In my first article I introduced the High Yield Portfolio concept and its principal rules to Stockopedia readers, especially those who may not have been aware of it from my many years of writing about the approach elsewhere. This week and for the next few weeks I’ll go deeper into my share selection methods for the strategy and examine in more detail the reasoning behind the rules I devised to govern the construction and management of an HYP.
Just to recap very briefly, the HYP is an equity income approach but unlike the great majority of share investing styles out there, it embodies the radical view of abandoning any attempt to score capital gains. Any gains that do result, and it happens that they have over the years, are incidental and not at all what this is about. HYPers who do not need the income immediately simply reinvest dividends in their portfolio until they do, thus making it suitable for just about anyone from birth on.
I designed the construction rules with deliberate simplicity in mind so that just about anyone with a reasonable understanding of shares can follow them. I dislike complexity, believing it adds nothing and prefer KISS, Keep it Simple.
Okay so you think you like the approach and you believe you have the faith and perseverance to see it through. How do you start? By the way don’t underestimate faith and perseverance. You will need them by the truckload. Forever is quite a long time and you won’t know for sure if this has done the business by delivering an increasing income stream until it is too late to change. Meanwhile your dedication will be tested in various ways such as recessions creating widespread dividend cutting and price falls or booms in certain sectors with huge gains in shares you don’t hold whilst your HYP is static. Do you have what it takes to ride all that out? If you don’t, if you know you are a fad chaser or easily swayed by inconsequential short term news and online chatter or give up easily when things don’t always go your way, then consider carefully whether the HYP is for you.
How to screen for HYP candidates
To start you will need a source of suitable shares. The simplest way these days is to use an online database which can be filtered such…
