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Which of our HY favourites can change direction

General discussions about equity high-yield income strategies
G3lc
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Which of our HY favourites can change direction

#329637

Postby G3lc » July 30th, 2020, 11:07 am

Which of our HY favourites can/will change direction (reinvent themselves) If required and maintain the HY - we’ve seen Shell with gas and chemicals, will it be enough? - what about BP - also the Tobaccos, they could do with coming up with something new, and should be in a position to do something, but will they, its just this morning the share price of Kodak had jumped (I thought they were finished) due to getting a large contract for medical stuff - one would expect the management of some of our old established companies to be looking out rather than in.

Who do you have faith in?

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Re: Which of our HY favourites can change direction

#329938

Postby absolutezero » July 31st, 2020, 12:20 pm

My suspicion is that Big Tobacco will become Big Marijuana.
More and more countries seem to be legalising the stuff.

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Re: Which of our HY favourites can change direction

#329942

Postby dealtn » July 31st, 2020, 12:32 pm

In general I would rather any company I am invested in not to branch out or change in that way. If I want exposure elsewhere I am more than happy and capable of doing that myself.

Companies with poor management, reflected in lowly ratings (and often accompanied by "High Yield"), are perhaps towards the bottom of the pile of those I would trust, and back, in seeking profits outside of what should be their core competence.

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Re: Which of our HY favourites can change direction

#329947

Postby ReformedCharacter » July 31st, 2020, 1:02 pm

absolutezero wrote:My suspicion is that Big Tobacco will become Big Marijuana.
More and more countries seem to be legalising the stuff.

I have my doubts about that, the marijuana business does not seem to have gone well for many companies in Canada, for example. Also, it seems that there isn't a very large 'moat' to new entrants.

RC

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Re: Which of our HY favourites can change direction

#329966

Postby G3lc » July 31st, 2020, 2:41 pm

So judging from the lack of response to “who do you have faith in” perhaps in this rapidly changing world, constructing a buy and hold long term HYP is a thing of the past - most of the companies that don’t change with the times that are paying a high yield will run out of money and the dividend will be cut, and the other companies who find a way forward will be rewarded with a higher stock price with the dividend falling as a result of this.

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Re: Which of our HY favourites can change direction

#330173

Postby absolutezero » August 1st, 2020, 1:25 pm

ReformedCharacter wrote:
absolutezero wrote:My suspicion is that Big Tobacco will become Big Marijuana.
More and more countries seem to be legalising the stuff.

Also, it seems that there isn't a very large 'moat' to new entrants.

RC

This is where lobbying (put the small competitors out of business through onerous regulation) and economies of scale come in.
Big Tobacco. Big pockets.

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Re: Which of our HY favourites can change direction

#330175

Postby absolutezero » August 1st, 2020, 1:32 pm

G3lc wrote:So judging from the lack of response to “who do you have faith in” perhaps in this rapidly changing world, constructing a buy and hold long term HYP is a thing of the past - most of the companies that don’t change with the times that are paying a high yield will run out of money and the dividend will be cut, and the other companies who find a way forward will be rewarded with a higher stock price with the dividend falling as a result of this.

Dividend YIELD.

Though this depends whether you leave your portfolio alone based on the purchasing yield or you adjust based on the current yield.
FWIW, I hold AstraZeneca. Yielding around 2-3% or so last time I looked.
I bought it around 4.5%
I'm not selling it to invest the cash in a higher yielding share.

Though LTBH is dead, I agree. HYPs do need to be monitored and adjusted from time to time.

I dumped EasyJet recently (a high yielder when I bought it) but not because it's a 0% yield at the moment.
I was more bothered by the threat of it potentially not existing in a year's time.

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Re: Which of our HY favourites can change direction

#330177

Postby ReformedCharacter » August 1st, 2020, 1:33 pm

absolutezero wrote:
ReformedCharacter wrote:
absolutezero wrote:My suspicion is that Big Tobacco will become Big Marijuana.
More and more countries seem to be legalising the stuff.

Also, it seems that there isn't a very large 'moat' to new entrants.

RC

This is where lobbying (put the small competitors out of business through onerous regulation) and economies of scale come in.
Big Tobacco. Big pockets.

Despite the best endeavours of law enforcement they haven't been able to put 'small scale' producers out of business yet, so I'd give low odds on 'lobbying and regulation' doing much better :)

RC

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Re: Which of our HY favourites can change direction

#330585

Postby Charlottesquare » August 3rd, 2020, 2:07 pm

I suspect the issue is the transition.

A lot of the higher yield beasties are able to be higher yield beasties because they are long in the tooth entities with stable, established, earnings, changing their earnings focus would possibly indicate that until re-established they will be unable to pay the dividends; if the ROCE is high within this new opportunity we, as shareholders, would likely not want most profits returned to us anyway.

A business that slowly transitions from A to B, a gradual change, may be able to sustain dividends, one that more abruptly changes direction likely needs to reduce to regrow.

I' m sure it is possible to return to being be a high yield share again but I suspect there may be a pretty big time gap until the business again is in the position that most earnings may be distributed rather than reinvested.

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Re: Which of our HY favourites can change direction

#330589

Postby GrandOiseau » August 3rd, 2020, 2:32 pm

There are businesses that it's hard to see having to change massively... insurance, pharmaceuticals, household goods.

Tobacco is quite unique and I'd love to see it's demise but right now it's decline in the west seems to be countered by increases elsewhere.

Airlines have always been a bit iffy and are going through a pretty bad time again. It's hard to see an obvious segue for them.

Things like energy and tech are constantly evolving I would say.

So I think the first and last group above is where HY can be built and the most difficult ones the in betweeners.


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