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

[Dod101]

Hi TUK. You are not asking for much are you? A mere 43 holdings. Well there are quite a few that I do not hold and would not hold, BT, BP and Aviva are merely three of them. I do not like BT because of the high pension deficit but it has never proved to be very reliable as a dividend producer for me. They, like a few others, have got a great legacy to sort out and large and unquantifiable capex and no one seems to be able to get a real grip on it. I implied that my feelings are vague!

BP has always been accident prone even before the disaster in the Gulf of Mexico, and Aviva is like RSA. It is an amalgam of many smaller insurance companies with a huge amount of baggage. If you look at its history it regularly cuts its dividend and restructures and look at its strategy and it is doing just that at the moment.

Persimmon I have never held because I do not like the industry irrespective of the returns to shareholders. Jeff Fairbairn was a disaster for them. He was not necessarily to blame for his remuneration, but the culture that his incentives encouraged was slapdash and short termist and of course Fairbairn's greed when he was by any standard clearly over remunerated was breathtaking. It may have changed now that he has gone.....maybe.

The only utility which I hold is National Grid. mostly because the regulators seem to be toughening their stand, particularly with the water companies. If SSE could strengthen its Balance Sheet a bit I think now that it has got rid of its retail side it could be quite attractive again as an income share. I like the management style and the culture seems OK. I think because of the nature of their investments they are long term thinkers and fairly conservative.

I hold quite a few of your holdings, which is not surprising and I do not know much about quite a few either, simply because they have never come on to my radar.

So much of this is what I guess could be called 'feeling' or intuition or experience or a combination., I cannot write it down very well.

Not much help for you I fear.

Dod

[IanTHughes]

BP has always been accident prone even before the disaster in the Gulf of Mexico

Really? My records show something rather different. Here is the Dividend History for BP Plc (BP) since 1993:



Now, I can see the Gulf of Mexico "accident" but you will have to help me ascertain other "accidents" and why you believe BP Plc (BP) to be "accident-prone".

Once again you are making a statement as if it were factual, even incontrovertible, when of course a 5 minute exercise will show that it is nothing of the sort. If you dispute this, can I now please ask you to back up that statement with some .... any ..... reasoning?


Ian

[ReformedCharacter]

BP has always been accident prone even before the disaster in the Gulf of Mexico

Really? My records show something rather different. Here is the Dividend History for BP Plc (BP) since 1993:

Now, I can see the Gulf of Mexico "accident" but you will have to help me ascertain other "accidents" and why you believe BP Plc (BP) to be "accident-prone".

Once again you are making a statement as if it were factual, even incontrovertible, when of course a 5 minute exercise will show that it is nothing of the sort. If you dispute this, can I now please ask you to back up that statement with some .... any ..... reasoning?

Ian

An internal report into how the oil giant BP monitors its refinery and chemical sites has revealed at least two near-miss accidents that could have caused deaths.

The report, leaked to Greenpeace, concludes that “urgent attention” is required to improve how BP manages crucial engineering data across the world and that the company lags behind its competitors including Shell, Chevron, Petronas and ConocoPhillips.

One serious near miss was at BP’s huge oil refinery in Whiting, Indiana, in 2014, where failures to record data properly led to $258m in lost production, the report found. Another was at BP’s chemical plant in Hull, UK, where a piece of equipment was not operated correctly, causing damages of $35-45m, while another failure saw critical blueprints that “had gone missing during critical operational activities”.

BP has suffered serious accidents in recent years, including the Deepwater Horizon explosion in the Gulf of Mexico in 2010, which killed 11 people, and an explosion at its Texas City refinery in 2005, which caused 15 deaths.

The internal report, produced in August 2015, said “inadequate management and use of engineering information has been a root cause or contributing factor in 15% of the last 500 incidents”.

https://www.theguardian.com/environment ... -oil-sites

RC

[IanTHughes]

BP has always been accident prone even before the disaster in the Gulf of Mexico

Really? My records show something rather different. Here is the Dividend History for BP Plc (BP) since 1993:

Now, I can see the Gulf of Mexico "accident" but you will have to help me ascertain other "accidents" and why you believe BP Plc (BP) to be "accident-prone".

Once again you are making a statement as if it were factual, even incontrovertible, when of course a 5 minute exercise will show that it is nothing of the sort. If you dispute this, can I now please ask you to back up that statement with some .... any ..... reasoning?

An internal report into how the oil giant BP monitors its refinery and chemical sites has revealed at least two near-miss accidents that could have caused deaths.

The report, leaked to Greenpeace, concludes that “urgent attention” is required to improve how BP manages crucial engineering data across the world and that the company lags behind its competitors including Shell, Chevron, Petronas and ConocoPhillips.

One serious near miss was at BP’s huge oil refinery in Whiting, Indiana, in 2014, where failures to record data properly led to $258m in lost production, the report found. Another was at BP’s chemical plant in Hull, UK, where a piece of equipment was not operated correctly, causing damages of $35-45m, while another failure saw critical blueprints that “had gone missing during critical operational activities”.

BP has suffered serious accidents in recent years, including the Deepwater Horizon explosion in the Gulf of Mexico in 2010, which killed 11 people, and an explosion at its Texas City refinery in 2005, which caused 15 deaths.

The internal report, produced in August 2015, said “inadequate management and use of engineering information has been a root cause or contributing factor in 15% of the last 500 incidents”.

https://www.theguardian.com/environment ... -oil-sites

Is that it? A three year old newspaper article quoting an anti-Oil pressure group, claiming to have discovered two near misses! And even if there had been two accidents, how would that have affected investment returns from what is a giant company?


Ian

[vagrantbrain]

People keep on claiming this, although never seem to back up this statement with any evidence. Not you of course. No, as the experienced investor that you undoubtedly are, can you please provide the evidence that you must have unearthed to make such a statement together with the date upon which it was originally available?

Well for a start Carillion was in the wrong sector for me. I do not but contractors or support service companies because their trading record is so poor. The culture was all wrong and they spent their last couple of years scrabbling around looking for money wherever they could find it. The evidence was in the soft factors more than the actual numbers and there was plenty of that.

Yes? So what was the "soft factor" evidence?

These are the factors that I use to try to keep me out of trouble. They do not always work but more often than not they do.

And your evidence for that statement is what exactly? Can you provide the details of where it worked and where it did not? Or is it just a feeling that you have?


Ian

I purposely avoided invested in Carillion from my own experiences with them in a professional capacity - every contract that involved them was just plain hard work: poor and overworked middle management, demoralised back office staff who didn't care anymore, always trying to find excuses not to do what they were contracted for (e.g. witnessing an apoplectic senior navy officer being told that the contract stated that they didnt need to replace any blown lamps until 50% of the lights in a room or area were out, and thats why he would have to sit in the dark till a few more tubes blew..), getting such a bad reputation that people would actively refuse to work on Carillion contracts, extending their payment terms to 120 days using the EPF while making every effort to disguise the fact that you were essentially taking on their debt to get paid, treating their subbies and suppliers so poorly that the only ones would work for then were those either desperate or so dire they couldnt get work anywhere else, very strong rumours of them being quietly asked to withdraw from a huge contract bid in a framework as the senior management piece of critical national infrastructure had openly stated they would refuse to allow them on site if they were awarded the contract and nobody wanted the bad publicity etc etc. But on paper they looked a good investment.

I accept all companies are a pain to deal with but I've seen it happen too many times now to pay much attention to companies that have a reputation far worse than their peers (and in construction thats saying something!) - similar profits to be made elsewhere without the potential implosions imho.

[ReformedCharacter]

Is that it? A three year old newspaper article quoting an anti-Oil pressure group, claiming to have discovered two near misses! And even if there had been two accidents, how would that have affected investment returns from what is a giant company?

Ian

No, that was the first result from a Google search 'BP Accidents', I daresay more could easily be found and doubtless more recent issues too.

I think it illustrates Dod's point about culture very well whether or not you wish to use it as a criterion for investment. If you read the report into the DH accident you will find that the main problem was a cultural one regarding safety. A similar issue can be seen in the recent history at Boeing too.

RC

[IanTHughes]

Is that it? A three year old newspaper article quoting an anti-Oil pressure group, claiming to have discovered two near misses! And even if there had been two accidents, how would that have affected investment returns from what is a giant company?

No, that was the first result from a Google search 'BP Accidents', I daresay more could easily be found and doubtless more recent issues too.

I think it illustrates Dod's point about culture very well whether or not you wish to use it as a criterion for investment. If you read the report into the DH accident you will find that the main problem was a cultural one regarding safety. A similar issue can be seen in the recent history at Boeing too.

And no doubt many other companies, that quite correctly log and investigate things that go wrong, will have a catalogue of "accidents" and "near misses", but so what? Oil extraction and distribution is not risk free you know.

The relevant question which I did of course ask is how this diligent behaviour of BP Plc (BP) in reporting such mishaps, has affected investment returns, if at all? I suspect that, with such a risky business, there is a deal of provision made, exactly because in such a business, accidents will happen.

More from your three year old article:

The BP spokesman said: “Over the last five years, BP’s safety record has steadily improved. The company’s total number of Tier-1 process safety events – the most consequential events involving an unplanned or uncontrolled release of materials – continues to fall and is below the average for the industry.”

Sorry, but your pointing out that Oil Extraction and Distribution is a risky business is hardly earth-shattering news!


Ian

[TUK020]

Hi TUK. You are not asking for much are you? A mere 43 holdings. Well there are quite a few that I do not hold and would not hold, BT, BP and Aviva are merely three of them. I do not like BT because of the high pension deficit but it has never proved to be very reliable as a dividend producer for me. They, like a few others, have got a great legacy to sort out and large and unquantifiable capex and no one seems to be able to get a real grip on it. I implied that my feelings are vague!

BP has always been accident prone even before the disaster in the Gulf of Mexico, and Aviva is like RSA. It is an amalgam of many smaller insurance companies with a huge amount of baggage. If you look at its history it regularly cuts its dividend and restructures and look at its strategy and it is doing just that at the moment.

Persimmon I have never held because I do not like the industry irrespective of the returns to shareholders. Jeff Fairbairn was a disaster for them. He was not necessarily to blame for his remuneration, but the culture that his incentives encouraged was slapdash and short termist and of course Fairbairn's greed when he was by any standard clearly over remunerated was breathtaking. It may have changed now that he has gone.....maybe.

The only utility which I hold is National Grid. mostly because the regulators seem to be toughening their stand, particularly with the water companies. If SSE could strengthen its Balance Sheet a bit I think now that it has got rid of its retail side it could be quite attractive again as an income share. I like the management style and the culture seems OK. I think because of the nature of their investments they are long term thinkers and fairly conservative.

I hold quite a few of your holdings, which is not surprising and I do not know much about quite a few either, simply because they have never come on to my radar.

So much of this is what I guess could be called 'feeling' or intuition or experience or a combination., I cannot write it down very well.

Not much help for you I fear.

Dod

Dod,
thank you. Answer much appreciated.
What do you think of VF?
tuk020

[ReformedCharacter]

Is that it? A three year old newspaper article quoting an anti-Oil pressure group, claiming to have discovered two near misses! And even if there had been two accidents, how would that have affected investment returns from what is a giant company?

No, that was the first result from a Google search 'BP Accidents', I daresay more could easily be found and doubtless more recent issues too.

I think it illustrates Dod's point about culture very well whether or not you wish to use it as a criterion for investment. If you read the report into the DH accident you will find that the main problem was a cultural one regarding safety. A similar issue can be seen in the recent history at Boeing too.

And no doubt many other companies, that quite correctly log and investigate things that go wrong, will have a catalogue of "accidents" and "near misses", but so what? Oil extraction and distribution is not risk free you know.

The relevant question which I did of course ask is how this diligent behaviour of BP Plc (BP) in reporting such mishaps, has affected investment returns, if at all? I suspect that, with such a risky business, there is a deal of provision made, exactly because in such a business, accidents will happen.

Sorry, but your pointing out that Oil Extraction and Distribution is a risky business is hardly earth-shattering news!

Ian

I think you are trying to side-step the issue, nobody would deny that oil extraction is not a risky business, I certainly haven't. But it is how a company manages that risk that is the issue. Clearly BP are not 'diligent' - assuming you meant that seriously.

Here's a few more from a publication probably more to your liking:

March 23, 2005: Explosion at BP's Texas City, Texas, refinery kills 15 workers and injures 180 in one of the worst industrial accidents in US history. The explosion occurred when hydrocarbon liquid and vapor were released from a "blowdown stack" and ignited. BP admitted that safety procedures were ignored. BP paid over $2bn (£1.26bn) to settle legal claims from the explosion, as well as $71.6m for worker safety violations and $100m in pollution fines.

2006: Two leaks at BP's giant Prudhoe Bay oilfield in Alaska in March and August of 2006 created the largest oil spill ever in Prudhoe Bay, the biggest US oil field. The first leak spilled more than 200,000 gallons (760,000 litres) of crude oil over the tundra, and a second smaller leak forced BP to shut down production on the eastern side of the oil field. According to the US government, BP failed to heed warning signs of imminent internal corrosion. BP in 2007 agreed to pay a $12m criminal fine, $4m in community service payments and $4m in criminal restitution to Alaska.

November 29, 2009: Pipeline leaks oily material onto the tundra at BP's 30,000 barrel per day Lisburne field in Alaska adjacent to the Prudhoe Bay field. A crack in a flow line that serves Lisburne spilled around 46,000 gallons of a mixture of oil and water on to the snowy tundra.

https://www.telegraph.co.uk/finance/new ... sters.html

RC

[IanTHughes]

No, that was the first result from a Google search 'BP Accidents', I daresay more could easily be found and doubtless more recent issues too.

I think it illustrates Dod's point about culture very well whether or not you wish to use it as a criterion for investment. If you read the report into the DH accident you will find that the main problem was a cultural one regarding safety. A similar issue can be seen in the recent history at Boeing too.

And no doubt many other companies, that quite correctly log and investigate things that go wrong, will have a catalogue of "accidents" and "near misses", but so what? Oil extraction and distribution is not risk free you know.

The relevant question which I did of course ask is how this diligent behaviour of BP Plc (BP) in reporting such mishaps, has affected investment returns, if at all? I suspect that, with such a risky business, there is a deal of provision made, exactly because in such a business, accidents will happen.

Sorry, but your pointing out that Oil Extraction and Distribution is a risky business is hardly earth-shattering news!

I think you are trying to side-step the issue, nobody would deny that oil extraction is not a risky business, I certainly haven't. But it is how a company manages that risk that is the issue. Clearly BP are not 'diligent' - assuming you meant that seriously.

Here's a few more from a publication probably more to your liking:

March 23, 2005: Explosion at BP's Texas City, Texas, refinery kills 15 workers and injures 180 in one of the worst industrial accidents in US history. The explosion occurred when hydrocarbon liquid and vapor were released from a "blowdown stack" and ignited. BP admitted that safety procedures were ignored. BP paid over $2bn (£1.26bn) to settle legal claims from the explosion, as well as $71.6m for worker safety violations and $100m in pollution fines.

2006: Two leaks at BP's giant Prudhoe Bay oilfield in Alaska in March and August of 2006 created the largest oil spill ever in Prudhoe Bay, the biggest US oil field. The first leak spilled more than 200,000 gallons (760,000 litres) of crude oil over the tundra, and a second smaller leak forced BP to shut down production on the eastern side of the oil field. According to the US government, BP failed to heed warning signs of imminent internal corrosion. BP in 2007 agreed to pay a $12m criminal fine, $4m in community service payments and $4m in criminal restitution to Alaska.

November 29, 2009: Pipeline leaks oily material onto the tundra at BP's 30,000 barrel per day Lisburne field in Alaska adjacent to the Prudhoe Bay field. A crack in a flow line that serves Lisburne spilled around 46,000 gallons of a mixture of oil and water on to the snowy tundra.

https://www.telegraph.co.uk/finance/new ... sters.html

So you are now going back 10+ years!

Don't forget this from your three year old article:

The BP spokesman said: “Over the last five years, BP’s safety record has steadily improved. The company’s total number of Tier-1 process safety events – the most consequential events involving an unplanned or uncontrolled release of materials – continues to fall and is below the average for the industry.”

Once again I must ask:

How has this ancient history affected investment returns and how might it affect future returns?

I think the history of the past 25+ years speaks for itself and I have no reason to believe, based on this evidence of a risky business being .... well .... risky, that the future will be any different.


Ian

[ReformedCharacter]

So you are now going back 10+ years!

They're easy to find here's one from 2017:

At least 27 accidents happened at BP’s oil and gas operations in Alaska this year, including five that risked the lives of dozens of workers, BuzzFeed News has learned.

Now BP’s top officials are scrambling to “reset” the company’s safety culture before one of these scares turns into a human or environmental catastrophe on the Alaskan North Slope, according to internal emails, recordings, interviews, and other documentation obtained by BuzzFeed News.

On Sept. 10, for example, two workers responding to faulty equipment inside a building at a drill site inadvertently triggered a leak of 1,200 kilograms of gas, one of several serious accidents that have not been publicly reported before now. Fortunately, the two employees escaped uninjured. But it had the potential to be a deadly explosion.

“If there had been an ignition source, we might have lost colleagues,” BP Alaska President Janet Weiss wrote in an email to Team Alaska, the workforce in the state, on Sept. 12. “We must change now; we must have a reset,” Weiss added.

https://www.buzzfeednews.com/article/za ... -accidents

Once again I must ask:

How has this ancient history affected investment returns and how might it affect future returns?

You've already answered part of that with your dividend chart, showing that the dividend in 2019 has not returned to the level in 2009. The DH accident caused BP to sell $60 Bn of assets.

I think the history of the past 25+ years speaks for itself

Indeed, history tends to do that.

and I have no reason to believe, based on this evidence of a risky business being .... well .... risky, that the future will be any different.

Ian

So you would expect more accidents, more fines, more environmental damage and perhaps a catastrophe that risks wiping out the company completely?

RC

[IanTHughes]

So you would expect more accidents, more fines, more environmental damage and perhaps a catastrophe that risks wiping out the company completely?

Not at all.

I expect that Oil & Gas Exploration and Distribution will continue to be a risky business. BP Plc (BP), and no doubt others in the business, will properly manage that risk as they always have done. The good investment returns achieved over the past 25+ years will continue, providing me and others with a decent income and even a reasonable total return.

I will not over-concentrate my investment in any one holding nor in the sector as a whole, but nor will I pick and choose nor reject a holding, based on the flimsiest of evidence which seems to have had no affect on the investment returns received to date. For one thing there is no evidence so far produced that shows BP to be any more accident-prone than any other oil major. No, I leave that kind of nonsense to others.


Ian

[ReformedCharacter]

So you would expect more accidents, more fines, more environmental damage and perhaps a catastrophe that risks wiping out the company completely?

Not at all

So when you wrote:

and I have no reason to believe, based on this evidence of a risky business being .... well .... risky, that the future will be any different.

Ian

You didn't really mean it.

I expect that Oil & Gas Exploration and Distribution will continue to be a risky business. BP Plc (BP), and no doubt others in the business, will properly manage that risk as they always have done.

To suggest that BP 'will properly manage that risk as they always have done.' Flies in the face of all of the evidence, especially but not solely in regard to the DH accident:

BP’s management process did not adequately identify or address risks created by late changes to well design and procedures. BP did not have adequate controls in place to ensure that key decisions in the months leading up to the blowout were safe or sound from an engineering perspective.

'Report to the President - National Commission on the Deepwater Horizon Oil Spill and Offshore Drilling'

https://www.govinfo.gov/content/pkg/GPO ... ISSION.pdf

But perhaps you think you know better.

RC

[IanTHughes]

But perhaps you think you know better.

Of course not, what a ridiculous suggestion. If I did I would be working in the Oil business. As it is I buy shares in a company in the Oil business that employs those that do know better. That is after all the nature of Share Ownership, paying others to manage your investment.

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 - on top of receiving over £4,000 in dividends. This adds up to an annual rate of return over the intervening 16 years of well over 10%. And that return was achieved even with the Deepwater Horizon accident. I can see no particular reason why such a rate of return will not continue into the future and who knows, absent a major accident, maybe even better.

That is what I know and all I need to know.


Ian
p.s. You wouldn't have any more of your "accident-prone" companies that I should consider?

[ReformedCharacter]

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 - on top of receiving over £4,000 in dividends. This adds up to an annual rate of return over the intervening 16 years of well over 10%.

16?

2020 - 1993 = 27

RC

[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 - on top of receiving over £4,000 in dividends. This adds up to an annual rate of return over the intervening 16 years of well over 10%.

16?

2020 - 1993 = 27

You are quite right. So that is:

An annual rate of return over the intervening 26 years of well over 10%, or nearly 13% if bought at the beginning of 1993, when the yield was highest - 3.65%.



Ian

[Dod101]

[Dod,
thank you. Answer much appreciated.
What do you think of VF?
tuk020

VF, as in Vodafone? If so I really do not have a view on it. It was, maybe still is, highly indebted and I sold it just before it made the dividend cut. I do not follow it these days partly because I am very happy with my current holdings and do not have any spare cash , or at least if I have any it tends to go towards topping up what I have.

I am afraid I am very vague on my thoughts but as I have said before I see investing much more art than science and thus things cannot really be 'proved'.

Dod

[moorfield]

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.

I would be hard pressed to buy a share yielding much more than 50% over the FTSE100 yield.

Why? Is this an evidence-based filter or have you simply plucked the 50% level out of the air? Why not 40% or 60%?

You are quite right. My "twice" multiple is arbitrary, but it feels about right to me. Any less narrows the selection pool of high yielding shares a lot I think.
I do have a good idea on how I can "tune" this to be an empirical multiple, but it will need many man hours of data mining which I can't spare, a project parked for my retirement.





(*) wheezing its way to an uninspiring 12 round tie it seems

[77ss]

....BT, BP ....

BP has always been accident prone even before the disaster in the Gulf of Mexico

...

Absolutely! Personally, I would also add BHP.

I have, in the past, held all 3 but over the years have come to regard them as (thinking exactly as you do) 'accident prone'. Just too many negative straws in the wind.

[Alaric]

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)