Arborbridge wrote:Gengulphus wrote:A somewhat disquieting quote from the results:
The Board have proposed a final dividend of 30.24 pence per share, which would maintain the Group's full-year cash dividend for FY21 at 43.2 pence per share as guided previously. We have commenced a review and update to our capital planning framework, which we will discuss in the coming year. Consideration of shareholder distributions, alongside other priorities such as current and future regulatory capital requirements, operating capital requirements, and organic and select inorganic growth opportunities, will be the principal areas of focus.
That looks as though a rebasing of the dividend will be under consideration, and combining that with the full-year dividend having remained static since it was raised to the current 43.2p three years ago (i.e. the held dividends started well before the pandemic), things look a bit ominous for the likely direction of any such rebasing.
With the market price having gradually weakened until it is at the bottom of its recent trend, one wonders if those in the know also snifffed something nasty.
Decisions, decisions - can I justify a holding which is well above median weight when there are clear warning signs? Would I be guilty of too much "anticipating" if I trimmed?
I don't think so, no. Looking at
short-term forecasts has been in HYP from the start, and IMHO that includes short-term forecasts one makes oneself. But I do suggest actually making them oneself - and that just noticing a warning sign is not the same thing as making a forecast that the thing it warns of is likely to happen. I.e. if I held IGG, I would be taking a good look through these results and those of the last few years to try to get an idea of what their capital planning framework review is likely to be looking at - they've given a list of general categories, but some are worse competitors with dividends for the company's capital than others. For instance, organic growth opportunities are likely to contribute significantly to future dividend growth if pursued successfully, so there's a decent case to be made that incurring some short-term pain in order to pursue them is worthwhile. On the other hand, if regulatory capital requirements are growing, the short-term pain is needed just to remain where the company is now...
However, since I don't hold IGG and am not planning to, I'll leave doing the detailed work of coming up with such a short-term forecast to holders and prospective holders. Basically, the warning signs do indicate a potential threat - it's the job of those with a financial interest to come up with some idea about how likely the threat is to actually materialise, what its consequences are likely to be if it does, and how relevant those consequences are likely to be to their financial plans.
What I think you may instead be guilty of is too much agonising. The purpose of a set of HYP trimming rules like TJH's is IMHO
not to present the HYPer with a collection of
decisions they might make, that they then agonise over and say "Decisions, decisions ..." about. Rather, it is to take an overall decision they've already made, that having more than a certain proportion of their HYP in a single holding is too risky for them, and present them with a collection of
consequences of that already-made decision. So as I see it, if your trimming rules say "trim this holding" and you then agonise over whether you actually will trim it, you're basically undermining the whole point of having trimming rules in the first place! (But I do only say "may instead be guilty" rather than "are instead guilty" because I don't know whether IGG has reached your trimming threshold or is only getting close to doing so.)
One slight aside to that thought about the purpose of a set of HYP trimming rules like TJH's is that I think the best choice of trimming rules (if one has one at all) is highly specific to the HYPer and their HYP. The HYPer's ability and willingness to take risks with their HYP's capital and income affect what is going to be too risky for them, and their HYP's number of holdings affects how much risk any single holding represents. For instance, if one HYPer runs a 15-share HYP and trims when holding weightings grow to 1.5 times median, and another runs a 40-share HYP and trims when holding weightings grow to twice median, the first HYPer ends up trimming when single holdings reach about 10% of their HYP's value and the second when they reach about 5% of their HYP's value (*). So the second HYPer is using an apparently looser trimming criterion, but actually only risking about half as much of their HYP's capital on any single holding... But then again, if the second HYPer is totally reliant on their HYP for income, and the first is only using their HYP's income as a bonus on top of entirely adequate state and company pensions, the second might be taking bigger risks despite only risking half as much of their HYP's capital on any single holding... In short, there are a
lot of factors to take into account when deciding on a good choice of trimming rules (or the absence thereof) - far more than are usually known in a discussion here.
(*) "About" in both of those percentages because they would be precise if the normal "average" (or technically, the "arithmetic mean") were used, and the median doesn't usually differ enormously from that.
Gengulphus