too high?

[MrFoolish]

As discussed repeatedly, anyone considering a super HY share for their portfolio needs to be particularly careful as far as poss that the div is sustainable but that has little to do with my reply to the other reader. And as I said, for those that auto reject SHY, then fine. HYPing comes in many variants.

Well would you suggest someone without a good understanding of accounts should steer clear of Super HY?

(There is nothing patronising to suggest that many/most people would not understand accounts. I work with a lot of clever people but they would not be able to follow a set of accounts except in a very superficial way. Different people have different skill sets. I dare say neither you nor I would know much about dentistry or designing bridges.)

[XFool]

Why is that a problem?

Is something that one can only ascertain as a result of a careful reading of the published Company Accounts. Once realised, one can take appropriate action, action that one could never even contemplate without having read the Company Accounts. Such information is certainly not evident by simply measuring the yield.

Carillion self destructed not only by declaring profits that hadn't been made yet and perhaps never would, but also sustained their dividend payouts by borrowing. When it finally went bust, there was absolutely nothing left.

So? Surely that simply reinforces the need to carefully review the Company Accounts, where of course all company borrowings are laid out and explained in some detail. Information that would have told one of the problem with regard to the company's borrowings.

Restricting one's investigation to a simple measurement of the yield, would have given up no such information

So would the 2x FTSE yield filter have 'worked' or not in the case of Carillion?

(XFool is Not a Hyper!)

[IanTHughes]

So? Surely that simply reinforces the need to carefully review the Company Accounts, where of course all company borrowings are laid out and explained in some detail. Information that would have told one of the problem with regard to the company's borrowings.

Restricting one's investigation to a simple measurement of the yield, would have given up no such information

So would the 2x FTSE yield filter have 'worked' or not in the case of Carillion?

I have no idea!

From memory only, I do believe that the yield offered by Carrillion (CLLN) was not overly high, not until the final couple of months. And by that time I do remember that there was so much talk about the problems alleged to be confronting CLLN, any investor would have had to have been deaf and blind to later claim that they knew nothing about the problems being raised by so many people. But, as I say, the information alluded to by Alaric was certainly laid out within the Company Accounts, for at least a year, maybe two. Anyone could have acted upon such information if they had felt it necessary to do so.

Enjoy!


Ian

[Alaric]

Anyone could have acted upon such information if they had felt it necessary to do so.

There's 17 pages worth of contemporary thoughts about Carillion.

viewtopic.php?f=15&t=2950&p=27839&hilit=carillion#p27839

Those who took a bargepole attitude were proved correct.

In line with the theme of this thread.
viewtopic.php?f=15&t=2950&p=27839&hilit=carillion#p27889

[IanTHughes]

Anyone could have acted upon such information if they had felt it necessary to do so.

There's 17 pages worth of contemporary thoughts about Carillion.

viewtopic.php?f=15&t=2950&p=27839&hilit=carillion#p27839

Those who took a bargepole attitude were proved correct.

And as you have now so clearly demonstrated, many on this board were also proved correct. Not by the use of any barge pole, but by simply carefully reading, and paying attention to the information contained within the Company Accounts. As you have so ably demonstrated, the information was obviously available to anyone that cared to look, and several months before the ultimate disaster, possibly before the yield was high enough to provide any warning.

Enjoy!


Ian

[Alaric]

. Not by the use of any barge pole, but by simply carefully reading, and paying attention to the information contained within the Company Accounts.

Do we think that market makers and active traders read Company accounts? If they do so, isn't a mark down of the share price, leading to a high yield, indicative that they've spotted something? Periodically Companies collapse, notwithstanding a clean audit within the previous year. Not everything in Company Accounts is clear and reliable.

[Lootman]

. Not by the use of any barge pole, but by simply carefully reading, and paying attention to the information contained within the Company Accounts.

Do we think that market makers and active traders read Company accounts? If they do so, isn't a mark down of the share price, leading to a high yield, indicative that they've spotted something? Periodically Companies collapse, notwithstanding a clean audit within the previous year. Not everything in Company Accounts is clear and reliable.

Is the underlying suggestion here that one cannot succeed in investing unless one studiously pores over balance sheets and company accounts? If so then presumably accountants make great investors, which is certainly not my experience. I like the guy who does my tax return but he asks me for investment advice and not the other way about!

Even for a methodology that has in the past been promoted as an appropriate vehicle for widows and orphans?

[IanTHughes]

. Not by the use of any barge pole, but by simply carefully reading, and paying attention to the information contained within the Company Accounts.

Do we think that market makers and active traders read Company accounts? If they do so, isn't a mark down of the share price, leading to a high yield, indicative that they've spotted something? Periodically Companies collapse, notwithstanding a clean audit within the previous year. Not everything in Company Accounts is clear and reliable.

I do not pretend to know what anyone thinks!

But so what? Some folks sell and some folks buy. Sounds like a standard trading day to me.

The point is that the yield offered by Carillion (CLLN), as I recall it, was not overly high, not until there was plenty of discussion as to possible problems with CLLN, all of which was laid out within the Company Accounts.

The demise of CLLN was not the total surprise that you claim it was. Rather it was telegraphed months in advance, to those that chose to pay attention to the information within the Company Accounts, while the yield being offered was high, but not excessive.

Enjoy!


Ian

[IanTHughes]

Do we think that market makers and active traders read Company accounts? If they do so, isn't a mark down of the share price, leading to a high yield, indicative that they've spotted something? Periodically Companies collapse, notwithstanding a clean audit within the previous year. Not everything in Company Accounts is clear and reliable.

Is the underlying suggestion here that one cannot succeed in investing unless one studiously pores over balance sheets and company accounts?

No!

Enjoy!


Ian

[tjh290633]

The point is that the yield offered by Carillion (CLLN), as I recall it, was not overly high, not until there was plenty of discussion as to possible problems with CLLN, all of which was laid out within the Company Accounts.

I bought CLLN in April 2016 at 293p. The yield from the next two dividends was 6.25%.

They increased the final and then passed the next interim, before emulating the Oozlum Bird.

TJH

[88V8]

A footnote by Luni in this eleventh year HYP report on a twenty-share midcaps...

(2) My later system of zoned yields was not formulated in time to guide the original picks. Nor did I let it govern later ones. As it happens, however, moderately higher than market income streams were usually secured using pyad's desiderata: for all 33 stocks the historic average starting yield has been 5.0%, 37% more than market yields at purchase, i.e reasonably High Yield without pushing it. The blended average lies within my 'Goldilocks' or 'optimal zone' (90-150% of market yield), which seemed safest going forward.

Two-thirds of 33 past and present constituents were Optimal. including the three biggest payers to date. Another five came from the Warning Zone (150-160% of market yield) and only seven from the Danger Zone. TCAP and UKCM, the two Dangerous shares among the original 13 survivors, have not shone either for income or capital appreciation. 'Good Enough is better than Even Better'.

V8

[daveh]

For those of you who love very high yields, there are currently two well-known US shares yielding over 8%, which is very unusual for the lower-yielding US market.

They are Verizon (VZ), which is actually in the Dow Jones 30. And AT&T (T).

So if you like phone companies and don't like Vodafone, these two puppies might suit yield hogs. Needless to say in capital terms both have been disasters but that never deters a true HYP'er!

I got a load of Verizon courtesy of Vod, but sold them straight away ( opted for the all cash option) and reinvested a % in more Vod. I wonder if I'd have been better keeping the Verizon even though 15% of the divi would have been lost in withholding tax.

[Itsallaguess]

‎
Just coming back to this 'Too High?' thread, we've seen the relatively ultra-high yield of Diversified Energy (DEC) mentioned a few times over the past couple of years, and with it currently showing on the Dividend Data site as 'having' (with usual caveats, of course...) a nose-bleeding yield of 17.67%, I thought I'd take a look to see how it's performed recently, and I'm sorry to say that it's now beginning to show all the well-known signs...

Below is a chart of DEC's one-year yield-history, alongside it's 1-year share-price performance -




Sources - https://www.dividenddata.co.uk/dividend-yield.py?epic=DEC

https://www.google.com/finance/quote/DEC:LON?window=1Y


As we can see from the above charts, an income-investor purchasing DEC one year ago at a yield at that time of around 13.5% has seen the value of their invested capital eroded over the subsequent 12-month period by 34%.

Time will of course tell as to whether the current dividend 'yield' of 17.67% can be maintained to help make up for that loss of investment capital, and it will be interesting to see where DEC goes from here in that regard, but with a 12-month capital loss of 34%, then even at a yield of 17.67%, that's two full years worth of dividends that need to be recouped just to stand still from an overall investment perspective, which feels like quite a high bar in itself looking at the above performance...

Followers of this thread can ask themselves if that 13.5% yield indicator from one year ago from DEC was potentially a 'Too High' yield or not, but certainly from the above evidence it would seem to be the case and I thought capturing the above here on this thread might be warranted given the subsequent 1-year history of the share...

Cheers,

Itsallaguess

[BullDog]

Thanks for that iaag. Another bargepole stock.

[Hypster]

Hi IAAG,

I think this serves to remind newer investors looking at an income investing approach, that having a high yield is not the only consideration for buying the share. A year ago, DEC had a dividend cover of -2.5 times (-8 on a TTM basis), with forecast EPS for the next two years giving a forecast cover of 1.2x and 0.1x. So although DEC would come out on an initial search, sorting by yield, it wouldn't pass even a cursory assessment of the likelihood of the dividend being safe.

[Charlottesquare]

Do we think that market makers and active traders read Company accounts? If they do so, isn't a mark down of the share price, leading to a high yield, indicative that they've spotted something? Periodically Companies collapse, notwithstanding a clean audit within the previous year. Not everything in Company Accounts is clear and reliable.

Is the underlying suggestion here that one cannot succeed in investing unless one studiously pores over balance sheets and company accounts? If so then presumably accountants make great investors, which is certainly not my experience. I like the guy who does my tax return but he asks me for investment advice and not the other way about!

Even for a methodology that has in the past been promoted as an appropriate vehicle for widows and orphans?

Probably because he is not able to give investment advice, the profession tends to walk on eggshells in case they cross the invisible line. So one can suggest tentatively a client considers pension contributions but heaven forbid one gives any detailed advice.

(Whilst not accountants I think Warren and Charlie spend a fair bit of time delving in the accounting entrails)

[moorfield]

Hi IAAG,

I think this serves to remind newer investors looking at an income investing approach, that having a high yield is not the only consideration for buying the share. A year ago, DEC had a dividend cover of -2.5 times (-8 on a TTM basis), with forecast EPS for the next two years giving a forecast cover of 1.2x and 0.1x. So although DEC would come out on an initial search, sorting by yield, it wouldn't pass even a cursory assessment of the likelihood of the dividend being safe.

These numbers in isolation are rather arbitrary though. For example, if every company on your ranked list had a dividend cover of -2.5 times (-8 on a TTM basis), with forecast EPS for the next two years giving a forecast cover of 1.2x and 0.1x, then what do you choose? Do you just go back to DEC?

I have a long held view that pyad got his original ranking method the wrong way round, and perhaps an HYP constructor should instead start at the FTSE 100 yield and work their way upwards. That doesn't mean they are not going to end up choosing duds, but it should mean the first slices in the queue of their hard earned and saved aren't funnelled into the highest, and potentially riskier, yielders.

[88V8]

‎
Just coming back to this 'Too High?' thread, we've seen the relatively ultra-high yield of Diversified Energy (DEC) mentioned a few times over the past couple of years, and with it currently showing on the Dividend Data site as 'having' (with usual caveats, of course...) a nose-bleeding yield of 17.67%, I thought I'd take a look to see how it's performed recently, and I'm sorry to say that it's now beginning to show all the well-known signs...

Have a recc... as a holder I hope it will soon recover, but its model which worked well in a low-interest rate environment is now under a degree of strain.

I think the takeaway if there is one, is that high levels of debt should always be a warning flag, and debt levels that seem perfectly manageable can become a problem if they have to be rolled over at higher rates.

Fingers crossed.

V8

[CryptoPlankton]

As we can see from the above charts, an income-investor purchasing DEC one year ago at a yield at that time of around 13.5% has seen the value of their invested capital eroded over the subsequent 12-month period by 34%.

Time will of course tell as to whether the current dividend 'yield' of 17.67% can be maintained to help make up for that loss of investment capital, and it will be interesting to see where DEC goes from here in that regard, but with a 12-month capital loss of 34%, then even at a yield of 17.67%, that's two full years worth of dividends that need to be recouped just to stand still from an overall investment perspective, which feels like quite a high bar in itself looking at the above performance...

Followers of this thread can ask themselves if that 13.5% yield indicator from one year ago from DEC was potentially a 'Too High' yield or not, but certainly from the above evidence it would seem to be the case and I thought capturing the above here on this thread might be warranted given the subsequent 1-year history of the share...

Whilst not disputing the potential danger of very high yields, I would just like to point out the limitations of using such limited selective data to illustrate a point. For instance, if you were to take Diageo (so many people's prime example of a safe lower yielding but growthy company) and perform the same exercise, the results would surely set off the same (or louder) alarm bells:

An investor purchasing DGE a year ago at a yield of around 2% has seen their invested capital eroded over the subsequent 12-month period by 20%.

Time will of course tell as to whether the current dividend 'yield' of 2.58% can be maintained to make up for that loss of capital. With a 12-month capital loss of 20%, then at a yield of 2.58%, that's well over seven full years worth of dividends that need to be recouped just to stand still from an overall investment perspective.

Of course, I am obviously not trying to say DEC is a superior investment to DGE, and I appreciate that IAAG is not presenting his data as conclusively damning evidence. I am just pointing out, slightly tongue in cheek, that we should always be wary of reading too much into such data alone, valid though it is. By the logic employed, DGE would be in even greater bargepole territory than DEC. I believe further investigation would lead most people to a different conclusion.

You can argue anything with statistics...

[Itsallaguess]

it will be interesting to see where DEC goes from here in that regard, but with a 12-month capital loss of 34%, then even at a yield of 17.67%, that's two full years worth of dividends that need to be recouped just to stand still from an overall investment perspective, which feels like quite a high bar in itself looking at the above performance...

Followers of this thread can ask themselves if that 13.5% yield indicator from one year ago from DEC was potentially a 'Too High' yield or not, but certainly from the above evidence it would seem to be the case and I thought capturing the above here on this thread might be warranted given the subsequent 1-year history of the share...

An investor purchasing DGE a year ago at a yield of around 2% has seen their invested capital eroded over the subsequent 12-month period by 20%.

Time will of course tell as to whether the current dividend 'yield' of 2.58% can be maintained to make up for that loss of capital. With a 12-month capital loss of 20%, then at a yield of 2.58%, that's well over seven full years worth of dividends that need to be recouped just to stand still from an overall investment perspective.

Of course, I am obviously not trying to say DEC is a superior investment to DGE, and I appreciate that IAAG is not presenting his data as conclusively damning evidence. I am just pointing out, slightly tongue in cheek, that we should always be wary of reading too much into such data alone, valid though it is. By the logic employed, DGE would be in even greater bargepole territory than DEC. I believe further investigation would lead most people to a different conclusion.

You can argue anything with statistics...

Heh...

Appreciate that it's a tongue-in-cheek comparison, but even then I don't think it's a fair one for the hopefully obvious fact that DEC would have to maintain a nose-bleed yield of 17.67% to qualify for that capital-loss payback over the next two years, where DGE would only have to maintain a much more modest 2% yield over a longer pay-back period...

So 'the logic employed' in my earlier DEC post wasn't really specifically related to any potential pay-back period, but rather the nose-bleed yield DEC would have to maintain to potentially deliver it...

Either way, the two-year pay-back period for the 12-month loss of 34% of DEC capital was a side-comment on the main point of my earlier post, which was to question if Diversified Energy (DEC) can be put forward as yet another example of an ultra-high yield indicating a high-risk investment, and hopefully the evidence as presented can help readers to reach their own conclusions on that primary thread-related point...

Cheers,

Itsallaguess