SIPP Dividend yield

BrighamY

Hi all - first post, so here goes.

I am building a portfolio of hopefully high yielding dividend shares in a sipp, and have produced a spreadsheet to help me track the dividend yields. I want the yields to be specific to my portfolio, so I plan to always use the actual price I paid for the shares plus associated costs when calculating the yields I am receiving - as opposed to the conventional method of using the latest capital value of the shares.
This is fine for year 1 eg. shares cost £10000, dividends received £1000 therefore yield is 10% 1000/10000.
However if I then use the £1000 dividend receipts to buy another company at the start of year 2, and it in turn also produces divs of 10% - how should my calculation look for my total year 2 yield?
Should the £1000 divs from year 1 now be classed as capital ie £1100/£11000 = 10%
or would it be £1100/£10000(the original cost)= 11% ?

Hope someone can help me out on this, as I asked the same question on the FOOL website and all the answers seemed to require me to use the latest capital value of the shares for yield calculations - I accept that will give you an accurate yield for the share, but takes no consideration of what I actually paid for the share which will be different. Hope this all makes sense.

Best regards

BrighamY.

Loughton_Monkey

Rather a weird question if I may say so.

You seem to want your own specific definition of yield (fair enough) so only you can really define how you wish to calculate it. It's quite possible to buy a share the day before X-Div date, sell it 2 days later, and then bank the actual dividend when paid, say, 6 weeks later. Several spreadsheet functions would inform you of the 'exact' yield - or rate of return - on that particular investment.

In the context of shares, there is the simple definition - or probably several definitions - of dividends paid, divided by the 'current' share price.

It seems to me, you are making a rather simplistic assumption that you are always going to buy a share on the first XD date [say for £100] and hold it for exactly a year to get £7 dividend when the share price has risen to £110 - dropping down to £103 on the XD date. In my own 'book' this would be a total 'yield' of 10% - including a 'dividend yield' of 7%. But 99.9% of the time I would have bought the share - and sold it - on dates other than on or just before XD date.

BrighamY

Its not so much that I want my own definition of yield, its more about having an accurate way of relating the dividends I receive, to my particular investment costs - this may or may not be defined as "yield".

I do not intend to regulalrly trade the shares I buy, as they are being purchased for their long term dividend paying potential. So what I am actually looking for is a way of comparing the year on year performance of my portfolio in its ability to generate dividends, and a means to compare different years - the term I am using for that measure is the annual yield of the portfolio (rightly or wrongly) and will be expressed purely as a % of the initial investment.
If there is another term for this measure please advise - also are there any pitfalls I am not seeing in putting forward this somewhat simple measure?

Best regards

Brighamy.

Loughton_Monkey

Well the only way I can think of, then, is to ensure that you put all your holdings at the start of your 'period' [assume Calendar year for now] into a Portfolio Tool. This will enable accurate valuation at any one time.

So as at 31st December, you have 15 share types, all adding up to a capital value of £20K (say).

Every time you get a dividend, you record that accurately in another place, before re-investing it in another share type (which may itself produce a dividend). At the end of the year, the Portfolio tool comes up with a value of, say, £25,500. So if a glance at your divident sheet tells you that you got £1,800 dividend income, then I guess it's legitimate to say that your £20K original investment attracted 9% dividend yield. OK, that includes a small dividend you got on the new shares bought with an earlier dividend, but I guess it still 'relates' to the exact same original portfolio.

As for 'New' investment mid year into your portfolio, I would have thought you would need to set these up on s seperate Portfolio within the Portfolio Tool. Up to you, but maybe if that investment was 1st August, you would multiply the dividend on that mini portfolio by 12 over 5 to 'annualise' it before dividing it by the new capital. Then I guess you would consolidate both (all) holdings into a single Portfolio Tool and monitor it again the following year.

Personally, though, I would simply monitor the entire cash flows - with dates - of the entire portfolio and use spreadsheet functions to calculate 'true' Return on Investment. This could relatively be easily done for (a) dividend income only and (b) dividends plus capital growth.