This from TMF - Is investing in dividend stocks a good idea?

[PinkDalek]

[(Google for "morningstar BP" and it should be possible to navigate to an historic price graph)

A link would have assisted. I can only find ADRs over there and a US$ chart.

[Alaric]

A link would have assisted. I can only find ADRs over there and a US$ chart.

This should work
http://tools.morningstar.co.uk/uk/stock ... E%24%24ALL

but you may need to reset the chart to "Max"

[IanTHughes]

What I do know is that 1,000 shares purchased in 1993 for around £1,500 would now be worth over 3 times as much - nearly £5,000

The price in 1993 was around 150p. It went above 500p in 1999, so that's no additional capital gain in over twenty years.

So what? What I was demonstrating was an annual return of well over 10% during the period in question. What have the ups and downs of capital value over that time got to do with anything? Or are you questioning my XIRR calculation?

Anyone with a sizeable holding and relying on it for part of their income would have been hit when they were forced to cancel the dividend.

Nonsense. The dividend has increased at an average rate of over 8% per year, over that same 26 year period. The cancellation was short-lived and in any case, with appropriate diversification to provide the total income, would hardly have been noticed at the portfolio level.


Ian

[Alaric]

WHat ha steh ups and downs of capital value over that time got to do with anything?

Quite a lot. Someone subscribing to the various share issues in the 1970s and 1980s would have had a decent sized holding by the year 2000. Setting aside Capital Gains Tax issues, selling and buying something else would have done much better over the ensuing 20 years. Buying into HYP1 for example.

The cancellation was short-lived and in any case, with appropriate diversification to provide the total income, would hardly have been noticed at the portfolio level.

Personally I found the loss of around £ 400 to £ 500 in annual income an issue. If someone is serious about living off HYP income, cancellation of dividends is a serious issue and balancing holdings to be equally weighted by dividend income worth considering.

[Dod101]

I would be hard pressed to buy a share yielding much more than 50% over the FTSE100 yield. Maybe the City of London yield is a good proxy for that but I do not understand why anyone would use the yield of a single IT when the market yield is readily available.

Parking the IanTHughes vs. The World undercard (*), and returning to the main event, I wanted to reply Dod as I suspect I am responsible for propounding this idea here. I use CTY because imo it packages up the minimum acceptable performance one should expect from a diy HYP - ie. a well diversified portfolio of FTSE350 shares and of course a long reliable income that has preserved its spending power. It's yield is usually no more than +/-0.2% of FTSE100, close enough for me, and very easy to compute (dividend/price innit). Put differently, if I can't beat CTY with my own HYP, then I might as well join it. The next logical question then, which nags at me occcasionally, is why hold low yielders in my portfolio at all instead of CTY? The pertinent example being AZN which I bought in mid-2010s at sub £45 and has appreciated so much that it now yields much lower:

Well surely you would hold ANZ because like Unilever for example, it has a good and reliable yield. The question surely is 'Why would you sell it now?' As you must know most investors see dividends and capital growth as fungible. I hold ANZ and I am very glad that I have done over several years. I took some money out recently but am happy to enjoy the income and the capital growth, and if the one does not come good, the other probably will. A good share to hold I think.

Surely you would not rather have ANZ at £45 and yielding 6% or whatever? I can recommend Shell and HSBC to do that if you really want that in preference. For the first time for a long while, I am seriously considering selling some Shell and maybe HSBC because I am fed up of simply getting around 6% as a total return. I know that is not bad and that the chances of a dividend cut are low but just the same......

Dod

[IanTHughes]

What have the ups and downs of capital value over that time got to do with anything?

Quite a lot. Someone subscribing to the various share issues in the 1970s and 1980s would have had a decent sized holding by the year 2000.

There was only one issue of BP Plc (BP), although it was paid for in installments. What have all the other privatisations over two decades got to do with BP?

Setting aside Capital Gains Tax issues, selling and buying something else would have done much better over the ensuing 20 years. Buying into HYP1 for example.

Another hindsight special, well done!

The cancellation was short-lived and in any case, with appropriate diversification to provide the total income, would hardly have been noticed at the portfolio level.

Personally I found the loss of around £ 400 to £ 500 in annual income an issue.

It is entirely pointless to give an amount for any income reduction that may have occurred if the total portfolio income is omitted.


Ian

[Alaric]

As you must know most investors see dividends and capital growth as fungible.

We are on the "General" board, so I can say this. From what they write, those who follow the "HYP strategy" would seem to dissent from this.

Preference shares are also equities and those boards of directors who hold their dividends constant are at least in part treating their ordinary shareholders as if they hold Prefs.

Lower down the capitalisation and yield ranking, there's another Company that always holds its dividend, namely Wetherspoons. I'm not sure why they do this, but there's adequate compensation in the form of share price growth.

[Dod101]

What I do know is that 1,000 shares purchased in 1993 for around £1,500 would now be worth over 3 times as much - nearly £5,000

The price in 1993 was around 150p. It went above 500p in 1999, so that's no additional capital gain in over twenty years. Given the several privatisation share issues in the 1980s and even before that, "older" private investors may well have held it for that long. Anyone with a sizeable holding and relying on it for part of their income would have been hit when they were forced to cancel the dividend.

(Google for "morningstar BP" and it should be possible to navigate to an historic price graph)

If we zero in on BP, it has been accident prone for many years and that is as a result of the culture. Shell on the other hand with its much more (and derided) collegiate culture has largely managed to avoid that.

I think actually that the new chairman of HSBC will find it difficult to change the civil service culture of the Bank. He is the first non home grown Chairman ever in HSBC and seems to be preparing the inhouse interim CEO to take over. If he does that, the culture will remain unchanged and probably a good thing as well. It has got to retain its conservatism, be well capitalised, a lender to the interbank market no matter what and so on. It is very difficult to change the culture. I could repeat that but will not.

Why does anyone think that Legal and General has been the success that it has been over the last 50 years at least? Culture my friends. It is looking long term and to the next generation not to tomorrow morning. That is its business.

Dod

[Alaric]

There was only one issue of BP Plc (BP), although it was paid for in installments.

There were multiple BP issues, going back to the Healey/Callaghan era when the Bank of England's holding arising from Burmah Oil had to be disposed of.

The final attempt failed when Black Monday in 1987 intervened.
https://www.telegraph.co.uk/investing/s ... day-ftses/

[77ss]

I think it would be a real shame if every thread where experienced investors gave their views had to be turned into a formal-investigation with witnesses and 'evidence'....

.....

Quite.

What needs to be remembered is that different people think and operate in different ways.

For an analytical type to ask an intuitive type to produce evidence and reasoning is an exercise in futility. Ask of course, by all means, but don't expect a totally coherent, analytical, response - and above all don't waste your time arguing with the response.

This approach is doomed to cause frustration and bad temper. An intuitive can get something right, without being able to quite explain why - this is a fact of life - live with it!

[BrummieDave]

I think it would be a real shame if every thread where experienced investors gave their views had to be turned into a formal-investigation with witnesses and 'evidence'....

.....

Quite.

I used to post far more frequently than I do now, and that is essentially the reason.

Posting something about a particular equity income IT would frequently result in criticism of buying ITs for income rather than an exchange of views on the original post. After the same thing happens a few times, why bother...

And no, I don't have witnesses or evidence to hand!

[CryptoPlankton]

I think it would be a real shame if every thread where experienced investors gave their views had to be turned into a formal-investigation with witnesses and 'evidence'....

.....

Quite.

I used to post far more frequently than I do now, and that is essentially the reason.

Posting something about a particular equity income IT would frequently result in criticism of buying ITs for income rather than an exchange of views on the original post. After the same thing happens a few times, why bother...

And no, I don't have witnesses or evidence to hand!

Yes, it would be nice if it felt a little more welcoming and collaborative on these boards, but there seems to be a significant combative contingent set on ensuring that isn't the case. I still enjoy reading a lot of my favourite posters' contributions, but don't feel inclined to stick my head above the parapet so often these days. The avoidance of unsolicited confrontation has been surprisingly liberating!

[redsturgeon]

Moderator Message:
I have deleted a few posts that had become too personal and as a whole this topic has drifted off topic. Please return to topic if you wish to post further.

[miner1000]

I am fed up of simply getting around 6% as a total return.

That surely has to be an amazing statement. Most people would be delighted with a 6% return with capital preserved! That was the sort of return promised by Kaupting, and we know what happened to them. If I could get a guaranteed 6% return on my HYP ad infinitum with no loss of capital value I would be very content. Instead I have to make do with about 4.5% plus minor capital growth, but probably not 6% TOR over the period of my HYP (and I dont calculate such things), but I am OK with it and it meets my income requirements.

Miner

[Lootman]

I am fed up of simply getting around 6% as a total return.

That surely has to be an amazing statement. Most people would be delighted with a 6% return with capital preserved! That was the sort of return promised by Kaupting, and we know what happened to them. If I could get a guaranteed 6% return on my HYP ad infinitum with no loss of capital value I would be very content. Instead I have to make do with about 4.5% plus minor capital growth, but probably not 6% TOR over the period of my HYP (and I dont calculate such things), but I am OK with it and it meets my income requirements.

According to this Vanguard article, the long-term returns from UK shares over the last 30 years is 9.9% annualised. Studies going back up to 100 years show a similar number. Such returns are lumpy of course, but that is why the long-term numbers are so important:

https://www.vanguardinvestor.co.uk/arti ... ut-average

So a 6% long-term return from shares is rather unambitious. That said, if you choose only high yielding shares then I would expect a lower annual return since you are choosing to take your return in the form of immediate income rather than waiting for growth. And avoiding shares with a greater potential to grow.

On the other hand if you spend those dividends then you can probably expect only modest growth of your portfolio.

I'd also suggest that including overseas securities could boost returns whilst reducing risk - a rare example of a free lunch, perhaps?

[Arborbridge]

WHat ha steh ups and downs of capital value over that time got to do with anything?

Quite a lot. Someone subscribing to the various share issues in the 1970s and 1980s would have had a decent sized holding by the year 2000. Setting aside Capital Gains Tax issues, selling and buying something else would have done much better over the ensuing 20 years. Buying into HYP1 for example.

The cancellation was short-lived and in any case, with appropriate diversification to provide the total income, would hardly have been noticed at the portfolio level.

Personally I found the loss of around £ 400 to £ 500 in annual income an issue. If someone is serious about living off HYP income, cancellation of dividends is a serious issue and balancing holdings to be equally weighted by dividend income worth considering.

Just to add my few quid's worth -
I was hit by the BP cancellation, just as Alaric was. But it didn't affect my standard of living one iota because the cancellation was more or less made up for by increases in other shareholdings. That's one of the safety features of HYP - the portfolio effect. However, although I didn't notice the loss of dividend there was an emotional impact which caused me to put in place my rather rough and ready rules about holding and income contribution percentages.

It's a deliberately fuzzy line, but at about 4% income I start to get twitchy, and not likely to add if a share will go over contributing 5%. I do have shares which have grown to 6%, but wouldn't trim them on that account alone.

Arb.

[Dod101]

I am fed up of simply getting around 6% as a total return.

That surely has to be an amazing statement. Most people would be delighted with a 6% return with capital preserved! That was the sort of return promised by Kaupting, and we know what happened to them. If I could get a guaranteed 6% return on my HYP ad infinitum with no loss of capital value I would be very content. Instead I have to make do with about 4.5% plus minor capital growth, but probably not 6% TOR over the period of my HYP (and I dont calculate such things), but I am OK with it and it meets my income requirements.

On its own it may sound like it but the fact is that we are investing in equities not a bond. HSBC for instance has not increased its dividend since the final in 2016. They seem unlikely to do so for the upcoming final either so that will be 5 years of a static dividend. Much the same applies to Shell and some others. Naturally the share price has not done much either. The whole idea of investing in equities is that we expect a rising dividend, especially from a bank, and thus the share price as well. That helps to compensate for the added risk from equities and gives some protection against inflation.

Your conditions, a guaranteed 6% returned ad infinitum with no loss of capital value, is a sure path to penury. In any case, the current level of dividend is certainly not guaranteed and I have never experience an inflation free world.

I see that Lootman has added some numbers which help illustrate my point, thanks Loot.

Dod

[Bagger46]

I am fed up of simply getting around 6% as a total return.

That surely has to be an amazing statement. Most people would be delighted with a 6% return with capital preserved! That was the sort of return promised by Kaupting, and we know what happened to them. If I could get a guaranteed 6% return on my HYP ad infinitum with no loss of capital value I would be very content. Instead I have to make do with about 4.5% plus minor capital growth, but probably not 6% TOR over the period of my HYP (and I dont calculate such things), but I am OK with it and it meets my income requirements.

Miner

Over the last thirty odd years, to get a real return of 6%, would have required a portfolio return of 9.2% if one takes RPI into account.

So getting just a 6% return on a HYP would mean a definite capital loss, Divis being partially funded by capital, all hidden by inflation.

As a yardstick to the UK market, the FTAS has returned 8.07% since the end of 1989, but only 4.88% net of RPI.

I often wonder how many investors who don’t measure such things can possibly know how they are really doing as investors.

Bagger

[Arborbridge]

The illustration was about a TR of 6%, not a real return of 6%, nor a return of 6% plus something on the capital.

Anyhow, I think there are probably millions of people in this country who would find a TR of 6% quite astonishing because they are not willing to take the risk of equity investment but prefer the road to even more rapid penury via pathetic BS interest rates.

Some of us (Minor 1000 and myself as examples) will also be quite satisfied with a retirement income which increase with RPI or more and a modest increase in capital, rather than shooting for huge returns. After all, the alternative might have been a total loss of income and a annuity. 6% TR is way better than that.

In my own case, HY investment has proved rather successful, giving me an sufficient income increasing at well above RPI since I retired in 2010 (Hyp commenced building end 2006). The capital and income have both increased to the point I reported recently in which I have a 50% safety factor (i.e. income drawn is 50% of total income received) . That will do for me.


Arb.

[Dod101]

I am not with you Arb. I assumed that miner1000 was quoting from my post of 17 January. As I and Lootman have illustrated, getting 6% ad infinitum is not very good and in time is going to lead to penury.

The fact is that the shares I was referring to, HSBC and Shell in particular, have done nothing on the capital front since they froze their dividends. That is what I was referring to and I am a bit fed up of simply getting around 6% income and nothing else. We are kidding ourselves if we think that is very good in itself and as I said it is far from risk free. It is not increasing with RPI nor is there any capital increase, modest or otherwise.

Overall, my HYP like yours is doing fine but that is not the point. We must always be vigilant and certainly I am for the first time in a long while wondering about reducing HSBC and Shell, but I would need to find something which is more attractive and the yield of 6% or so is seductive, no doubt about that.

Dod