High Vield Portfolio - the dark side!

oldfella

personally I go for a selection of equity income funds - the benefits are similar, its more diversified, I pay someone else to manage it, and I get purchase fees and trailing commission refunded. So in summary, costs are a bit higher, but risks are lower.

Mike

Chrismaths

And what about Lloyds? Perfect example of a stock that NEEDS a dividend cut. It is lumbered with an excessive divi payout that means it can't fund its own growth organically, resulting in this. Who says the dividend doesn't come out of capital... Lloyds can't cut the dividend because the people who own it are all income investors - Equity income fund managers. Almost no-one else owns it.

If you aren't worried about how much money you have, then the fact they have maintained their dividend is a plus point. However, the dividend hasn't grown in over 5 years (so is smaller in real terms by c20%), and the capital value has reduced. Better to invest in a company with a slightly lower dividend, and a better growth profile. After all, most people's objective is to provide a rising income (or at least one that holds its value in real terms.)

EdInvestor

cheerfulcat wrote:

Ed, I deliberately left the HYP board out because this would only start another round of fruitless argument there. The proper place for the question, especially for an unbiased view, is one of the boards I linked to..

Good point CC.It's now becoming obvious that the success of the HYP is seen as somewhat of a threat by various other players on the investment scene

cheerfulcat

Chrismaths wrote:

However, the dividend hasn't grown in over 5 years (so is smaller in real terms by c20%)

Which strictly speaking actually rules it out as a current HYP pick! But it seems that most people can't resist that yield...

dunstonh

It may rule it out currently but it is in HYP1. So, it highlights the other points mentioned that you cannot invest and forget and it isn't a low risk strategy. It is medium risk just as most other valid alternatives are medium risk as well.

Xbigman

Interesting comments on Lloyds. I bought it as my first HYP pick a month ago and I'd still buy it today. Anyone who looks for growth prospects in a share is not looking for a HYP share.

As for HYP in general, I'd not put a very large sum exclusively in an HYP as there is a risk in following just one strategy. But it depends on just how big a part of future income you plan on the HYP being.
For myself I plan to get a third of my retirement income from the state pension, a third from my company final salary pension and a third from an HYP. I'm happy with an HYP in that position.
Regards



X

cheerfulcat

dunstonh wrote:

It may rule it out currently but it is in HYP1. So, it highlights the other points mentioned that you cannot invest and forget and it isnt a low risk strategy. It is medium risk just as most other valid alternatives are medium risk as well.

I think that perhaps you misunderstand the nature of the Fool HYPs. HYP1, like the others, is an experimental portfolio; it was designed to be " no tinker ", to see what would happen if shares were selected and then held " for eternity ". BTW, Ed is the only person to say that HYP is low risk...it might be more correct to say that as a strategy involving directly held equities it is lower risk than most.

BTW, say what you like, a capital gain of 69.8% over 6 years including a market correction, and total income of £21,000 on a starting investment of £75,000 is pretty impressive, no?

EdInvestor

Anyone using an HYP does need to be comfortable taking equity risk of course..

As I've said, HYPs (and many equity income funds) are low risk in the equity context, not low risk in terms of all asset classes.

Re dividends and qualification as an HYP share: it's not a requirement ( though it is desirable) for a company to have a record of dividend growth.If it were required, your portfolio would end up as an LYP.

A recent dividend cut is what will normally rule out a company as a new HYP choice, unless its yield remains sufficiently high that it is still a pick on merit after the cut.

Chrismaths

Ed, no you've never put that qualifier in before.

And I see no threat from HYP - just as I see no threat from "dogs of the FTSE/Dow" or any other of the myriad strategies that have come and gone. There are plenty of people who don't want to be bothered to do their own stock picking. There are plenty of people who don't want to research overseas markets, and how to invest in them. There are plenty of people who see the benefits of having a professional run their money for them.

It's worth remembering that although both you and CC talk about HYP, you actually have different investment strategies. You believe in fire and forget, CC will adjust his porfolio. This makes them different.

BTW, say what you like, a capital gain of 69.8% over 6 years including a market correction, and total income of £21,000 on a starting investment of £75,000 is pretty impressive, no?

Aye not bad. Just as buying PIBS when they yielded 13% was pretty good. How is it going to do going forward?

cheerfulcat

Chrismaths wrote:

Aye not bad. Just as buying PIBS when they yielded 13% was pretty good. How is it going to do going forward?

The point is that the HYP did this even with the poor SP performance from Lloyds that you and dh keep bringing up. You are focussing too much on the HY part and ignoring the P...