It is a sealed, lump-sum affair like the fixed trusts of old. It will run until I conk out.
Constituents at launch:
Amlin (AML)*
Balfour Beatty (BBY)
Berendsen (BRSN)*
Chemring (CHG)
Cineworld (CINE)
Close Brothers (CBG)
Cranswick (CWK)
Go-Ahead (GOG)
Greene King (GNK)*
Greggs (GRG)
HICL Infrastructure (HICL)
IG (IGG)
Inmarsat (ISAT)*
moneysupermarket (MONY)
N Brown (BWNG)
Premier Farnell (PFL)*
Provident Financial (PFG)
Tullett Prebon (TLPR), renamed TP ICAP (TCAP)
UBM (UBM)*
UK Commercial Property (UKCM)
*Taken over
Substitutions and additions:
Weir (WEIR), Feb. 2016
Ashmore (ASHM), Mar. 2017
Paypoint (PAY), Oct. 2017
Essentra (ESNT), Nov. 2017
Bellway (BWY), Mar. 2018
William Hill (WMH), Jun. 2018
John Wood (WG.), Jun. 2018
and since 2019's review:
Marston's (MARS), Dec. 2019
G4S (GFS), Jan. 2020
These two purchases were reported as updates to last year's review:
viewtopic.php?p=236429
(Each promptly stopped dividends, naturally.)
Original cost after expenses was £23,949. Later buys were at the same unit cost: <=£1,200 per share after expenses. The portfolio's 23 members paid 39 (2019: 51) regular and two (three) special dividends last year, though four months ago I expected 54.
INCOME
The midcaps plan stemmed from hopes, misplaced until c. 2017, that periodic income would grow faster, if more bumpily, than in my Footsie LuniHYP100. Everything was tickety-boo until late Feb., coasting towards a 10% rise year on year. Then came WuFlu.
2011-12 (equivalent for year before acquisition): £1,216
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2012-13: £1,241, +2.1% equivalent
2013-14: £1,273, +2.6%
2014-15: £1,299, +2.0%
2015-16: £1,305, +0.5%
2016-17: £1,365, +4.6%
2017-18: £1,310, -4.0%
2018-19: £1,435, +9.5%
2019-20: £1,080, -24.7%
On average these 23 shares were purchased yielding one-third more than the All-Share Index (FTAS). This is in line with my 'optimal zone' happy medium between juicy and injudicious; not deliberately so, since this is not a mechanically selected portfolio. Indeed, eight of 29 buys came from 'warning' or 'danger' zones, before I designated them.
LuniHYP250 has collected £10,308 of routine payouts, averaging a 3.8% return on each financial year's opening capital. Last year was easily the worst, though only in 2018-19 did the portfolio amass a hefty increase in regular payouts.
The ideal for divis in a HYP is a steady rise in real terms. By now only Cranswick and Moneysupermarket can boast of that. Other concerns which once behaved well played the KungFlu card: Greggs, Close Brothers, Provident Financial, Cineworld and PayPoint. One is no longer annoyed but grateful for the few which had stuck on a rate but did not slash it: TP ICAP, Ashmore, IG.
However, every troubled constituent's directors speak of bringing back dividends; not this year but next year or some time, and none say 'never'. Colour me skeptical. We are on a darkling plain until the shape and speed of recovery dawns on us. LuniHYP250's running yield from Year 8's regular income was 2.8% (2019: 3.8%), against the aforesaid 3.8% average since 2012. It could go lower.
TMFpyad's 'market trading'-- the unwilled reordering of a portfolio by corporate incidents such as bids-- previously made up for regular dividends' slow growth, did little to swell collections this time:
2012-13: £115
2013-14: £188
2014-15: £315
2015-16: £200
2016-17: £0
2017-18: £2,046
2018-19: £166
2019-20: £93
Total to date £3,123, 23% of total receipts. In 2019-20 only £82 and £12 respectively from Greggs and Paypoint popped up; both were special dividends.
CAPITAL
Cash-in proceeds are for amusement only. I am a lifetime holder for income and would bale out only if skint. FWIW, year-end values and change compared with the FT All-Share Index (FTAS):
Jul. 2012 (bought): £23,949
Jul. 2013: £30,405, +27.0%, FTAS +19.3%
Jul. 2014: £31,688, +4.2%, FTAS +2.8%
Jul. 2015: £38,353, +21.0%, FTAS +1.9%
Jul. 2016: £36,949, -3.7%, FTAS -0.8%
Jul. 2017: £40,509, +9.6%, FTAS +12.2%
Jul. 2018: £37,362, -7.8%, FTAS +4.0%
Jul. 2019: £38,798, +3.6%, FTAS -2.7%
Jul. 2020: £30,455 -21.3%, FTAS -17.5%
At Jul. 12, 2020, market value included £208 of unallocated capital.
The eighth year relapsed to underperformance by the LuniHYP. I use the All-Share Index as a universal comparator for an unconstrained, British small investor. The portfolio has so far increased by 27.2% against the FTAS's 16.2%, beating it in four of eight years. Compound rate of growth in capital has been 3.5% pa for the shares, 2.2% for the FTAS, 2.6% for retail prices.
Best overall payback, taking in all receipts plus paper profits, is Cranswick's £4,523. The lousiest is Wood's minus £779-- one of nine constituents out of 23 in negative territory--followed by Willliam Hill (minus £715). The average payback among the 14 survivors from 2012 is £1,152, about fifty quid under their original per-unit cost. Brown is the dunce on minus £628.
BALANCE
Has the income stream become perilously concentrated over time? My test is whether a share has paid out more than twice or less than half what a mathematically equal split would dictate.
As to regular payments: among 14 survivors Balfour Beatty and Chemring-- both cutters, now convalescing-- provided less than half as much as the one-sixteenth portion of a perfect balance.
No share has paid out twice as much as the ideal proportion. The fattest cumulative regular incomes among survivors came from Close Brothers, Moneysupermarket and Go-Ahead: each supplied about 9% of the survivors' total delivery, i.e just over a quarter of the portfolio total arose from three of 23 constituents. None approached the 14.3% which would challenge my upper limit.
Anyway, who fancies rejigging for income weight, given today's baffling outlook for dividends? With so many defaulters, the portfolio would be turned inside out. Then it might transpire that more secure-seeming income streams into which monies were redirected were mirages.
DERISKING
My habit is to earmark part of the raw inflow to preserve the purchasing power of a 'derisked' spendable sum. The set-aside forms an income buffer or reserve which can bolster purchasing power when the portfolio collects too little-- like now, and how.
LuniHYP250 harvested £1,356, 5.7% of starting capital, in its first year. At the end of it I took 4.5% or £1,078 for spending and parked the rest, £278. The FTAS yielded 3.3% in Jul. 2012. To begin more than a point higher seemed enough to honour the High in HYP.
In Years 2 and 3 the withdrawn quantum was increased only by subdued inflation-- by 2.6%, then 1.0%-- while further transfers swelled the reserve assuringly. At the end of Year 3 it covered 12 months of the spendable allowance. So it felt safe to lift the withdrawal rate, index-linked, from 4.5% to 5.2%, i.e. by 15%. The reserve remained at 12 months in Jul. 2017.
The Cineworld lapsed-rights windfall seven months later made me relax my custom of waiting at least five years betweeri upward reviews of the withdrawal rate. I do not need a reserve of three or four years' current spendable income.
But far harder times might await dividend fans. It was Brexit, not bugs, that fretted income-drawers late in the last decade, plus the fear that UK companes were overdistributing profits: running debt up and cover down. Already in 2018 I leaned to temerity and boosted the withdrawal by one-tenth, giving an ongoing 5.7%+RPI on the original investment. That cut the reserve from 23 to 19 months last year. Over eight years, one-fifth of raw income will have been held back: £2,602 out of £13,432.
Nineteen months may sound good upholstery, but beware. My crisis projection posits inflation at 3% pa until 2022. What if portfolio income collapsed to half last year's regular total, without extras, then rose only by one-tenth in 2021-22? The reserve would be dangerously depleted; by Jul. 2022 it would contain three months' payout after a decade's operation.
Such a forecast compels a cut in the spendable portion, if less drastic than individual companies are inflicting.
If the withdrawal rate is lowered by a quarter to 4.3%+RPI, and if receipts dive then revive slowly as projected above, the reserve at Jul. 2022, after 10 years, will be 12 months, not three. Such is the typical level which long-established investment trusts maintain; it is inspiring them (for the time being) to sound cheerful about preserving lengthy records of rising payouts.
Beyond 2022? You tell me.
OUTLOOK
LuniHYP 250 holds more than twenty well-differentiated midcaps. It does not seem too rose-coloured, evaluating each company's mood music in bulletins since Feb., to envisage that only Brown, Cineworld and Marston's should struggle to resume dividends within the strategic ignorance horizon of 24 months forward. Not that all payouts will return fast or in full former glory; experience teaches that boards adore 'macro' excuses for cuts, and that restoration is apt to be slow and grudging.
But on the derisking forecast that receipts halve in 2020-21, the portfolio will still prospectively yield above the joke returns of a bond or cash deposit, and with inflation protection from the income reserve. Windfalls may arise: for instance in lapsed rights if a company tries to repair its finances. So it was in the last blitz, 2009-11. There may be rescue bids which enable recycling into dividend providers. However, that is counting chickens. I would not start a High Yield Portfolio today.
Edited to replace a mistaken reference to HICL Infrastructure with the correct company, Provident Financial. (See exchange with OP below.) -- MDW1954