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high yield portfolio (motley fool)
TrevS
Posted: 25 November 2013 16:37:56(UTC)
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I want to set up investments for income, one option being to to it through buying shares. I came across this on the Motley Fool web site as a way of doing it

http://www.fool.co.uk/In...gh-Yield-Portfolio.aspx

an overview is here
http://www.fool.co.uk/ne...6/27/fish-and-hyps.aspx

Has anyone tried this, is it a good way to generate income? The reason it appeals to me is its seems simple and I dont want to spend a lot of time monitoring my holdings. A review once a year (maybe a quarter) would be my aim with minimal trading.

Thoughts welcome
thanks
P L
Posted: 25 November 2013 21:31:20(UTC)
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As long as you hold a good spread of shares I would think it is an excellent strategy. I believe 10-20 over a number of sectors is considered the optimal number for a diversified portfolio.

Cost is a big consideration, otherwise you might as well go with a fund.
You don't want to pay yearly/quarterly/monthly fees for simply holding them and you want minimal dealing costs. A low cost online nominee account such as www.X-O.co.uk might fit the bill (no admin charge, £5.95/deal + 0.5% stamp duty). Free BACS transfers, but they don't have a regular payment option.

Ok the million dollar question what's in the list.

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Guest on 04/12/2013(UTC)
TrevS
Posted: 27 November 2013 18:06:43(UTC)
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Thanks for the dealing reference P L.

Whats in the list? To some extend the Motley Fool articles give you that, the highest 15-20 dividend payers in the FTSE100. This would need to be looked at by sectors and to make sure the dividend was covered and likely as possible to be paid in future...
Recently Redundant and Retired
Posted: 27 November 2013 19:18:21(UTC)
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Can I ask a stupid/naive question ?
To check the dividend is covered, is it just the payout ratio (div PS / EPS must be below 100) ?
Or is there something else ? A few of the FTSE100 top divi payers seem to be paying out more than they are earning particularly ICAP and Resolution. Whereas BP and Vodafoine seem to be building up a cash pile.
3 users thanked Recently Redundant and Retired for this post.
Stephen Garsed on 28/11/2013(UTC), Mr Mr on 28/11/2013(UTC), Guest on 04/12/2013(UTC)
Alan Selwood
Posted: 27 November 2013 20:36:34(UTC)
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You need to check also for other commitments which may not be paid now but are being stored up as a problem for later - pension fund deficits usually being a prime suspect! (BT hecame been bad news from a pension deficit point of view from around 2007 onwards!).

If companies are paying out more than they earn (and have big debts through borrowings??) their situation may not be as rosy as first appears - what happens if they need to replace expiring debt terms with new, more onerous ones?

Fundamentally, a good quality company should not need to borrow to finance dividends (unlike some utility companies!) or borrow to finance replacement of out-of-date stock or capital equipment, or borrow to pay current expenses, etc. They tend to be much better quality if they can pay for what is needed out of earnings and have free cash flow after all costs have been incurred.

If you just want dividends, regardless of quality of company, have a look at the VT Maven Smart Dividend UK Fund, previously named the Munro UK Dividend Fund, which aims to track those companies in the FTSE-350 which are believed to be most likely to bring home the best dividends NEXT TIME. The weighting per company reflects this, rather than simply weighting by company size like most FTSE trackers. (0.5% p.a. AMC if you deal direct with them, but 1.5% p.a. if you use an intermediary)
6 users thanked Alan Selwood for this post.
Mr Mr on 28/11/2013(UTC), Stephen Garsed on 28/11/2013(UTC), Recently Redundant and Retired on 28/11/2013(UTC), Micawber on 29/11/2013(UTC), martyn of sheepy on 29/11/2013(UTC), Guest on 04/12/2013(UTC)
P L
Posted: 30 November 2013 22:10:09(UTC)
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Is there an alternative, possibly cheaper approach, such as to buying an ETF that targets high yielders.

Alan Selwood
Posted: 30 November 2013 23:15:45(UTC)
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There's this ETF:
http://etf.stock-encyclopedia.com/IUKD-LSE.html
but it's less widely-spread than the Maven fund I mentioned - only about 50 shares in the ETF. You'll have to look up the dividend level and annual charges for yourself.
The Maven fund has been a lower-risk way to invest while keeping maximum loss % low in bad periods of the market.
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Guest on 04/12/2013(UTC)
JEL G
Posted: 01 December 2013 12:33:38(UTC)
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Hi,

I have been an active investor since 1967, mainly buying high growth stock.
However, I switched to High Yielding shares on the LSE back at the turnoff the century with a view to taking income from the dividends and very rarely selling shares but only buying with surplus funds.

This has paid off handsomely for me and I am now getting a return of almost 7%net per annum on my base cost price of my portfolio.

I do not worry about my investments as long as I am getting my average 6.5% net income. If a share marks time or falls, no worries as long as the income is maintained. However there is the occasional company which chops out its dividends altogether, namely Firstgroup, and a few which rebase their dividends, but spread over my portfolio of 42 companies, I am maintaining my 6.5% net plus, due to other shares incomes rising.

I do not need to sell any of my portfolio as I now have far more income than I require to live a full retirement on.
However I do add to my portfolio when share prices fall and yields go up, namely back in 2003, 2009, 2010, and even 2011.

My tips…………

Buying and selling regularly is a mugs game in my book, if income is desired.

Always buy into companies directly and not managed funds where the middle man takes his cut!

Always take the dividend and not the DRIP as you then have the choice on where your money goes

Good luck………...
5 users thanked JEL G for this post.
Alan Selwood on 01/12/2013(UTC), Aidan Williams on 01/12/2013(UTC), snoekie on 02/12/2013(UTC), Guest on 04/12/2013(UTC), Bryan Jefferson on 08/12/2013(UTC)
Dave H
Posted: 02 December 2013 18:17:32(UTC)
#9

Joined: 26/01/2012(UTC)
Posts: 1

TrevS;21799 wrote:
I want to set up investments for income, one option being to to it through buying shares. I came across this on the Motley Fool web site as a way of doing it

http://www.fool.co.uk/In...gh-Yield-Portfolio.aspx

an overview is here
http://www.fool.co.uk/ne...6/27/fish-and-hyps.aspx

Has anyone tried this, is it a good way to generate income? The reason it appeals to me is its seems simple and I dont want to spend a lot of time monitoring my holdings. A review once a year (maybe a quarter) would be my aim with minimal trading.

Thoughts welcome
thanks

"Has anyone tried this": yes
"Is it a good way to generate income": I think so.

I started my HYP in 2000 and am still building and reinvesting income.
It consists of 26 shares, 1 ETF (EMDV), and 1 pref. share (LLPC).
It has had a total return calculated by excell XIRR function of 9%pa which I think is pretty good.
Yields ~4.0% on present value, ~7.6% on original cost.
I'm happy with how its performed.
Income Investor
Posted: 04 December 2013 09:34:41(UTC)
#10

Joined: 18/09/2012(UTC)
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Great to see the interest in Income Investing!

As described in my blog and articles on Citiwire, my suggestion is:
- make sure you have cleared your debts and have cut your expenditure to a minimum
- buy a mix of high yield dividend shares and fixed-income securities (because the business cycle hammers dividends once in a while)
- if you don't want to monitor you portfolio, buy income ETFs (UK or worldwide; high-yield dividends and bonds); diversifyied individual holdings also works but requires more input from you.
- if you like to tinker, think about selling if your capital gain = more than 5 years' income

Good luck
2 users thanked Income Investor for this post.
Guest on 04/12/2013(UTC), Stephen Garsed on 06/12/2013(UTC)
P L
Posted: 04 December 2013 22:52:31(UTC)
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Income Investor I don't suppose you have a handy list of suitable ETFs
Income Investor
Posted: 05 December 2013 09:03:21(UTC)
#12

Joined: 18/09/2012(UTC)
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Hi PL

For ETF suggestions see my blog (Portfolio and ETF-related posts)

http://www.the-diy-income-investor.com/
Stephen Tiley / PensionsManager
Posted: 06 December 2013 17:59:29(UTC)
#13

Joined: 16/05/2013(UTC)
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http://www.itpaysdividends.co.uk/

is a useful source of info on dividends for FTSE350 - both dividend history and share price compared with highs and lows over last year - sent via spreadsheet monthly for £12. You can then sort in order of yield and so on. Shows dividend cover and other useful stuff such as a list of the highest yielding shares that have certain criteria met so they should be more sustainable payers etc.

Vanguard do a low cost FTSE350 High Yield fund (around 120 stocks) but buying direct has a large minimum investment but you can buy less on supermarket platforms such as HL - small platform charges apply usually.

There is a World High Dividend ETF too, not sure who runs it but it's on hl.co.uk

I think 15 or 20 spread across several industries that you've bought directly could work well, but bear in mind if you had done that 6 years ago you may well have put RBS or Lloyds in the mix, so going for 25 to 30 may give you a lower risk optimum selection.
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