High Yielding Shares Again

[TPI]

I find Aus companies limiting; we don't seem to have many dividend champions.

You're right pierso, in Aus the options for such stocks are much more limited, and you have to work a bit harder to find them.

You have to apply less stringent selection criteria to get enough stocks (eg. with 5-10 year history rather than 25+ years).

Dividend policies here seem to focus on maintaining a specific payout ratio, which doesn't necessarily translate into absolute dividend growth each year.

In the US though they get excited by 3% yields, so we are fortunate here in that 5-7% grossed-up yields are more achievable at times for good quality stocks.

If you are planning to reside overseas then looking at US/Canada/UK stocks sounds like it may be a good way to go.

 

[pierso]

In the US though they get excited by 3% yields, so we are fortunate here in that 5-7% grossed-up yields are more achievable at times for good quality stocks.

If you are planning to reside overseas then looking at US/Canada/UK stocks sounds like it may be a good way to go.

Agreed but some of the US stocks have good dividend growth rates - I guess its just about your timeframes and ability to pick those with sustainable dividend growth or to dispose of those that cut dividends/or div growth rates.

Without meaning to hijack the thread what are your thoughts on CCL at the moment; beaten down good stock at a good price or price reflects growth headwinds?

Re: International holdings as a hedge against moving in retirement, I just figure that the world is only getting smaller, who knows where my three kids will end up living and whether or not we end up following them? No intentions to, but definitely a possibility. Both my brother & I ended up here from UK, parents decided to follow.

Subscriber to your website by the way - really like it. Would love more content.

 

[redwing]

Just had a quick look at VHY over the last 2 years and its up around 40% (plus dividends/income), though slightly behind VEU at around 42% (plus dividends) and a fair way behind VTS at 56% (plus dividends).

 

[oracle]

Just had a quick look at VHY over the last 2 years and its up around 40% (plus dividends/income)

2 years is not long enough timeframe to come to any conclusions. Secondly, last 2 years has been fantastic for banks, telstra and other high yield paying companies due to low interest rate environment. Mining/Resources companies considered to be growth companies have done very poorly. Hence, good performance by VHY because it would have mainly invested in those high yield companies.

But if and when growth does return I would expect the broadbased index ETF like VAS to outperform the high yield ETF like VHY.

Cheers,
Oracle.

 

[redwing]

2 years is not long enough timeframe to come to any conclusions. Secondly, last 2 years has been fantastic for banks, telstra and other high yield paying companies due to low interest rate environment. Mining/Resources companies considered to be growth companies have done very poorly. Hence, good performance by VHY because it would have mainly invested in those high yield companies.

But if and when growth does return I would expect the broadbased index ETF like VAS to outperform the high yield ETF like VHY.

Cheers,
Oracle.

Hi Oracle

How long has VHY been established then

Doesn't go back further than mid 2011 according to the charts

 

[oracle]

Hi Oracle

How long has VHY been established then

Doesn't go back further than mid 2011 according to the charts

It must be around 2011 when it would have been established. Perfect timing since we started to enter low interest rate cycle just after that. The RBA cash rate was 4.75% start of 2011 and they started reducing from Nov 2011 and stopped at 2.50% in Aug 2013.

Cheers,
Oracle.

 

[HomePage]

For those that have the listed vanguard funds how do you manage liquidity?

Looking at VSO it hasn't had a single trade today and most of the other ones are very low turn over.

You just buy and sell them through a stock broker like you do with normal stocks. I use NAB Trade online and all my buys have been enacted and confirmed within a couple of minutes of placing the order. I haven't sold any yet, but I can't see why the process would be any different.

 

[Intrinsic_Value]

2 years is not long enough timeframe to come to any conclusions. Secondly, last 2 years has been fantastic for banks, telstra and other high yield paying companies due to low interest rate environment. Mining/Resources companies considered to be growth companies have done very poorly. Hence, good performance by VHY because it would have mainly invested in those high yield companies.

But if and when growth does return I would expect the broadbased index ETF like VAS to outperform the high yield ETF like VHY.

Cheers,
Oracle.

very good post.
I strongly suggest people pay heed to Oracle, he has learnt a lot over the last 7 odd years, and his 'signin' over time will become more and more true.

 

[redwing]

Looking at VHY's Top 10 holdings

1 Woodside Petroleum
2 Telstra
3 Westpac
4 Wesfarmers
5 CBA
6 ANZ
7 NAB
8 Transurban Group
9 Sydney Airport
10 APA Group

The Top 10 holdings represent 74.0% of the total underlying fund

 

[The Falcon]

In SMSF currently hold ;

ARG
MLT
BKI
SOL
BKW
BHP
CBA
WES
WOW
MFG
CCL

With a weighting towards the LICs. Will likely buy VAS, VHY, WHF and AMH shortly and AFI when it becomes cheap again. Will continue to dollar cost average in over many years. I don't follow the market closely and don't intend to ever sell these holdings. In a downturn, I will try to "buy with my ears pinned back" as Peter Thornhill would say. When I am in a position to add to my outside of super assets I will add unhedged ASX listed US and Global ETFs (I like Global Consumer staples and the dirt cheap broad indexes) and maybe pick up BRK-B and Markel for a bit of interest. These all distribute bugger all, so best load super up with franked dividend paying Aussie stocks (tax treatment in super is a free kick).

Personally I have a 20+ year outlook and if I take some hits along the way I don't mind. I'll just keep working hard and buying at each opportunity. As I quite enjoy work I'm in no rush to retire so I don't have that stress

 

[truong]

Looking at VHY's Top 10 holdings

1 Woodside Petroleum
2 Telstra
3 Westpac
4 Wesfarmers
5 CBA
6 ANZ
7 NAB
8 Transurban Group
9 Sydney Airport
10 APA Group

The Top 10 holdings represent 74.0% of the total underlying fund

That's a problem with many index funds and ETFs. In order to track indexes these funds have to use the same weighting as the markets they're in, resulting in a few large caps dominating their portfolios. In other words their hands are tied due to their very own charter and that could affect their ability to perform in a crisis.

VHY hasn't lived through a real crisis yet.

 

[redwing]

Are Index Funds, ET's and LIC's High Yield though?

They seem slow and steady

Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors, says that between 1900 and July 2007, Australian shares delivered average total return of 12.6 per cent a year ? of which return dividends accounted for precisely half, at 6.3 percentage points.

This echoes overseas findings. According to ABN-AMRO?s Global Investment Returns Yearbook 2006, UK shares have returned an average of 9.8 per cent a year since 1900: of this, 4.9 per cent ? exactly half ? comes from dividends.

In the US, the return from shares is the same, at 9.8 per cent, but the contribution of dividends is lower ? at 4.6 per cent, dividends account for almost 47 per cent of total return.

Link

Most commentators seem to say caution is required when chasing yield only

 

[TPI]

Surely, even if my objective is to make $50K income per year would it be wise to stick to that strategy even if that means you accept lower returns than the market? Had you invested in index fund you might have received $60K return consisting of 40K income and 20K CG. You can easily sell 10K worth of shares (one of the pros of shares compared to property) and get your $50K income that you need and have the remaining 10K invested compounding.

Just personally I'm not convinced that this total return focus (regardless of the proportion/distribution of dividends to capital growth in that return), which is what fund managers focus on, works very well in practice for most people (particularly with smaller amounts of invested capital eg. $1M-$2M, and where you plan to live off your investments at some stage).

If you have $1M invested to fund your retirement, and your portfolio is total return focused, and you enter a GFC and your portfolio is now worth 500k, if your (relatively lower) dividend returns from this portfolio also get slashed and become even lower, more volatile and hard to predict, you are now dependent on selling portions of your now down-sized portfolio at depressed prices just to meet your fixed, regular and predictable living expenses.

If share prices stagnate over the next few years, what will happen to your 500k capital?

The dividend-biased ETFs are slightly better with this in mind, but still have their drawbacks and most have not been tested under GFC conditions as they were mostly started in a post-GFC environment in Australia.

As mentioned before, if you have built up very large amounts of capital, eg. $5M, are less likely to depend on your investment portfolio returns to provide for your retirement, eg. as you may work for longer in a full/part-time job or business that you enjoy and that pays well, or are more interested in building up a large nest egg for your family to inherit or for philanthropic purposes... then it is a bit different.

 

[TPI]

But if and when growth does return I would expect the broadbased index ETF like VAS to outperform the high yield ETF like VHY.

Cheers,
Oracle.

Perhaps, but you could also say that a yield-focused ETF is in some ways a tilt towards a broadly "value" orientated portfolio, which is one of a handful of factors attributed to better long-term returns (as opposed to growth). So one could argue that VHY may potentially outperform VAS in the long-term.

 

[TPI]

VHY hasn't lived through a real crisis yet.

truong,

I'm not aware that any of the Australian dividend-focused ETFs have either.

And even amongst the ETFs that broadly track the ASX200, the only one that I'm aware of that has a long history including pre-GFC times is STW.

 

[Aaron Sice]

If I was buying and holding as part of a hope and pray strategy like some of these posts, I wouldn't get any sleep.

 

[oracle]

If you have $1M invested to fund your retirement, and your portfolio is total return focused, and you enter a GFC and your portfolio is now worth 500k, if your (relatively lower) dividend returns from this portfolio also get slashed and become even lower, more volatile and hard to predict, you are now dependent on selling portions of your down-sized portfolio at depressed prices just to meet your fixed, regular and predictable living expenses.

If share prices stagnate over the next few years, what will happen to your 500k capital?

If you are 100% dependent on the income from the sharemarket to fund your living expenses without any buffers in place, when (not if) the eventual downturn happens you need to re-consider your strategy. If you haven't planned for GFC style downturn you are taking a big risk.

Regarding the importance of total returns and why I emphasise on it. Have a read of this post The power of compounding and 2% difference in investment returns

Here are the result

Person A
After 40 years the $1 million earning 9% will be worth approx $36 million

Person B
After 40 years the $1 million earning 7% will be worth approx $16.3 million

Less than half.

The maths don't lie. Total returns over long term make a huge difference to your net worth. Ignoring it is a big mistake IMHO.

The dividend-biased ETFs are slightly better with this in mind, but still have their drawbacks and most have not been tested under GFC conditions as they were mostly started in a post-GFC environment in Australia.

There has been countless studies done, on dividend biased, low p/e biased, low price to growth biased, low price to sales biased etc etc. and they have all outperformed the index for a certain period but none have outperformed the index for a significant period of time. My point is you can easily pick a period where dividend stocks have outperformed but can you show me any study/research that says over past 30-40+ years they outperformed the index?

Perhaps, but you could also say that a yield focused ETF is in some ways a tilt towards a broadly "value" orientated portfolio, which is one of a handful of factors attributed to better long-term returns (as opposed to growth). So one could argue that VHY may potentially outperform VAS in the long-term.

See my point above. Don't get me wrong, I like dividends but I like total returns more

Cheers,
Oracle.

 

[oracle]

If I was buying and holding as part of a hope and pray strategy like some of these posts, I wouldn't get any sleep.

When it (Dow Jones Industrial Average) was first published in the mid-1880s, the index stood at a level of 62.76

Source wikipedia

As of yesterday it closed just shy of 17000. The buy and hold investors would have had no chance of losing any money when you top of that CG (from 62.76 to 17000) with dividends over those years. Yet, there are hundreds of thousand (if not millions) cases of investors who have lost everything trading in the stock market during the past 100 years.

The buy and hold strategy is not based on some hope and pray strategy. It is based on believing in capitalism and let it do its thing. There is no reason to believe that it will not continue to do the same in future what it has done in the past. Business are run for the sole purpose to churn profits for it's shareholders.

IMHO, the buy and hold investors of the past are the ones having the best sleep now.

Cheers,
Oracle.

 

[redwing]

If you are 100% dependent on the income from the sharemarket to fund your living expenses without any buffers in place, when (not if) the eventual downturn happens you need to re-consider your strategy. If you haven't planned for GFC style downturn you are taking a big risk.
.

Hi Oracle

What would be the retirement strategy and how would this fare in a GFC style event?

Not throwing stones, just interested in the strategy

 

[redwing]

If I was buying and holding as part of a hope and pray strategy like some of these posts, I wouldn't get any sleep.

And if I knew how to successfully time the market, I would be the wealthiest person on earth