Preference shares versus ordinaries as part of a high-yield strategy

[IanTHughes]

Wrong, again!! Those who follow any strategy, follow the strategy, prejudice does not come into it.

Strategies can and should be modified rather than blindly followed.

If looking for high income, it's by no means obvious why ITs and Prefs should be excluded even if the original writer was prejudiced against them.

Oh I see, what you are saying is that you disagree with the HYP Strategy. Do you therefore believe yourself to be "dogmatic" and "prejudiced" against the HYP Strategy?

Anyone relying exclusively on HYP shares for spending income in the current circumstances has two choices.
One is to starve, the other is to dump some of the cancelled HYP stuff in favour of cash, ITs, lower yield shares like PHP or Bonds/Prefs.

The old "sell after a market fall" strategy. Impressive!

As I said I did try to make my explanation as simple as possible so that anyone could understand that those following a particular strategy, follow that particular strategy.

Obviously I failed


Ian

[Alaric]

The old "sell after a market fall" strategy. Impressive!

You recommend starvation instead?

One thing that some of us may have realised over the past couple of months is that another risk with equities is not just a price collapse, but politically driven dividend cancellations. Your own work shows the effect of this on the demonstration HYP.

[Arborbridge]

I think that is a bit of distortion. Most of us realise advantages in different investment styles, but also respect the guidelines for posting on HYP-P.

The postings are on the "general" board. Castigating supporters of the "HYP Strategy" for their blinkered approach would seem quite in order.

At around this time last year, there was a "HYP" portfolio constructed. Perhaps no-one seeking income to live off was persuaded to follow the recommendations, but if they did, what do they now?

I'm not quite surewhat you are on about, since I don't know this "HYP" in inverted commas, portfolio.
But if someone constructed a TR portfolio to live off last year, what would they do now? Realise capital at a loss to live on?

I know what I'd do with my HYP - just carry on living on the dividends. And that's true whether I started it last year or twenty years ago.

Arb.

[Alaric]

I'm not quite surewhat you are on about, since I don't know this "HYP" in inverted commas, portfolio.

Here's a link

viewtopic.php?f=15&t=21132

[IanTHughes]

The old "sell after a market fall" strategy. Impressive!

You recommend starvation instead?

No, my recommendation is to draw the income. Only you recommended starvation as an option.

One thing that some of us may have realised over the past couple of months is that another risk with equities is not just a price collapse, but politically driven dividend cancellations.

Only those people who were not aware of that risk before now.


Ian

Moderator Message:
This is ridiculous. It's 10:15pm, and this thread has attracted over half a dozen mod alerts. I'm locking the thread. It may re-open when people have calmed down. For the record, most of it is *NOT* off-topic, despite protests to the contrary. -- MDW1954

[MDW1954]

Moderator Message:
This thread, re-titled in a less inflammatory manner, has now been unlocked and is open for discussion. If there are multiple mod alerts, it will be locked again. First, a word about context. It is *not* a thread about whether the HYP strategy as subscribed to on the other board is correct in excluding preference shares. That would be pointless, as the HYP strategy is what it is, and each of us is free to adopt it in its entirety or not, as we wish. Instead, discussion is welcome on the desirability of preference shares in a high-yielding strategy that is not as restrictive as the formal HYP strategy. To that end, a brief reminder: in such a strategy, and in line with this board's guidelines, ITs and prefs and ETFs are *NOT* off-topic. -- MDW1954

[Alaric]

Apart from the taxation difference and that they are written with maturity dates,a parallel question is Corporate Bonds v Ordinaries. Provided you are prepared to mark to market, aka sell, at some stage in the process, a fixed return of j can be equivalent to lower return of i increasing at g.

[kempiejon]

"Preference shares versus ordinaries as part of a high-yield strategy"

I've tried a few preference share and fixed interest things, Standard Chartered STAB when I bought 7.5% yield, they had appreciated in price but have recently come back, 2 of the Lloyds offerings LLPE 6.475% and LLPC 9.25%; I was able to get both at >10% yields so were bought under £1 and added to such that now my average price for LLPE is 82p and LLPC 107p now they're £1.01 and £1.29, I had a Provident Finance 5 year 7% bond which I bought at issue and it matured last week and last month, in the open market, I bought more Provident FI 6% 2021 paying 79 pennies for them, hoping for £1 come next year plus divi too.
I think most of the time my preference shares have been yielding more than the ordinaries and obviously looking at Lloyds, Standard Chartered and Provident Finance just now the fixed interest are clear income winners and they've mostly appreciated in value too. The values do move about a bit but like my income ordinaries I'm not interested in selling on for profit. Perhaps, if the ordinaries offered a safe looking higher yield, I might have to re-think but I doubt I'm be minded to switch.

[daveh]

I've got a small holding in LLPC, picked up at 103. I've also got some accumulated divis to reinvest today. I'm very tempted to pick up more prefs maybe LLPC or maybe NWBD. The question is are there any bargains in the ordinaries that I could pick up at the moment that would be a better bet, or should I buy more HFEL and bring that towards a full holding? Any thoughts?


HYPTUSS has the following top order is (I manually set the yield for those who have announced a divi cut to 0%, but may have missed some):

1    DC. Dixons carphone  7.9%
2=  MNG M&G                  5.0%
2= BP    BP                      10.4%
4  BT.A BT Group             8.3%
5   S32 South 32               5.6%
6 SBRY Sainsbury (J)         5.6%
7 MAB  Mitchel and Butler 0%
8 HFEL Henderson Far East 7.2%

Not sure why its picked MAB as it has no dividend, but is now a very very small holding. I'm not sure I want to buy any of the ones above HFEL for a variety of reasons ( DC divi not sustainable; BP divi at risk if oil stays low and prefer Shell, but my Shell holding is already twice the size of my BP holding; BT divi not sustainable due to pension overhang and need for capital expenditure into the network; S32 cutter; SBRY not sure of the long term for supermarkets). Maybe I should be looking at something new that I can pick up cheap in these "interesting times".

[kempiejon]

daveh, Depending upon the number in your HYP there's nothing to say you can't add a new holding, as you say there might be some bargains not usually available as high yield but with the raft of cuts coming through no certainties except perhaps utilities who have made some commitments to above inflationary increases to dividend.
Off your list I don't fancy Dixons carphone either but if eligible on diversification grounds I might take a flyer with Sainsbury, BT or BP as I hold, the others I don't know.

[TwmSionCati]

... a good safe port ... for anyone drawing income?

Are some statistics helpful? This list of my top twenty yielders shows Holding Period (years), Rate of Income Return (annual % over that period) and Rate of Total Return (ditto; for growth specialists), ordered by descending RIR:

.....................................................................................
		EPIC		 HldgPrd     	RIR		RTR
		ICP   		 10		9.2		 17
		PSN  		  7		8.5		 22
		SAN  		  7		7.4		 10
		TATE 		 11		7.4		 34
		PGIT 		  8		6.8		  0
		GCP  		  6		6.7		  5
		RDSB 		  6		6.7		  3
		IPE   		  6		6.6		  1
		UU.  		  8		6.4		  4
		SSE   		  6		6.3		  5
		GOG 		  8		6.3		  9
		IMB  		  9		6.3		  1
		CMHY		 18		6.2		  2
		NFDS		  6		6.2		  7
		RPL  		  8		6.2		 17
		CLLN*		 15		6.0		 14
		NWBD		  5		5.9		  2
		ORNBV		  8		5.8		 20
		GSK  		 12		5.7		  8
		BATS 		  9		5.5		  6

The two preference shares are highlighted.

TSC

* Jumped ship just in time.

[everhopeful]

I have a diverse portfolio including ITs, equities, fixed interest and cash. My substantial holdings in ELLA and NWBD as well as the other fixed interest holdings have contributed to my recent losses being considerably less than if I had had a HYP as my strategy. Nobody has really highlighted the capital preservation role of fixed interest. Yes I know it loses capital in a situation of rising inflation but that has not been where we are and over the last ten years much of my best TR has been in fixed interest.

[88V8]

... over the last ten years much of my best TR has been in fixed interest.

Coming out of the 08 crash, and with investors chasing yield, that was a golden decade.
Now, all but distressed FI is fully priced, or within 10%.
The past will not be repeated.

I do hold a lot of FI, but for income, only income.

V8