High dividend yield stocks

[robusta]

Just a thought is it a little dangerous focusing on dividends.
If you can find a great company earning a high ROE and reinvesting the profits and earning a high ROE on those profits shouldnt that company be worth more. Look at JBH over it's major growth spurt in recent years.
A company like this is a little like a compounding machine that grows much faster and eventually the dividend will follow.
If you need income you could sell some of your holdings and with the 50% capital gains discount for long term shareholders the sp increase from a good growth stock should mere than compensate for a lower dividend yield.
Having said that who doesnt love dividends? I know I do

 

[So_Cynical]

My FY 10/11 dividend stream is starting to look like delivering a return on my whole portfolio of close to 7% gross....already 4 of my stocks have increased there final divi by 25% to 100% my FY10/11 dividend stream will almost double year on year, and that was after it more than doubled from last year.

I'm starting to think i should do more holding and less buying and selling...but i know its that bottom buying, churning over my money and anticipation of good divis that got me into this good situation.

 

[choice1]

Very interesting thread. I'm mostly a forex trader but have been quietly researching investing to make better use of my excess capital.

Just a point I'd like to make with yield. Given that yield is the dividend / share price and as earnings increases from year to year the dividend and share price also increase. This means that the yield (say 5%) is likely to be relatively constant from year to year (aside from corrections in the market) while the dividend continues to increase. This ends up being a big trap for yield chasing investors as you miss out on all the long term dividend growth.

eg. 30 June 200x
Woolworths. 2005: $16 , dps 51 cents, 3.125% yield.
Woolworths. 2009: $26, dps 104 cents, 4% yield.

Relatively constant yield as the share price has increased with the earnings/dividend per share. Keep in mind the dividend is double what it was back in 2005.

Today I could go find a term deposit for 6% and have a higher yield then buying WOW shares but guess what's going to be the better option in the long run... Property trusts tend to have the same appeal about them but lack the growth that industrials tend to have.

Again it is probably pointing out the obvious to most of you guys but just thought I'd chime in here since there has been a whole lot of yield talk.

Obviously when buying in to a company you want to get it at the lowest price/highest yield but other then that it can really trap some people and spoil long term growth.

 

[So_Cynical]

Obviously when buying in to a company you want to get it at the lowest price/highest yield but other then that it can really trap some people and spoil long term growth.

Agree...what your talking about is straight buy and hold for yield, and as you have pointed out its not a big money spinner...my strategy is buy low and establish free carry, sell to get the bulk of my capital back leaving the profit in, wait for the re-trace and buy again, establish free carry, sell to get the bulk of my capital back leaving the profit in, wait for the re-trace and buy again and establish free carry, sell to get the bulk of my capital back leaving the profit in, wait for the re-trace and buy again and establish free carry etc.


Easy to see how its reasonably easy to go in and out of a property stock 3 or 4 times over 12 or 18 months and triple your dividend stream simply re-cycling the same 5 or 10 grand and leaving the profit in...ive been doing this for 18 months and its working pretty well for me.

 

[KurwaJegoMac]

By free carry do you mean waiting for the value of your stock to increase by 100% so that you can withdraw your initial capital investment value yet keep a holding in that stock worth the initial capital investment?

 

[So_Cynical]

By free carry do you mean waiting for the value of your stock to increase by 100% so that you can withdraw your initial capital investment value yet keep a holding in that stock worth the initial capital investment?

I call free carry any profit left in, considering the sideways market we are in i find a profit range of 10 to 18% reasonably easy to achieve given a reasonably open ended time frame...of course not every entry goes according to plan.

 

[robusta]

Sorry meant to post in Is now the time to buy thread

 

[KurwaJegoMac]

I call free carry any profit left in, considering the sideways market we are in i find a profit range of 10 to 18% reasonably easy to achieve given a reasonably open ended time frame...of course not every entry goes according to plan.

Thanks for the clarification interesting system, makes sense considering the sideways market and the number of dips we've been experiencing.

That being said, say the market becomes bullish a d continues to rise past the 10-18% profit target you've set, and doesnt come back to the current sideways action. Aren't you concerned you may miss out on having a good dividend yield by accumulating and holding at very cheap prices?

 

[So_Cynical]

Thanks for the clarification interesting system, makes sense considering the sideways market and the number of dips we've been experiencing.

That being said, say the market becomes bullish a d continues to rise past the 10-18% profit target you've set, and doesn't come back to the current sideways action. Aren't you concerned you may miss out on having a good dividend yield by accumulating and holding at very cheap prices?

My current portfolio consists of 19 stocks, some stocks give me regular re-entry opportunity's some don't...VRL for example just kept going up and i never got a chance to re-enter so had to settle for a 190+% gain over the 15 months i held for.

Some of my other stocks like ILU, PFL and ALZ have offered regular re-entry opportunity's while still maintaining a steady overall upward trend, with the bonus of increased dividends for ALZ and PFL and the expectation of a return to dividends for ILU.

CPU was another one of my stocks i though mite ever give me a re-entry opportunity, then one bad announcement the other week and down she came right back to where i want to be buying....and then there's a few stocks im still waiting on to 'come good'

 

[So_Cynical]

condog and i had the following exchange (text in quotes below) in this thread back in mid January 2010..now 8 months later i feel its interesting to look back with hindsight and learn a little about perception, timing and risk/reward.

Id encourage you to name any company thats earning over 10% dividend that you think is both safe and high growth, and i bet 1 of 50 people in here can come back with evidence that it is either high risk or low growth....

OK here's one

HDF - HASTINGS DIVERSIFIED UTILITIES FUND has a Market Cap of 567 mill

HDF last traded at $1.16 and is forecast to pay quarterly distributions of 3 cents per share...so a little over 10%

haaaaaahaaaaaaaaaaaaa

Too easy

Now im no rockety scientist but i know how to analyse a stock and this one really worries me...

Its a high risk low growth stock and hence its high yeild....come in spinners...

I would not invest in this with my money ever....declining in nearly all aspects and high to extremely high risk...no real obvious growth prospects showing in its figures .....

This stock highlights exactly what i said....If in todays market you get a high yeild you are getting either or both a high risk and low growth....and this is a classic example...and pardon the pun but Im being honest not cynical...

Jezz condog you disappoint me..

condog you certainly are no rockety scientist and that goes for me too...i could care less about outdated EPS figures and cyclical economic factors, lol HDF owns pipelines where there are no other pipelines, they have a monopoly (in some areas) moving an essential, growth commodity....with CPI linked contracts and spare capacity, with new capacity coming with the (now fully funded) South West Queensland Pipeline Stage 3 expansion.

Ill save this thread in my favourites so i can remind you about it in 12 or so months when HDF is $2 a share.

Hey cynical youve lost the plot, the argument was whether you could produce a company with 10%+ dive that is (not might be) high growth, and low risk....on that basis this is a resounding failure....

For your sake I hope your right...and I will concede some companies occassioanlly look crap for ages then suddenly turn around because of a sudden development in thier circumstances....or because they suddenly acquire a super profitable asset.......but you cant go saying they are high growth, low risk and good dividend till they at least have all 3 in place, or some type of history of all three.... Just becaus Orbis says they think its outlook is good, doesnt mean it is high growth, low risk and good dividend....

But on the face of thit this one looks terrible...

Remember here though the argument is not can we find a company thats crap now and good in 12 months time.....its can we find a company with low risk, high growth and 10+% dividend in todays price.........


On that basis you lose fair and square. In this case, as it is not high growth,

For beginners, as a learning experience go and look at the 5 year price charts and balance sheet summary for HDF and then compare it to JBH....very quickly you will see why JBH has a low dividend and why HDF has a high dividend... ..... if the balance sheet confuses you just look at the share price charts and you will see why one is classified as growth and the other is not....

If you lack the integrity to admit you got it wrong and that HDF is clearly not a growth stock, so be it.....

Thats another lesson for beginners, be sure to cross check the infiormation your getting , it could be from some one who thinks HDF is a growth stock...

Beginners go to your charts and look at the growth charts for JBH and HDF....you will soon see the difference why one pays 10%+ and the other pays 1.6%.... the market has priced in that JBH has significant growth prospects, so investors pay a premium and as a result the dividend is limited.....on the other hand HDF has a history of low to stagnant or negative growth and wise investors have seen this and priced it in, unwilling to pay a premium price.....hence the high dividend.....

Signing off from this garbage....goodbye...

Alot of what condog was going on about was true, especially the last bit ive bolded, the market was pricing in more of the same for JBH and more of the same for HDF...8 months later turns out the market was wrong, hence the subsequent re-pricing of both , HDF up 25% and JBH down 5%

So this begs the question 'is JBH still a growth stock'? or is/has the market been pricing in flat growth for JBH? does the market actually have a clue or are they all just stumbling around in the dark?

HDF hit a new 14 month high on Friday breaking thru resistance at $1.39 to hit a high of $1.48...what's the market pricing in now? :dunno: take over, dividend increase, perhaps JBH was a bargain a couple of months or so ago at its last significant low?

All i know is that so far condog and the market got it wrong with JHB and little old contrarian me got it right. this and other results ive had, gives me confidence in my stock picking ability's going forward and going against the market.

According to the recent HDF half yearly report, revenue was up 8.4% EBITDA was up 9.1% and profit before tax was up 23.8% does this now mean that the market thinks HDF is a growth stock?
~

 

[skc]

condog and i had the following exchange (text in quotes below) in this thread back in mid January 2010..now 8 months later i feel its interesting to look back with hindsight and learn a little about perception, timing and risk/reward.

Alot of what condog was going on about was true, especially the last bit ive bolded, the market was pricing in more of the same for JBH and more of the same for HDF...8 months later turns out the market was wrong, hence the subsequent re-pricing of both , HDF up 25% and JBH down 5%

So this begs the question 'is JBH still a growth stock'? or is/has the market been pricing in flat growth for JBH? does the market actually have a clue or are they all just stumbling around in the dark?

HDF hit a new 14 month high on Friday breaking thru resistance at $1.39 to hit a high of $1.48...what's the market pricing in now? :dunno: take over, dividend increase, perhaps JBH was a bargain a couple of months or so ago at its last significant low?

All i know is that so far condog and the market got it wrong with JHB and little old contrarian me got it right. this and other results ive had, gives me confidence in my stock picking ability's going forward and going against the market.

According to the recent HDF half yearly report, revenue was up 8.4% EBITDA was up 9.1% and profit before tax was up 23.8% does this now mean that the market thinks HDF is a growth stock?
~

Nice one So_C. Great summary.

 

[awg]

Yes thanks So_C for the well thought out posts, I enjoy them and thanks for outlining in detail your investment style.

As for safe high yield stocks that offer some growth ( not spectacular).

I can mention APA, 8.6% yield, 99.8% div stability, ignored it for a while but at $3.20 was paying over 10% div.

It does have debt and capital matters that should be considered and some would say it is fairly fully priced at the moment.

However if gas and electricity consumption continue to rise, this company will grow.

I am of the opinion it will continue to ROI 10-15% pa

Also should make mention of various preference shares paying 10-15% div with likelyhood of cap gain on redemption

 

[So_Cynical]

For anyone interested in yield.

IMF will be listing a new issue of convertible notes at $1.65 per note to raise around 40 million to fund growth, The terms of the notes will be four years, and interest will be paid at a fixed rate of 10.25%, initially the notes will be issued to IMF share holders (like me) via a rights issue 1 for 10 and via a placement.

The company can elect to redeem the notes at face value after two years on paying an early redemption fee of 2% per annum for the remaining period of the notes, notes are convertible at quarterly intervals at $1.65 each.

The only catch i can find is that IMF can stop paying interest on these notes if there cash at bank drops below 40 million...the notes will be ASX listed so there's some chance of getting a few cheap if IMF look like they may stop paying interest or have a bad case outcome or 2 and also capital upside if IMF do exceptionally well over the next few years.

Notes should be trading on the ASX after 14th December.

http://www.asx.com.au/asxpdf/20101029/pdf/31tj22cb0czrjw.pdf

 

[Tysonboss1]

For anyone interested in yield.

IMF will be listing a new issue of convertible notes at $1.65 per note to raise around 40 million to fund growth, The terms of the notes will be four years, and interest will be paid at a fixed rate of 10.25%, initially the notes will be issued to IMF share holders (like me) via a rights issue 1 for 10 and via a placement.

The company can elect to redeem the notes at face value after two years on paying an early redemption fee of 2% per annum for the remaining period of the notes, notes are convertible at quarterly intervals at $1.65 each.

The only catch i can find is that IMF can stop paying interest on these notes if there cash at bank drops below 40 million...the notes will be ASX listed so there's some chance of getting a few cheap if IMF look like they may stop paying interest or have a bad case outcome or 2 and also capital upside if IMF do exceptionally well over the next few years.

Notes should be trading on the ASX after 14th December.

http://www.asx.com.au/asxpdf/20101029/pdf/31tj22cb0czrjw.pdf

is the interest cumulative if the interest is suspended

 

[So_Cynical]

is the interest cumulative if the interest is suspended

Good question

Page 53: 2.1.d. Interest on the convertible notes not paid when due shall compound.

I think i may have misunderstood the dividend stopper bit on page 13..as the interest on the note probably isn't actually a dividend. :dunno: im thinking the dividend stopper and the 40 million thing perhaps is only applicable to actual IMF shares and not the notes. :dunno: but then why have it in the prospectus at all?

Clearly im not a sophisticated investor. :homer:

 

[nulla nulla]

Agree...what your talking about is straight buy and hold for yield, and as you have pointed out its not a big money spinner...my strategy is buy low and establish free carry, sell to get the bulk of my capital back leaving the profit in, wait for the re-trace and buy again, establish free carry, sell to get the bulk of my capital back leaving the profit in, wait for the re-trace and buy again and establish free carry, sell to get the bulk of my capital back leaving the profit in, wait for the re-trace and buy again and establish free carry etc.


Easy to see how its reasonably easy to go in and out of a property stock 3 or 4 times over 12 or 18 months and triple your dividend stream simply re-cycling the same 5 or 10 grand and leaving the profit in...ive been doing this for 18 months and its working pretty well for me.

When I first looked at this thread I took it to mean a passive investment in a share that paid a good dividend that represented a high yield on the investment. Something like a low entry on Telstra at present levels of $2.65 ish with a annual dividend (at present) of $0.28 representing a yield of over 10% (fully franked makes it an even higher yield).

Then I read So_Cynicals post above and recognised that rolling over the trade profits into the same share achieved the same outcome (whether or not you held for dividends).

Since the global financial crisis bottomed we have taken this approach accross the board. Going in on the lows and out on the highs, then re-entering when/if it comes back down. If you limit your targets to those shares in the top 200 that have recurring highs and lows with good liquidity (daily turnover volumes) you can build on your portfolio fairly reliably.

Since July this year we have built our holding in some stocks up by over 20% simply by going in low and out higher and churning any gains on divs/trades back into the same stock. 20% gain in 4 months is nothing to sneeze at.

 

[Tysonboss1]

See thats where you and I differ so much....risk perception / risk assessment
.... you seem to classify a stock as low risk if you think its not going to fall over any time soon....

Where as when i wiegh up whether its low or high risk...I look at
Firstly its debt to equity....and personally TLS debt to equity is getting up amongst many companies that have already failed.....

I have been reading through this thread and tend to aggree with So_c more than you condog.

The Stocks that So_C as been describing,( eg. Safe companies with strong cashflow that due to unfair market setiment have had there share prices Bashed which has resulted in strong sustainable yields). do make fantastic investments that are very low risk.

You see as a share price of a solid company falls the stock is getting safer and safer because like a coke can the further a share price is crushed the more it resists further crushing. And on the other hand a company that has seen signifcant gains is likely to have a speculative frothyness to it's share price and it's risk is high.

So if you find a solid company that has seen share price falls to the point it's dividend is yield is over 10%, you are much more likely to see a share price recovery that brings it's yield back to 8% than further falls that make it's yield 20%.

Buying such a share will give you a steady high return and also staying power to wait for the large capital gain.

 

[Tysonboss1]

I have been reading through this thread and tend to aggree with So_c more than you condog.

The Stocks that So_C as been describing,( eg. Safe companies with strong cashflow that due to unfair market setiment have had there share prices Bashed which has resulted in strong sustainable yields). do make fantastic investments that are very low risk.

You see as a share price of a solid company falls the stock is getting safer and safer because like a coke can the further a share price is crushed the more it resists further crushing. And on the other hand a company that has seen signifcant gains is likely to have a speculative frothyness to it's share price and it's risk is high.

So if you find a solid company that has seen share price falls to the point it's dividend is yield is over 10%, you are much more likely to see a share price recovery that brings it's yield back to 8% than further falls that make it's yield 20%.

Buying such a share will give you a steady high return and also staying power to wait for the large capital gain.

some example that I personally profited from.

APA @ $2.70 - 11.7% yield , Share price has since recovered to $4.19 bringing a 55% capital gain on top of an 11.7% cashflow.

MCW@ $0.20 - 40% yeild, share price recovered to 60c bringing a 300% capital gain on top of the 40% cashflow.

AHE@ $0.55 - 29% yield, share price has recovered to $2.39 bringing more than 400% capital gain on top of the 29% cashflow yield.

and there are more examples, each of these companies were sound companies whose share prices saw large falls, I good see nothing but value and safty at the yields and prices, others fell into the trap of seeing falls as a sign of further falls and happily sold to me making me very rich.

The posts I made on these stocks where laughed at, at the time. But I guess I had the last laugh as I was banking profits that = many years of my wages.

 

[Tysonboss1]

some example that I personally profited from.

APA @ $2.70 - 11.7% yield , Share price has since recovered to $4.19 bringing a 55% capital gain on top of an 11.7% cashflow.

MCW@ $0.20 - 40% yeild, share price recovered to 60c bringing a 300% capital gain on top of the 40% cashflow.

AHE@ $0.55 - 29% yield, share price has recovered to $2.39 bringing more than 400% capital gain on top of the 29% cashflow yield.

To give an example that most people are familar with that is available now, I give TLS ( telstra ).

It currently has a yield of over 10%.

Now people (i'm looking at you julia), will jump in and say "if you bought for yield back in 2000 you would have lost 70% of your capital" and they are right. But I am not talking about buying back then, When it was considered a growth stock by the way.

I am talking about it as it stands today. A company that is trading at >10% yield where the yield is covered by free cashflow, and management have stated they are comitted to maintain this yield, which alone should support it's share price at current yields.

Not to mention that telstra is showing signs of a turn around which when it catches on should see the price rise back to a level where the yield is about 8% which could see it's share price recover back to $3.36.

So if an investor bought in around current levels or on a dip he should see a yield of >10% which gives him a good return and staying power waiting for a 25% cap gain.

P.S I currently don't hold but have sold several puts @ $2.60 which will give me a tidy profit if the shares price stays above that level and if the shares are put to me it will make my entry level circa $2.50 giving me a 11.4% yield and an almost garanteed capgain on recovery of over 30%.

 

[Julia]

To give an example that most people are familar with that is available now, I give TLS ( telstra ).

It currently has a yield of over 10%.

Now people (i'm looking at you julia), will jump in and say "if you bought for yield back in 2000 you would have lost 70% of your capital" and they are right. But I am not talking about buying back then, When it was considered a growth stock by the way.

How nice that you remembered what I'd said, Tyson.
Let's just remember that plenty of people did buy TLS back then, or alternatively they have ridden the rise all the way to the top, but failed to exit on the way down, when they could have taken their profits, gone to cash, and bought back in if they were so inclined when it is at its present level.

But imo it's still a risky stock, especially in view of the whole NBN mess.

My point has always been less about TLS or any other stock that has fallen massively in value, than it has been about the fact that there are other very good, well managed companies which have managed to grow their SP and still provide decent dividends.

Hell, I don't care, Tyson. You've been around long enough to know what you're doing.
I've only ever made the points I have with the thought that new investors can so easily be sucked into high dividend stocks without quite appreciating that the high dividend equates a fallen SP, and therefore loss in their capital.

I'm constantly amazed at the number of people who simply don't understand this.

Just consider the recent AGM where the reporters referred to "long suffering TLS shareholders". They simply don't seem to realise there is a choice, other than buy, hold and pray.