Bree's HYPish Portfolio - Christmas Review 2023

[Breelander]

Seasons greetings to all.


Just how far up this river are we going?

2022 review: viewtopic.php?f=15&t=37267&p=557023
Intrepid explorers could follow its link to read the previous year's report (you could travel a lot further downstream than that, if you can take the mind-numbing tedium, that is).

Every time I hear that, something terrible happens

Last year I said...

What will next year bring? Well hopefully an end to this war. It would also be nice to see the economy moving out of recession before 2023 is out. Currently the jury is out on both those questions.

Well now we have two wars to worry about instead of just the one

We didn't exactly see a technical recession (flirted with one though) but it wasn't exactly a bumper year for dividends. More on that later....


How do they smell to you, soldier?

This is how my HYP looked at the close of business on 22nd December 2023.

                                           Weight   Weight  Yield   Yield 
Share               Epic    Sector         by Cap.  by div* Hist*   F/cast*
BAe Systems         BA.     aero/defence   10.6%     7.0%    2.6%    2.6%
IMI                 IMI     indust. eng.    7.9%     3.1%    1.6%    1.6%
RS Group            RS1     support serv.   7.6%     4.4%    2.3%    2.3%
Diageo              DGE     beverage        5.3%     4.0%    2.8%    2.8%
Rio Tinto           RIO.L   mining          5.1%     7.2%    5.6%    5.6%
United Utilities    UU.     util gas/water  4.8%     5.8%    4.4%    4.7%
SSE plc             SSE     util.elec .     4.7%     3.9%    4.7%    3.2%
Shell               SHEL    oil&gas prod.   4.6%     3.7%    4.1%    3.2%
Unilever            ULVR    food prod/proc  4.5%     4.6%    4.0%    4.0%
Reckitt Benckiser   RKT     H/hold goods    4.1%     3.5%    3.4%    3.4%
Persimmon           PSN.L   constr&mat      4.0%     5.9%    5.9%    5.9%
Lloyds 9.75% pref.  LLPD    fixed int.      3.9%     7.1%    7.2%    7.2%
Centrica            CNA     util gas/water  3.6%     2.2%    2.3%    2.3%
Aviva               AV.     ins. life       3.5%     6.7%    7.4%    7.4%
Halfords            HFD     retail gen.     3.3%     4.2%    5.2%    5.2%
Lloyds Group        LLOY    banks           3.1%     4.1%    5.4%    5.4%
GSK                 GSK     pharm/biotec    2.9%     2.9%    3.9%    3.9%
Vodaphone           VOD     tel.mob         2.9%     8.3%   11.5%   11.5%
Pearson             PSON    media           2.5%     1.5%    2.3%    2.3%
Marks & Spencer     MKS     retail gen.     2.2%     0.2%    0.4%    0.4%
British Land        BLND    REITs           2.1%     3.0%    5.7%    5.7%
BT Group            BT.A    tel.fix         2.0%     3.2%    6.2%    6.2%
Tesco               TSCO    retail food/drg 1.5%     1.5%    3.8%    3.8%
Sainsbury (J)       SBRY    retail food/drg 1.2%     1.3%    4.5%    4.5%
Haleon              HLN     pharm/biotec    0.8%     0.0%    1.3%    1.3%
Barclays            BARC    banks           0.6%     0.8%    5.3%    5.3%
Wood Group (John)   WG.     Oil equip/serv. 0.4%     0.0%    0.0%    0.0%
                              
Current Yield*:  22 Dec 2023        Median: 3.59%            4.08%   3.97%

* Definitions:
Historic Yield: the trailing twelve-month yield (ttm) - sum of latest declared dividends over past year. May contain dividends from two reporting years.
Forecast Yield: My own conservative forecast for next year. Basically same as Historic, except where there is an explicit dividend policy.
Current Yield: Historic Yield / current portfolio value.
Weight by Dividend: calculated using my forecast yield.

[Breelander]

Costs: Just two trades this year, the sale of DLAR and a top up of DGE with the proceeds. A brokers fee on the sale but just stamp duty to pay on the purchase, that broker's fee was covered by a 'trading credit' included in the monthly fee. This year one broker (ii) has started paying interest on all cash balances, not just those over £10,000. For cost purposes I have treated the interest as a partial refund of their monthly fees. Management fees were 0.082% of the portfolio's starting value for the year (at Christmas 2022). Last year this figure was 0.105%.

Capital: The HYP rose in value over the year. The Income Unit value (which by definition ignores any investment factor) rose by 8.5% compared to a rise of 3.0% for the FTSE100.

Income: The HYP's trailing income per unit as calculated from the Trailing Twelve-month yield (ttm) shows a fall of 4.2%. On the basis of money in the bank and actual payment dates the gross dividend/unit for 2023 was 5.425p (2022: 5.941p), against the 5.392p indicated by the ttm yield. After deducting costs the net dividend/unit was 5.320p, a fall of 8.2% (2022: 5.792p). The actual income can be different from the Trailing income because the ttm yield is based on declaration dates while actual dividends received use the pay dates. Shares (such as BT) that both declare a change in dividend and have declaration and pay dates that straddle the calendar year-end are to blame. Starting in my 2012 review I restated my figures from earlier years in Income Unit and Trailing Yield terms. Note that the 'Income(p) per Unit' figures are calculated by from the 'Trailing Yield' and the 'Unit Price'.

            # Units   Unit   Trailing Income(p)  FTSE      Year-on-year rise (fall)
   Date    (rebased) Price(p) Yield   per Unit   100   Price  Inc./unit  FTSE  Dec.RPI
24 Dec 2007   38.8   136.33   4.95%   6.742    6479.3     -       -       -     4.0%
24 Dec 2008   36.6    84.01   7.92%   6.656    4216.6  (38.4%)  (1.3%) (34.9%)  3.0%  [1]
24 Dec 2009   40.7    96.36   3.35%   3.227    5402.4   14.7%  (51.5%)  28.1%   2.4%  [2]
24 Dec 2010   51.7   107.73   4.11%   4.428    6009.0   11.8%   37.2%   11.2%   4.8%
23 Dec 2011  100.0   100.00   4.89%   4.894    5512.7   (7.2%)  10.5%   (8.3%)  4.8%
24 Dec 2012  103.2   115.30   4.75%   5.474    5954.2   15.3%   11.8%    8.0%   3.1%
24 Dec 2013  103.3   132.38   4.01%   5.314    6694.2   14.8%   (2.9%)  12.4%   2.6%
24 Dec 2014  103.7   133.00   4.00%   5.314    6609.9    0.5%    0.0%   (1.3%)  1.6%
24 Dec 2015  105.0   125.67   4.46%   5.599    6254.6   (5.5%)   5.4%   (5.4%)  1.2%  
23 Dec 2016  105.0   133.78   4.47%   5.974    7058.2    6.5%    6.7%   12.8%   2.2%
22 Dec 2017  105.0   140.42   4.37%   6.143    7592.7    5.0%    2.8%    7.6%   4.1% 
24 Dec 2018  104.8   118.92   5.49%   6.524    6686.0  (15.3%)   6.2%  (11.9%)  2.7%
24 Dec 2019  111.7   131.31   5.34%   7.012    7632.2   10.4%    7.5%   14.2%   2.2%
24 Dec 2020  111.7   124.59   3.10%   3.861    6502.1   (5.12) (45.0%) (14.8%)  1.2% 
24 Dec 2021  111.4   142.67   3.97%   5.661    7372.1    14.5   46.6%   13.4%   7.5% 
23 Dec 2022  111.4   127.23   4.65%   5.922    7473.0    (9.4)   5.3%    1.4%  13.4%
22 Dec 2023  111.3   134.37   4.16%   5.392    7697.5     8.5   (8.9)%   3.0    5.3% (Nov)

Notes:
[1] The trailing yield for 2008 looks so high because most dividends are from pre-crisis profits, while the unit price shows the post-crisis fall.
[2] My 2009 drop in income was exacerbated by being over-weight in financials.


Total Return: The capital rose a little this year as did the ftse100. Income Units rose from 127.230p to 134.373. The net dividend/unit was 5.320p. This gives a TR of 12.462p or 9.80% (2022: -6.71%). For comparison, over the same period the FTSE100-TR rose from 7678.70 to 8226.09 or 7.13% (2022: 5.17%).

[Breelander]

Just the one (very small) 'tinker' this year, disposing of that useless De La Rue remnant (finally!). What little was raised was used for a small top up of Diageo. The sums involved were little more than 'pocket money', so small that there's been no real impact on the HYP. It was done more to tidy up my spreadsheets and make my life simpler when writing these reports than anything else


my situation here has become a difficult one...

Well my income suffered this year, but apparently I'm in good company...

Income ...2023 was down a very unwelcome 30.5% on last year's figure. ...dividend carnage this year... A lousy year then for the all-important income and little excitement from the capital either...

viewtopic.php?f=15&t=41459

Hmmm, 'dividend carnage' eh? Makes my 8.2% drop almost feel like being in profit (if I squint and look at it sideways). Why the big discrepancy? After all, my HYP was very much modelled on HYP1 when I began building it, we have a lot of holdings in common.

Now I know you are all too polite to point out the elephant in the room, so let me do it for you - that unmentionable 'preference share'. So let's show Nellie the door. Pack your trunk and leave the Circus now! (It's all right, you can come back when they've all gone.)

From this point on all elephantine contributions have been eliminated from any calculations. You are now entering the ULEZ (Ultra-Low Elephant Zone). Adjusting for absent pachyderms, my 2023 income was down by 10% on 2022's pure-as-the-driven-snow dividend income...


Nothing else in the world smells like that...

the primary culprits behind the big fall were the slashed payouts from the miners and housebuilder Persimmon...

Persimmon have come to the end of their Capital Repayment Plan and have now reverted to paying a dividend like everyone else. It's not a bad dividend, but it's nothing like the cash that was being thrown out as 'Capital Repayment'.

For the past few years Rio Tinto had a habit of paying generous 'special' dividends in addition to their normal dividends. Those stopped this year.

like HYP1 I hold both Persimmon and Rio Tinto. Together they make up some 9.2% of my HYP by capital. For HYP1 Rio Tinto alone makes up an eye-watering 23% by capital, and even at this years reduced payment rate it was some 27% of HYP1's income - no wonder it hurt!


don't tell them, because that's our secret...

So what's my secret of success? I would like to say it's all down to my excellent stock-picking skills....

....I'll let you think about that for a bit....

...I'd like to say that, and if you've partaken of enough Christmas 'spirits' by now you might even believe me.

So what's the real secret? I knew just about enough to be able to recognise a HYP candidate from the well known characteristics (a reliable and preferably rising dividend), and knew enough about sectors to make sure my picks didn't overlap too much. That's pretty much it, really. I think it also helped that, needs must, I had to build my HYP over some 10 years, with all the rebalancing opportunities that allowed.

Diversity, I think, is the key. If you hold enough different sectors in roughly equal proportions, then it's a rare event when they are all in a downturn at the same time. 15 shares has been said to be enough, I don't know about that, but it's certainly easy enough to find 15 diverse sectors. Beyond that it starts to become increasingly difficult. I gave up trying at around 25 shares, from then on it was 'top up an existing one' should I have more to invest. Some get carried away by the thrill of the chase and go on a stamp collecting spree - that's just silly to my mind.

Doubling up in the sectors works for some. For me that's double the workload for little (if any) perceived benefit. Your mileage may vary, I like to keep my mileage to as little as I can get away with

For the past 11 years I've all but done with the building phase. As a determined non-tinkerer I've basically been watching my HYP from the outside as I left it to make its own way through our recent troubled times.

... one poor dividend year does not negate the underlying principle of HYP investing any more than the outstanding years do. This is a long term approach and it is bound to have a certain amount of income volatility....

Yeah, 'comfortably average performance' is the sweet-spot I'm looking for


Don't go without me, okay. I want to get a picture...


Hey, I have made some pretty pictures for you this year. See what you make of these...

My 2023 had two big cutters, the aforementioned Rio and Persimmon, but it also had some 17 that increased their dividends - not enough to compensate for the 'big bad two' but enough to cushion the blow somewhat. Banks are doing particularly well (and I never thought I'd be saying that again).





What's fun is to stack all the dividends received for the past five years. It can show how some sectors do well in some years, while others do well in different years. There was one year that they all did badly though, it's that narrow dark blue band that runs through them all - 2020, the Year of the Lockdown. GSK (unsurprisingly) was the only one to do well in that year...



(I felt a bit like a geologist, identifying the year the meteor struck the Earth from a thin dark band in all the rocks.)


Well, let's see what we have here...

And this year the award for 'Highest Continuous Five Years of Dividend Growth' * goes to:

BAE Systems with a creditable 28% higher return in 2023 than in 2018.

...closely followed in the '5-year stakes' by:

Pearson at 25%
Diageo at 23%
United Utilites at 15%

* counting payments received by calendar years, not the accounting years as they can vary between companies.

None of the others managed to maintain a rise in dividends for all of the five years. A few managed four years out of five though, many failing during lockdown.


...you don't know where the hell you're going, do you?

What will next year bring? Well I really must sell my De La Rue this year. No! Wait! I almost forgot! I finally got rid of it this year

It looks like interest rates may have peaked on both sides of the Atlantic. It would be nice to see inflation start coming down a bit. Another thing we have in common with our cousins across the pond is that 2024 is an election year. I'm fairly sure I can predict our next government, but as for the next US president... well... all I can say is that it looks like there will be Interesting Times ahead...


Is this familiar?

I thought it was now time to pick an appropriately apocalyptic source for this year's guest headlines.


Wait a minute. Is that it?

Merry Christmas and a Prosperous New Year,

Bree.

[moorfield]

Now I know you are all too polite to point out the elephant in the room, so let me do it for you - that unmentionable 'preference share'.

On the contrary Bree. That elephant was your third highest contributor this year, it's done a lot of the heavy lifting for you, so don't ignore it at all. I think the Breelander Convention illustrates well that preference shares deserve their place in HYPs, doesn't it?

Let's play a Christmas Dinner game. I'll give you a Quality Street if you can name me a preference share that has cut or cancelled its dividend in the last five years?

No? Too Difficult? Still scratching your head? Ok try this. I'll give you Quality Street if you can name me an ordinary share that has cut or cancelled its dividend in the last five years? But I only have one box mind...

Anyway I digress from the observation I wanted to make. There is a second elephant in the room that you have not addressed in any of your three posts. The pyramidion of all income investors' endeavours everywhere.

One number to rule them all, and in their dogmas bind them.

Which is of course, overall Yield Hist* = 4.08%

A disappointing return for your efforts (but good thing you had that first elephant, eh?). Let me cut to the chase then and ask the question:

Why not just sell it all up, and buy City Of London IT instead?

That would bag you a likely ~25% pay rise next year. No financial voodoo involved there, just counting. And what's not to like about counting?


Wishing you a very Merry Christmas!

[MDW1954]

Now I know you are all too polite to point out the elephant in the room, so let me do it for you - that unmentionable 'preference share'.

On the contrary Bree. That elephant was your third highest contributor this year, it's done a lot of the heavy lifting for you, so don't ignore it at all. I think the Breelander Convention illustrates well that preference shares deserve their place in HYPs, doesn't it?

Moderator Message:
No, it doesn't. "Deserve" doesn't come into it. The Breelander Convention merely condones discussion of a HYP containing a *very* small percentage of non-FTSE350 shares. -- MDW1954

Let me cut to the chase then and ask the question:

Why not just sell it all up, and buy City Of London IT instead?

That would bag you a likely ~25% pay rise next year. No financial voodoo involved there, just counting. And what's not to like about counting?

Moderator Message:
The question asked comes very, very close to breaching this board's guidelines. Answering it, at least here, almost certainly would. --MDW1954

MDW1954

[Dod101]

I very much enjoy Bree’s reviews and I thank him for the trouble he takes in providing so much detail but I too am puzzled as to why he does not take steps to increase the yield. Clearly he does not need the income. I am not sure what the yield on my portfolio is but it will I think be a bit more than his and I include some out and out growth shares in my portfolio as I make no pretence that it is a HYP or even particularly HYP like.
Clearly if you wait long enough some shares will resume their dividend such as M & S but if has been a hopeless investment for a long while.

Dod

[moorfield]

Moderator Message:
No, it doesn't. "Deserve" doesn't come into it. The Breelander Convention merely condones discussion of a HYP containing a *very* small percentage of non-FTSE350 shares. -- MDW1954

So by "very" small percentage we can take that to mean <= 7.2% of overall income (and this is an income strategy after all) per year, can we? Can you not see the nonsense the Breelander Convention causes here?

Moderator Message:
The question asked comes very, very close to breaching this board's guidelines. Answering it, at least here, almost certainly would. --MDW1954

Fine. Let me rephrase it then.

Why not sell your lower yielding shares and buy higher yielding ones to increase overall portfolio yield to 4.93%, or greater ?


Merry Christmas!

[MDW1954]

So by "very" small percentage we can take that to mean <= 7.2% of overall income (and this is an income strategy after all) per year, can we? Can you not see the nonsense the Breelander Convention causes here?

Moderator Message:
Bree's single-share pref percentage fluctuates year-by-year whether it is measured as a percentage of income, capital, or anything else. Attaching a strict numeric ceiling would be problematic -- some years, he (and others) couldn't post, thereby depriving us of their input. I hope that answers the "nonsense" question, too. --MDW1954

Moderator Message:
The question asked comes very, very close to breaching this board's guidelines. Answering it, at least here, almost certainly would. --MDW1954

Fine. Let me rephrase it then.

Why not sell your lower yielding shares and buy higher yielding ones to increase overall portfolio yield to 4.93%, or greater ?

Merry Christmas!

Moderator Message:
Yep, that rephrased question is fine. I'm interested in the answer, too. And a Merry Christmas to you, as well! Your contributions to the board are both valued and appreciated. --Malcolm

MDW1954

[csearle]

Seasons greetings to all.

Thank you, to you too (on behalf of all), Mr Conventional. C.

[Breelander]

...There is a second elephant in the room that you have not addressed in any of your three posts. The pyramidion of all income investors' endeavours everywhere.

One number to rule them all, and in their dogmas bind them.

Which is of course, overall Yield Hist* = 4.08%

A disappointing return for your efforts.....

I think I alluded to it indirectly with...

... 'comfortably average performance' is the sweet-spot I'm looking for

I very much enjoy Bree’s reviews and I thank him for the trouble he takes in providing so much detail...

Thank you...

but I too am puzzled as to why he does not take steps to increase the yield. Clearly he does not need the income. I am not sure what the yield on my portfolio is but it will I think be a bit more than his and I include some out and out growth shares in my portfolio as I make no pretence that it is a HYP or even particularly HYP like.

I've never made a secret of the fact that I also enjoy a modest company pension, just enough to survive on (if you enjoy bread and water ). But about half my income comes from my HYP, enough to make life comfortable. This year I've had to drawn on my cash buffer, built up in the fat years, to supplement my income over this lean (and inflationary) year.

What is the definition on 'High Yield' share? What puts the 'H' in HYP? A yield that is higher than the FTSE100, or if you prefer a broader measure, the FTSE350. Luniversal went to great effort to try and define the 'Goldilocks' zone, a yield that is high enough above the FTSE to be HYP'able, but not so high that it was unsustainable, not a 'crash and burn' yield which Luni termed the Danger Zone.

those with longer memories will know of Luni's attempts (a long time ago now, it seems) to create "zones" or yield acceptability. Many people didn't accept the idea that there was a "hard border" - or rigid zone - but nevertheless the idea lingers on. Lingers on in the sense that Luni's warnings may set some of our antennae waving a bit when the yield become suspiciously high....

viewtopic.php?p=222355

I'm not looking for the highest possible returns, just a comfortably and consitently above average would be nice, the Goldilocks 'sweet-spot' if you like. So is my 4.08% sweet enough? Well it could be sweeter, but technically it is still an HYP.

FTSE 100 Dividend yield (27/12/2023) 3.86% https://markets.ft.com/data/indices/tea ... =UKX.D:FSI
FTSE 350 Dividend yield (27/12/2023) 3.79 https://markets.ft.com/data/indices/tea ... =NMX.D:FSI

Know your limitations. Do you think you know better than the market? I don't, which I why I have consistently promoted 'sitting on my hands' as my safest strategy

So yes, I suppose I have achieved a Zen state of mind (thank you Arb for inspiring this year's theme). I long ago stopped worrying about 'market noise' and left my HYP to get on with doing its own thing. So far it seems to have done quite well enough without me constantly fiddling with it. But then I've only been at it 20 years, so what do I know?

viewtopic.php?p=468430#p468430

Compared to the market the capital value of my HYP has held up quite well. A fall of some 5% compared to 15% for the FTSE 100. And I'm not alone in seeing this, pyad reported HYP1 as "...outperforming the index quite well this year" and others have said much the same. This appears to be a welcome side-effect of the HYP selection criteria, those same shares are seen as a 'safe haven' by the market in general. I see that as another good argument for just sitting on my hands and doing nothing.

viewtopic.php?p=369672#p369672

The only thing I feel capable of predicting with any certainty is that if I were to jump out of the fire there are far too many frying pans out there to avoid jumping into one. My track record on this [5] is hardly inspiring - one regret, one 'still too early to say' and one lucky guess.

viewtopic.php?p=189126#p189126

[Arborbridge]

Bree, thanks for your review which, as ever, manages to be entertaining while informative.

You are one of the least hands on HYPers here and an example to all of us that one can run our portfolios satisfactorily and provide a pension income with minimal changes.

In addition your report writing is an inspiration. Thank you.

My somewhat less entertaining report will be published around New Year.


Arb.

[Breelander]

Bree, thanks for your review which, as ever, manages to be entertaining while informative.

You are one of the least hands on HYPers here and an example to all of us that one can run our portfolios satisfactorily and provide a pension income with minimal changes.

In addition your report writing is an inspiration. Thank you.

My somewhat less entertaining report will be published around New Year.


Arb.

Thank you Arb. The first sections are aimed to be purely factual, using as neutral language as possible. In fact I've settled on a form of words that just need the figures plugging in each year, and 'rise' changed to 'fall' as appropriate. The final section is where I like to indulge myself in a long rambling monologue (somehow, I keep thinking of Ronnie Corbett while writing it ). The 'guess the guest headline writer' game is intended as a bit of fun for Christmas.

In their own way both sections take a lot of work. Checking and double-checking the figures invariably finds and corrects a few minor book-keeping errors each year, and it can take quite some time to settle on a suitable theme for the rambling monologue. I try to have started working on it by the beginning of November.

[Arborbridge]

In their own way both sections take a lot of work. Checking and double-checking the figures invariably finds and corrects a few minor book-keeping errors each year, and it can take quite some time to settle on a suitable theme for the rambling monologue. I try to have started working on it by the beginning of November.

The degree of effort shows in the resulting quality - we are lucky to have you.


Arb.

[AshleyW]

I guess I’m misunderstanding something here. Surely the dividend growth from 2013 to 2023 wasn’t just 1.5% - where am I going wrong? Maybe it’s because I don’t understand what the # units rebased is.

[Breelander]

I guess I’m misunderstanding something here. Surely the dividend growth from 2013 to 2023 wasn’t just 1.5% - where am I going wrong? Maybe it’s because I don’t understand what the # units rebased is.

No, I don't think you are. Income per unit is the measure of how the dividends have fared, eliminating the effects of any new money being invested. That is the whole purpose of unitisation, to allow a direct comparison of the income regardless of any portfolio growth by new investment. Over that 10 year period the income per unit had suffered two massive blows, first a near 50% cut in the 2020 Covid lockdown, something that hit almost everyone's portfolio...

Income
This is the purpose of HYPs and the £5,533 for 2020 was lousy, down 47.6% on last year....

viewtopic.php?p=356551#p356551

Dividends were just starting to recover from that when it was hit with this year's loss of two big contributors putting it some 8.9% down on 2022. I'm hoping/expecting dividend growth to resume its steady growth in the years ahead.

The '# units (rebased)' figure is just there to show how my new money added to the HYP has increased the total size of the portfolio over the years. For privacy I won't tell you the actual size of my portfolio in £'s, but I do want to show its relative size over the years. The baseline was set at 100 for 2011 because that's the year I unitised my HYP. By 2013 new money had added 3.3% to its size, by 2023 it was 11.3% larger. So my total income for 2023 was 9.3% more than in 2013, but that's more down to having a larger portfolio now than actual dividend growth.

[AshleyW]

Many thanks for the detailed explanation.