc often gave some understanding and analyst commentary could be useful clarifying same)

I also tended to skim read the notes to the accounts more than the director/chairman's preamble

But I further recognised that there were business entities I really did not understand and therefore if buying did so as a leap of faith (banks/financials but in such cases never the outlier yields(in fact with banks only ever HSBC)

My view remains that very high yield may be opportunity but may also be danger and is certainly a signal that more than normal research is required.

[Alaric]

A high yield does of course mean that the ‘market’ is demanding/offering a higher reward for a sale/purchase

There's also likely a perception that the capital performance could well be below the performance of the market as a whole. It's the free lunch principle, if ultra high yielders gave a better total return than the market average, the shares would be in demand, thus the price wuld rise and the yield would fall. You see that with companies like Diageo and Unilever who have consistently increased their dividends by worthwile percentages. That's a feature in demand which drives up prices so the running yield is usually elatively modest

[tjh290633]

A high yield does of course mean that the ‘market’ is demanding/offering a higher reward for a sale/purchase

There's also likely a perception that the capital performance could well be below the performance of the market as a whole. It's the free lunch principle, if ultra high yielders gave a better total return than the market average, the shares would be in demand, thus the price wuld rise and the yield would fall. You see that with companies like Diageo and Unilever who have consistently increased their dividends by worthwile percentages. That's a feature in demand which drives up prices so the running yield is usually elatively modest

It may be worth pointing out that the method of choosing which share to top up, as used by me and set out in the HYPTUSS, essentially works on the principle that shares come into favour and go out of favour, and so their price moves independently of the market. The yield tends to rise as a result when the price falls. It is well known that not all shares follow the way the market moves. I keep a record of how share prices have moved since the beginning of the year, and things are far from static. This is the record for my 37 shares as of 6th July:

Epic     Change    Yield 
BA.       48.74%    3.12%
BATS      27.62%    6.36%
AZN       26.50%    1.95%
PSON      22.24%    2.78%
SHEL      21.76%    3.66%
TATE      17.39%    2.81%
VOD       12.86%    5.97%
IMB       11.91%    7.85%
BT.A      11.59%    4.23%
BP.       11.54%    4.44%
GSK       11.43%    2.74%
CPG        4.78%    1.39%
SSE        2.91%    5.13%
NG.        2.28%    4.78%
RKT        0.32%    2.81%
WDS       -1.48%    6.12%
BHP       -1.59%   11.81%
ULVR      -1.89%    3.81%
RIO       -4.18%   16.30% (FTSE100 -3.5%)
AV.       -5.53%    5.77%
UU.       -5.92%    4.25%
S32       -7.60%    5.05%
PHP       -8.98%    4.79%
DGE      -10.53%    2.11%
TSCO     -11.07%    4.27%
LLOY     -13.61%    4.84%
BLND     -15.16%    4.96%
IGG      -16.61%    6.55%
LGEN     -21.61%    7.90%
ADM      -27.37%   12.54%
SMDS     -27.75%    5.55%
KGF      -28.38%    5.15%
SGRO     -30.21%    2.47%
IMI      -32.43%    2.06%
TW.      -34.22%    7.54%
MARS     -40.08%    0.00%
MKS      -41.66%    0.00%
Av.Chg    -3.12%    5.11%

The FTSE100 was down about 3.5% since the start of the year (7107 vs. 7384) on that day, shown above. There is a wide range of price changes in that table.

TJH

[Itsallaguess]

It may be worth pointing out that the method of choosing which share to top up, as used by me and set out in the HYPTUSS, essentially works on the principle that shares come into favour and go out of favour, and so their price moves independently of the market.

The yield tends to rise as a result when the price falls. It is well known that not all shares follow the way the market moves.

Whilst it's clear that there will always be a range of 'yield float' for all HYP-related income-investments, I don't think the type of 'market noise' price-based process quite rightly described above should be allowed to mask the potential risks of ultra-high-yield outliers that then pop well outside what we might consider to be quite normal 'noise-based yield ranges' due to potentially important company-specific reasons...

Understanding the difference in those two separate processes goes to the heart of appreciating the potential risks involved with the types of ultra-high-yields being discussed on this thread...

Cheers,

Itsallaguess

[tjh290633]

It may be worth pointing out that the method of choosing which share to top up, as used by me and set out in the HYPTUSS, essentially works on the principle that shares come into favour and go out of favour, and so their price moves independently of the market.

The yield tends to rise as a result when the price falls. It is well known that not all shares follow the way the market moves.

Whilst it's clear that there will always be a range of 'yield float' for all HYP-related income-investments, I don't think the type of 'market noise' price-based process quite rightly described above should be allowed to mask the potential risks of ultra-high-yield outliers that then pop well outside what we might consider to be quite normal 'noise-based yield ranges' due to potentially important company-specific reasons...

Understanding the difference in those two separate processes goes to the heart of appreciating the potential risks involved with the types of ultra-high-yields being discussed on this thread...

Cheers,

Itsallaguess

I suppose that we could say that some shares have ultra high yields thrust upon them. Others earn them by their actions or defects. Ignoring BHP, RIO and ADM, there is a reasonable spread of yields in that list, MKS and MARS notwithstanding.

TJH

[Itsallaguess]

‎
A year on from the opening post on this thread, I thought it might be interesting to re-visit the original table of shares to see how what's happened with share prices and dividend information in the year since this interesting discussion began -

Share                    EPIC     Original Yield  Price 24/6/2  Price 24/6/23   Dividend Data URL  12-month dividends at 24/6/22   12-month dividends at 24/6/23   12-month price change   12-month dividend change
Rio Tinto                RIO      13.2%               4979          4971.5           RIO                     793.00¢                         492.00¢                       -0.15%                 -37.96%
Persimmon                PSN      12.87%              1871.5        1059             PSN                     235p                            60p                           -43.41%                -74.47%
Antofagasta              ANTO     9.94%               1184.5        1452.5           ANTO                    $1.425                          $0.597                         22.63%                -58.11%
M&G                      MNG      9.46%               198.6         189.75           MNG                     18.3p                           19.6p                         -4.46%                  7.10%
Abrdn                    ABDN     9.00%               170.95        206.5            ABDN                    14.6p                           14.6p                          20.8%                  0.00%
Phoenix Group Holdings   PHNX     7.99%               620.8         530.2            PHNX                    48.9p                           50.8p                         -14.59%                 3.89%
Legal & General Group    LGEN     7.82%               244.6         223              LGEN                    18.45p                          19.37p                        -8.83%                  4.99%
Anglo American           AAL      7.72%               3066          2248             AAL                     289.00¢                         198.00¢                       -26.68%                -31.49%
Imperial Brands          IMB      7.68%               1838.5        1772.5           IMB                     139.50p                         141.81p                       -3.59%                  1.65%
Taylor Wimpey            TW.      7.36%               118.4         100.7            TW.                     8.58p                           9.40p                         -14.95%                 9.56%
Barratt Developments     BDEV     7.23%               472.1         407.4            BDEV                    33.1p                           35.9p                         -13.70%                 8.46%

Share price information has been taken from Yahoo Finance, and rolling 12-month dividend information has been taken from Dividend Data, with a URL link provided to the stated dividend information in the above table.

Cheers,

Itsallaguess

[88V8]

‎
A year on from the opening post on this thread, I thought it might be interesting to re-visit the original table of shares to see how what's happened with share prices and dividend information in the year since this interesting discussion began...

Once again reminding us that housebuilders and miners are cyclical.
Who'd a thought that Aberdeen would be the sweet pea of the bunch...

V8

[NotSure]

Does not bode so well for "HYP1 is 23". For those that belive that N = 1 = proof, I wonder how this will be interpreted?

Income down slightly

Here is the data for the year ended 12 November 2022, the twenty second year of this non-tinker portfolio.

..........................................Income......................Value

Anglo American.......................1,31.73....................16,147
BA Tobacco............................1,874.87....................27,508
BT Group ................................437.51.....................6,796
Currys......................................39.09.....................1,060
Glaxo.....................................242.78.....................3,724
Haleon.......................................0.00.......................977
InterCon Hotels..........................432.78...................19,621
Land Sex..................................260.55.....................4,249
Lloyds.....................................163.88.....................3,365
Mitch & But.................................0.00.....................1,017
M&G.......................................239.38.....................2,467
Persimmon.............................2,483.95...................14,322
Pearson...................................185.33.....................8,386
Shell......................................317.52.....................9,245
Rio Tinto...............................2,967.32....................27,846
United Utilities.........................346.26......................8,024

Total £................................11,122.95...................154,754



Cost 75,000

Gain 79,754
.........................................+106.3%


FTSE100 at start 6,274.8

Now 7,318.0

Gain 1,043.2
...........................................+16.6%

HYP1 capital outperformance.......+76.9%





Income History

2001 3,451
2002 3,474
2003 3,197
2004 3,205
2005 3,546
2006 4,131
2007 4,452
2008 5,040
2009 3,187
2010 3,297
2011 3,843
2012 4,289
2013 5,828
2014 5,601
2015 6,093
2016 6,124
2017 7,327
2018 8,882
2019 10,557
2020 5,533
2021 11,338
2022 11,123

Total to date £ 123,518


Corporate events in year
GSK demerged Haleon.


Income
This is the purpose of HYPs and the £11,123 for 2022 was down about 1.9% on last year's record figure though still the second highest ever total.

Total income to date is £123,518, averaging £5,614 per year which is 7.5% pa on the £75,000 cost.

Rio Tinto continued as the single largest income contributor with 26.7% of total income and second was Persimmon with 22.3%. BA Tobacco was third at 16.9% and all others were well below these three. At the other end, there were two zeros, Haleon and Mitchells & Butlers. New share Haleon is forecast to start paying dividends next year but this will be of only a tiny benefit.

Like last year, the income was boosted by large payouts and specials from miners Rio Tinto and Anglo American. Persimmon was down because last year included a missed payment from the previous year. BT and Intercontinental Hotels resumed payouts and there is now a full year contribution from M&G, my replacement last year for RSA. These, plus most of the other shares increasing their payouts, offset to a large extent the large reduction from Rio Tinto and Persimmon, the net effect being the small fall.


Capital
This is irrelevant or very much secondary depending on your viewpoint.

The value of £154,754 is up 106.3% since the outset and continues to mince the market with the FTSE100 over the 22 years up only 16.6%. Thus HYP1 is outperforming it by 76.9%. These results do not include any reinvested dividends.

In the last twelve months the FTSE100 has fallen 0.4% whilst HYP1 is down 3.1%, thus underperforming the index again this year.

Rio Tinto is now the largest holding at 18.0% of portfolio value with BA Tobacco at 17.8% and Intercontinental Hotels at 12.7%. The smallest holdings are Haleon at 0.6% and Mitchells & Butlers and Currys each at 0.7%.


Conclusions
Not a bad year for the all-important income or capital either. It looks though like next year's income will fall because major contributor Persimmon is very likely to pay out much less and the miners may well do the same. Increases from other shares are unlikely to compensate fully for that.

As I've noted before, the largest holdings move around over the years which to some extent counters the often repeated criticism of a no-tinker portfolio that it ends up concentrating income and capital in a very few shares. It does, but over time not always in the same shares. Plus there is always market trading which alters the portfolio gradually as illustrated by the fact that at least half the shares in my original HYP1have disappeared due to bids and reorganisations etc. Overwhelmingly, corporate action like this benefits the portfolio.

[Itsallaguess]

RIO  | Rio Tinto              | Industrial Metals and Mining              | £61,360.05 | 13.20%
PSN  | Persimmon              | Household Goods and Home Construction     |  £5,832.23 | 12.87%
ANTO | Antofagasta            | Industrial Metals and Mining              | £11,549.07 |  9.94%
MNG  | M&G                    | Investment Banking and Brokerage Services |  £4,955.35 |  9.46%
ABDN | Abrdn                  | Investment Banking and Brokerage Services |  £3,538.37 |  9.00%
PHNX | Phoenix Group Holdings | Life Insurance                            |  £6,119.37 |  7.99%
LGEN | Legal & General Group  | Life Insurance                            | £14,089.87 |  7.82%
AAL  | Anglo American         | Industrial Metals and Mining              | £40,944.35 |  7.72%
IMB  | Imperial Brands        | Tobacco                                   | £17,269.21 |  7.68%
TW.  | Taylor Wimpey          | Household Goods and Home Construction     |  £4,128.50 |  7.36%
BDEV | Barratt Developments   | Household Goods and Home Construction     |  £4,682.45 |  7.23%

I would judge above twice the CTY yield to be "too high" and requiring an answer to the question, why so high?

I meant to come back earlier to the post of yours above moorfield, because I think it's interesting that you used a two-times multiplier of the CTY yield at that time a year ago, and used that to strike out and discount the top three shares in the original list above.

I say it's interesting, because here's an abridged version of the 'one year later' table I posted a week or so ago -

Share                    EPIC     Original Yield     12-month dividend change
Rio Tinto                RIO      13.2%                     -37.96%
Persimmon                PSN      12.87%                    -74.47%
Antofagasta              ANTO     9.94%                     -58.11%
M&G                      MNG      9.46%                      7.10%
Abrdn                    ABDN     9.00%                      0.00%
Phoenix Group Holdings   PHNX     7.99%                      3.89%
Legal & General Group    LGEN     7.82%                      4.99%
Anglo American           AAL      7.72%                     -31.49%
Imperial Brands          IMB      7.68%                      1.65%
Taylor Wimpey            TW.      7.36%                      9.56%
Barratt Developments     BDEV     7.23%                      8.46%

Cheers,

Itsallaguess