Very High Yield Shares

[IanTHughes]

Well one of the mistakes that you've made is to attempt a rebuttal of the following view of mine -
What I've been consistent in saying is that in general, and where income-investors don't possess enough suitable knowledge through which they can filter the wheat from the chaff in such an ultra-high-yield arena, they are likely to be better off over the long-term, and see much less income and capital volatility with their UK-facing income-investments, if they do try to avoid the ultra-high-yield end of what might enticingly look to be an 'available' income spectrum...

https://www.lemonfool.co.uk/viewtopic.php?f=31&t=39304&start=20#p591844

with a quote from the previously linked Brewin Dolphin study that says -

[Diversification] has the effect of limiting the impact of any dividend cut at any one individual company and, with the benefit of some astute research, increases the chances of achieving income growth in other areas to compensate.

https://www.lemonfool.co.uk/viewtopic.php?f=31&t=39304&start=20#p591868

As your whole argument on this thread, against a view of mine that's clearly and specifically focussed on inexperienced investors, seems to be that 'astute research' can reduce the risk of poor investment outcomes in the ultra-high-yield arena, and my view from the start is specifically talking about income-investors who don't possess the skills or the knowledge to carry out that 'astute research', then it seems to me that you've wilfully misrepresented me from the outset so as to enable a repeated and really quite tiresome personalised attack, and nothing more...

My “actual” argument:

Just to be clear, what I am saying is that anyone, whether on these boards or elsewhere, that makes the following claim:

Investing in shares with a dividend yield higher than an arbitrarily chosen limit, is dangerous and should be avoided, while shares that offer a yield below the same arbitrarily chosen limit, are not dangerous.

Is a person who, in my view, does not appear to understand even the fundamentals of Equity investing.

What such a person is claiming is that a share yielding just below their arbitrarily chosen limit, is not dangerous and is perfectly acceptable. But the very next day, assuming the share’s price has declined, even just slightly maybe simply because it has now become ex-dividend, such that the yield is now higher than their arbitrarily chosen limit, investing in said share is now considered dangerous and should be avoided

I cannot agree that a share that was safe to buy one minute, is too dangerous to be considered even a minute later, simply because its price has gone down. I might add that, the underlying change that must surely have occurred to the company in question, such that its share is acceptable one minute, and not acceptable the next, has never been explained.

And from my latest post, the post you claimed it was unnecessary to read:

Investing in any share with the aim of obtaining an income, should only be undertaken after careful research into the expected sustainability of that income. Whether the share is offering a low or high yield is irrelevant, such research must always be undertaken.

I will add that, if a person does not possess the suitable knowledge or is otherwise unskilled when it comes to the task of carrying out such research, then that person should not invest, whatever the yield on offer.

I am not sure whether you are claiming that shares offering a low yield are suitable for the inexperienced investor either because conducting research into low yield shares is somehow easier than the same research into high yield shares, or that low yield shares do not need such research to be undertaken. No matter, I cannot agree with you either way. Furthermore, I strongly urge others to ignore what I believe to be dangerous advice. I can only repeat:

Investing in any share with the aim of obtaining an income, should only be undertaken after careful research into the expected sustainability of that income. Whether the share is offering a low or high yield is irrelevant, such research must always be undertaken.

But, as you have so clearly indicated, I do accept that you disagree with me on these points.

In any case, my posts are meant for others on this board, rather than you.

Really?

I wonder what they make of them...

“One can lead a horse to water …… “

Enjoy!


Ian

[Dod101]

If it contains only closed funds then they are likely indeed to be throwing off large amounts of cash but if they succeed in off loading it they will become simply a fund manager as I understand it. That will put them alongside Schroders and abrdn and they have not had a brilliant time of it in recent years. Seems a strange ambition because it will then cut off a significant source of funds for their dividend. Maybe that is why the market is nervous.

Until they offload the closed funds, a comparison is with Phoenix. But's that has a high yield as well. Cash from these zombie insures is in part a release of capital as the business runs off and the solvency capital is no longer needed. So the dividend can be looked as as partly a return of capital. Didn't Aberdeen Standard as they then were, make a special dividend distribution when they sold their Standard Life business to Phoenix?

Indeed. Closed funds can be very lucrative in terms of capital releases which is why I have been in Chesnara and Phoenix for some time. As I have said, Phoenix has of course changed its business mix over the years especially by taking on the active funds of Standard Life and are now neither fish nor foul. Mind you Chesnara also has active funds as well so I am not sure that there are many pure zombie insurers left. But what surprises me about M & G is that they apparently want to be only an active fund manager yet Schroders and abrdn (not that we should compare them) have been having a hard time in recent years as is Baillie Gifford if rumours be true, against the rise of indexers because that has put pressure on AUM and on the level of their fees.

Anyway we are going round in circles so I will leave it there.

Dod

[Itsallaguess]

I cannot agree that a share that was safe to buy one minute, is too dangerous to be considered even a minute later, simply because its price has gone down.

I think this is another clear example of how you're wilfully avoiding what's actually being said, in the hope that by dismissing a completely separate point, you can also somehow dismiss the actual one being made...

By focussing on a single example of a share that might 'cross a slim boundary' from being a more moderately-yielding investment, and into one that enters an area of the yield-spectrum that might be considered 'ultra-high-yield', you're saying that a penny off the share price doesn't 'instantly make such a share dangerous'.

And you think that anyone who might agree with that point must therefore disagree with the points I'm actually trying to make...

But that's not a sensible approach to this discussion.

My view is a much broader, collective one, where lots and lots of such shares might pass well beyond that 'singular ultra-high-yield tipping point', and not just 'float around a boundary' where a penny off a share price might switch it multiple times during a day, which of course would then feed into your really very granular argument.

My view is regarding the higher investment-based risk, to both income and capital, where a larger group of shares enter that 'ultra-high-yield spectrum', and where many of those shares might pass well beyond that edge-case 'penny tipping point' that you're trying to use as an argument to dismiss this view.

I will again quote what Brewin Dolphin have said, and where they of course must also be taking into account your granular 'penny tipping point' argument, but where they still come up with the following conclusion from their 35-year study of UK-based income-data -

For dividend yields above 6% the chances of a dividend cut rises rapidly, highlighting how a high yield can often reflect the market expectation that the dividend is not sustainable.

We are already using this research to influence how we invest for our clients, helping to reduce the risk of cuts to income which will also support total returns, given that a cut to the dividend is often accompanied by a fall in a company’s share price.

https://www.brewin.co.uk/insights/dividend-risk

In their conclusion above, they're using a 6% yield level that we can agree is a 'relative yield level', likely to be reflective of the economic conditions of the times they've studied. By mentioning it though, they are creating exactly the type of relative 'ultra-high-yield' zone that I am also highlighting in my own view.

One thing is absolutely clear from their conclusion, in that they are completely happy to use that stated 6% yield level as one where, from their own words, above it -

• the chances of a dividend cut rises rapidly

• a cut to the dividend is often accompanied by a fall in a company’s share price

Your quoted point at the top of this post would look to completely dismiss their whole 35-year study, simply because you fail to see how a single-share that might flip over the course of a trading day, from one side of their 6% yield level to the other, 'cannot be safe to buy one minute, and not the next'.

But they're not saying that, and of course, neither am I...

Both Brewin Dolphin and I are talking in broader terms, about risk-based assessments on larger groups of shares, many of which will not fall into the specific, highly-granular straw-man category that you're looking to use as an edge-case to dismiss the actual points being made in much broader terms...

Cheers,

Itsallaguess

[Arborbridge]

You'd think Brewin Dolphin would know a thing or two about Equity Investing though, and yet that's exactly the conclusion they came to with regards to 'Dividend Risk' in the earlier linked document where they looked at 35 years of UK-market data -

Dividend Risk -

Earlier this year our Research Team carried out a study into the risk of dividend cuts and compiled an analysis of the safety, or otherwise, of UK dividends paid by a wide variety of companies.

We studied 35 years of monthly historic data to examine how many instances of dividend cuts had actually occurred during that time and how the probability of a cut changed depending on the level of the dividend yield.

Our analysts then estimated the probability of a dividend cut for each of the companies for which they provide recommendations.

The results are instructive.

....

For dividend yields above 6% the chances of a dividend cut rises rapidly, highlighting how a high yield can often reflect the market expectation that the dividend is not sustainable.

We are already using this research to influence how we invest for our clients, helping to reduce the risk of cuts to income which will also support total returns, given that a cut to the dividend is often accompanied by a fall in a company’s share price.

https://www.brewin.co.uk/insights/dividend-risk


Cheers,

Itsallaguess

I anyone thinking like me: Luni's zone spring to mind? He was/is a firm believer in the possibility that too high a yield generally brings hgher risk and is best avoided.


Arb.

[IanTHughes]

I cannot agree that a share that was safe to buy one minute, is too dangerous to be considered even a minute later, simply because its price has gone down.

I think this is another clear example of how you're wilfully avoiding what's actually being said, in the hope that by dismissing a completely separate point, you can also somehow dismiss the actual one being made...

By focussing on a single example of a share that might 'cross a slim boundary' from being a more moderately-yielding investment, and into one that enters an area of the yield-spectrum that might be considered 'ultra-high-yield', you're saying that a penny off the share price doesn't 'instantly make such a share dangerous'.

And you think that anyone who might agree with that point must therefore disagree with the points I'm actually trying to make...

Unlike you, I do not pretend to know what other people might think. I only comment on what people actually say or write in a post, not what I would like them to have said or written.

You have very clearly indicated that you believe that an inexperienced investor can safely invest in low yield shares, but should avoid high yield shares, because in your own words:

What I've been consistent in saying is that in general, and where income-investors don't possess enough suitable knowledge through which they can filter the wheat from the chaff in such an ultra-high-yield arena, they are likely to be better off over the long-term, and see much less income and capital volatility with their UK-facing income-investments, if they do try to avoid the ultra-high-yield end of what might enticingly look to be an 'available' income spectrum...

My argument, as already stated, is simply as follows:

Investing in any share with the aim of obtaining an income, should only be undertaken after careful research into the expected sustainability of that income. Whether the share is offering a low or high yield is irrelevant, such research must always be undertaken.

And furthermore:

…. if a person does not possess the suitable knowledge or is otherwise unskilled when it comes to the task of carrying out such research, then that person should not invest, whatever the yield on offer.

Persons who, again in your own words:

… don't possess enough suitable knowledge through which they can filter the wheat from the chaff

Will not somehow magically possess ”enough suitable knowledge”, simply when a share is offering a lower yield. Either they can sort the ”wheat from the chaff”, or they cannot. The yield on offer is entirely irrelevant to whether they possess that ability, or not.


Once again, I fully understand that you disagree with me on these points, and that is of course your prerogative. I can only repeat:

I strongly urge others to ignore what I believe to be dangerous advice.

Enjoy!


Ian

[moorfield]

I anyone thinking like me: Luni's zone spring to mind? He was/is a firm believer in the possibility that too high a yield generally brings hgher risk and is best avoided.

Of course it does. What essentially is being discussed here although evidently some don't grasp this is what the shape of that risk curve looks like w.r.t. yield. In fact it's a surface not a curve, because there is another variable involved - time. (eg. how long do the likes of M&G's high yield persist before a cut).

Too complicated and time consuming to figure out, so instead we come up with simple models to help steer us away from repeating mistakes in the future that we have already made in the past, which in my case has been chasing yields greater than 2*CTY.

[Itsallaguess]

I only comment on what people actually say or write in a post, not what I would like them to have said or written.

That's completely untrue though Ian.

In your second post on this thread, you said the following -

Just to be clear, what I am saying is that anyone, whether on these boards or elsewhere, that makes the following claim:

Investing in shares with a dividend yield higher than an arbitrarily chosen limit, is dangerous and should be avoided, while shares that offer a yield below the same arbitrarily chosen limit, are not dangerous.

Is a person who is not only talking “complete nonsense” but also does not appear to understand even the fundamentals of Equity investing.

It should be made absolutely clear that the central phrase you've 'quoted' and railed against in the above section, and gone on to repeat a whole FOUR TIMES in this thread, was not something that has actually been 'said or written' by anyone but yourself...

You've simply made those words up and have repeated them four times as though they're someone else's stated position -

https://www.lemonfool.co.uk/viewtopic.php?f=31&t=39304&start=20#p591813

https://www.lemonfool.co.uk/viewtopic.php?f=31&t=39304&start=20#p591831

https://www.lemonfool.co.uk/viewtopic.php?f=31&t=39304&start=20#p591868

https://www.lemonfool.co.uk/viewtopic.php?f=31&t=39304&start=40#p591915

[Deletion.]
Cheers,

Itsallaguess

Moderator Message:
Please stick with discussing the argument rather than the poster. Thanks - Chris

[IanTHughes]

I only comment on what people actually say or write in a post, not what I would like them to have said or written.

That's completely untrue though Ian.

In your second post on this thread, you said the following -

Just to be clear, what I am saying is that anyone, whether on these boards or elsewhere, that makes the following claim:

Is a person who is not only talking “complete nonsense” but also does not appear to understand even the fundamentals of Equity investing.

It should be made absolutely clear that the central phrase you've 'quoted' and railed against in the above section, and gone on to repeat a whole FOUR TIMES in this thread, was not something that has actually been 'said or written' by anyone but yourself...

Anyone that reads the posts that you have linked to, will clearly see:

Investing in shares with a dividend yield higher than an arbitrarily chosen limit, is dangerous and should be avoided, while shares that offer a yield below the same arbitrarily chosen limit, are not dangerous.

They will understand that I never ATTRIBUTED this comment to any person at all. Unlike what you have clearly tried to do here, I do not make up what I wish other persons had said or written. I only quote what people actually have said or actually posted. I leave such made up nonsense to others. A group of posters that I must now add your name to.

Hence, what you did say was:

What I've been consistent in saying is that in general, and where income-investors don't possess enough suitable knowledge through which they can filter the wheat from the chaff in such an ultra-high-yield arena, they are likely to be better off over the long-term, and see much less income and capital volatility with their UK-facing income-investments, if they do try to avoid the ultra-high-yield end of what might enticingly look to be an 'available' income spectrum...

Do you see the difference? The post is attributed to you by name. Do you understand now?

To continue:

My argument, as already stated, is simply as follows:

Investing in any share with the aim of obtaining an income, should only be undertaken after careful research into the expected sustainability of that income. Whether the share is offering a low or high yield is irrelevant, such research must always be undertaken.

And furthermore:

…. if a person does not possess the suitable knowledge or is otherwise unskilled when it comes to the task of carrying out such research, then that person should not invest, whatever the yield on offer.

Persons who in your own words:

… don't possess enough suitable knowledge through which they can filter the wheat from the chaff

Do not somehow possess ”enough suitable knowledge”, simply when a share is offering a lower. Yield. Either they can sort the ”wheat from the chaff”, or they cannot. The yield on offer is entirely irrelevant.

Once again, I fully understand that you disagree with me on these points, and that is of course your prerogative. I can only repeat:

I strongly urge others to ignore what I believe to be dangerous advice.

Enjoy!


Ian

[ReformedCharacter]

A group of posters that I must now add your name to.
Ian

You're on a list now IAAG

There's the high-yield denier, and the others of his race
And those that speak of dividend risk - I've got him on the list!
And the people who talk nonsense
They never would be missed - they never would be missed!
Then the idiot who quotes Brewin Dolphin, with enthusiastic tone - I've got him on the list!
...

Enjoy!

RC

[MDW1954]

Moderator Message:
This thread is now locked. --MDW1954