High dividend

cheerfulcat

Hi, jamesd,

if you believe in perfect markets the fundamental reason is that the market dropped the price because the market expected future performance to be insufficiently good to justify the share price.

But ( assuming perfect markets, which is another thing ) this is true for any share, not just high yielders. I'm just failing to understand how dh comes to the conclusion that the " high " dividend was the cause of the drop, as it seems to me - since the dividend is unchanged - that the yield is high because the price fell, not t'other way about...I could understand the reasoning if he were referring to a company where a cut in dividends led to a commensurate drop in price so that the yield remained the same ( sorry for the cat's mother type reference, dh ).

dunstonh

I'm just failing to understand how dh comes to the conclusion that the " high " dividend was the cause of the drop,

I never said that the high dividend was the cause of the drop.

I am saying that high yielding shares don't generally have much share price growth and when you look at the price drop, whilst growth stocks or slightly lower yielding shares have recovered or mostly recovered, LTSB is still some way off.

If you go for a high yield and draw the income rather than reinvesting it, then you should be prepared to see a performance that is similar to that of Lloyds TSB.

If you had £8000 in LTSB at the peak, it would have halved in value before recovering just short of £6000. The lack of recovery is linked to it's high divi. The drop in value wasn't.

If you are starting from scratch, shares with the potential for a rising income would be a better option in my opinion.

http://quote.fool.co.uk/chart.aspx?s=LLOY.L&t=my&l=off&q=l&c=BARC.L

Im not saying you should use Barclays but I just wanted to highlight two companies in the same industry. It has yield of 3.6% but the capital has recovered to more than double the LTSB position.

EdInvestor

cheerfulcat wrote:

Hi, FT,

You should find the Motley Fool High Yield Portfolio board and related articles of interest. Investing in only one company would be too risky for most people's taste; better to have a number of them in diverse sectors.

It's been an excellent year for those who follow this strategy.Many of us have had returns in the 25%+ range.

RayWolfe

Yes, I do feel a bit warm and cosy this morning. ;-)

dunstonh

Its been an excellent year for almost everyone regardless of the strategy used.

I would think the only ones that could really have suffered would be those who invested without diversification and picked Japan, N America or bonds.

nrsql

Which could mean that Japan, N America and bonds are good value now?
Or maybe not yet.

Where's that crystal ball.
Think they are still risky but will probably be worthwhile at some point next year.

dunstonh

Japan is due for a rise but it may take until mid 2007 before we see it... so the cystal ball says

EdInvestor

The market in the US was up 16% this year, better than here, and Japan was up 7%.But of course the 12% rise in sterling plus the high charges you pay on foreign funds has wiped out the gains.

IMHO the currency risk means it's not worth bothering with foreign markets when you can get such good global exposure via all the multinational UK companies on the FTSE.

RayWolfe

Don't forget that some of the big beasts in the UK have a base price and dividend payment in USD.
But generally you are probably right.
What I started in 1996 was to transfer some of my UK Equity Income funds into European and World Income Funds to give me a little more spread.
It's worked reasonably well so far.

dunstonh

But of course the 12% rise in sterling plus the high charges you pay on foreign funds has wiped out the gains.

You keep referring to high charges despite proof posted a number of times that you are not correct with that assumption.

IMHO the currency risk means it's not worth bothering with foreign markets when you can get such good global exposure via all the multinational UK companies on the FTSE.

You dont get enough global exposure with the UK companies.

The UK all companies sector average was 17.33% to end of November. Europe was 20.11%. Asia Pacific ex Japan was 19.03%. North America was -1.97% and Japan was -6.88%. Global Emerging Mkts was 18.99%

The UK has for some time been, in general, the worse performing stockmarket in the western world. Historically, it has been the best performing sector around once every 7 years. That is likely to be less in the future as emerging countries with better potential overtake us. If you lived in another country, would you even think about investing in a UK specific fund? No.