Isaac's Thread - High Yielding Shares & other stuff

Sunday, May 16 2010 by

Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria. The time of maximum pessimism is the best time to buy and the time of maximum optimisim is the best time to sell.

Sir John Templeton


Aviva (LON:AV.)
-Price 326.9
-Forecast Yield 7.71%
- Forward Cover 3.02
-Forward PE 4.3

-Price 530.2
-Forecast Yield 7.04%
- Forward Cover 1.82
-Forward PE 7.6

United Utilities (LON:UU.)
-Price 521.5
-Forecast Yield 6.58%
- Forward Cover 1.7
-Forward PE 8.97

Scottish & Southern Energy (LON:SSE)
-Price 1082
-Forecast Yield 6.5%
- Forward Cover 1.49
-Forward PE 10.3

Severn Trent (LON:SVT)
-Price 1128
-Forecast Yield 6.29%
- Forward Cover 1.42
-Forward PE 11.21

Royal Dutch Shell (LON:RDSA)
-Price 1779.5
-Forecast Yield 6.25%
- Forward Cover 1.81
-Forward PE 8.86

National Grid (LON:NG.)
-Price 618
-Forecast Yield 6.23%
- Forward Cover 1.55
-Forward PE 10.38

Vodafone Group (LON:VOD)
Price 134.5
-Forecast Yield 6.01%
- Forward Cover 1.91
-Forward PE 8.73

British American Tobacco (LON:BATS)
Price 2033
-Forecast Yield 5.58%
- Forward Cover 1.54
-Forward PE 11.66

Glaxosmithkline (LON:GSK)
Price 1167
-Forecast Yield 5.53%
- Forward Cover 1.86
-Forward PE 9.69

Astrazeneca (LON:AZN)
Price 2879.5
-Forecast Yield 5.37%
- Forward Cover 2.58
-Forward PE 7.22



Investment Greats: Ben Graham



Graham's approach is based on the principle that, while markets are not good at pricing investments, over the long term the true value of businesses will be revealed. "In the short run, the market is a voting machine but in the long run, it is a weighing machine".

'Mr Market', as he described the emotional and irrational marketplace, sets share prices that you may not agree with, based on your fundamental analysis of a share's value. When Mr Market's price is sufficiently below your assessment of the share's value, you have the opportunity to buy with what he referred to as a 'margin of safety'.

Allowing yourself this margin of safety is in stark contrast to the 'greater fool theory' (note the lowercase 'f'), whereby people buy shares regardless of valuation in the hope of finding someone to buy them later at an even higher price. It's all about risk and reward.

Risk can also be mitigated to an extent by buying a portfolio of shares, so that even if some companies go bust, the overall return may still beat the market.

Selection criteria

In the mid 1970s, Graham and his colleague, James B. Rea, refined his ideas into ten criteria for selecting a portfolio:

1) earnings yield at least twice the AAA bond yield;

2) price/earnings ratio below 40% of the highest P/E ratio the stock had over the previous five years;

3) dividend yield of at least two-thirds the AAA bond yield;

4) share price below two-thirds of tangible book value per share;

5) share price below two-thirds of net current asset value per share;

6) total debt less than tangible book value;

7) current ratio greater than two;

8) total debt less than twice net current asset value;

9) earnings growth over the previous ten years of at least 7% per annum; and

10) a maximum of two annual earnings falls of 5% or more over the previous ten years.

If you want to trawl for shares meeting these criteria, ADVFN has filters that facilitate this; you can see the results of a recent search I did in this article. Finding shares that tick all these boxes is quite difficult, but tests 1), 3), 5), and 6) were deemed to be the most important.

The following were considered sell signals:

1) share price up more than 50% since buying;

2) share held for more than two years;

3) company stopped paying dividends; or

4) profits fell enough to make it overpriced by 50% or more on the earnings yield criterion.


Books to Read

Investment Strategy:
Security Analysis - Benjamin Graham (HEAVY READING This is the old testament from the 'Dean of Wallstreet')

The Intelligent Investor - Benjamin Graham (HEAVY READING The New Testament)

Value Investing Made Easy - Janet Lowe (Easy read to see if you agree with the strategy)

The Rediscovered Benjamin Graham - Janet Lowe (Easy read with some late interviews that were interesting. I like this book.)

The Warren Buffett Way - Robert G. Hagstrom (Easy read and interesting examples of some of WB's great investments)

Buffettology - Mary Buffett and David Clark (An interesting slant on things. Easy Read)

The Essays of Warren Buffett - Warren E. Buffett (From the annual reports of his company Berkshire Hatherway. Fascinating).

Common Stocks and Uncommon Profits - Phillip A. Fisher (Regarded as an investment classic. Fisher was one of the greatest growth stock investors. Buffett says he's 85 % Graham and 15 % Fisher, which is a real compliment).

One Up On Wall Street - Peter Lynch (Peter has a gift for making it all sound simple. I think this book extols the benefits of understanding brands).

The Real Warren Buffett - James O'Loughlin
(Buffett is so much more than an investor. What he has created in the management structure and culture of Berkshire Hathaway is truly unique).

The Smartest Guys In The Room - Bethany McLean and Peter Elkind
(How it can all go wrong. The ENRON scandle. (A riveting read. You couldn't make this up).

Accounts: Interpreting Company Reports and Accounts - Geoffrey Holmes and Alan Sugden

The Great Crash 1929 - John Kenneth Galbraith
(Easy read. I think it's important to understand bubbles, crashes and investment history statistics. It may stop you being panicked out of a sound investment one day or help you avoid investing during the later stages of a bubble cycle).

The BZW Equity-Gilt Study (Facts and figures going back to 1918 on Equities, Gilts and the Cost of Living Index. Great for looking at corelations).

The Death of Inflation - Roger Bootle (Bootle saw the change coming 10 years ago, while inflation was still raging. He's a genius economist imo).

A Very English Deceit - Malcolm Balen (The South Sea Bubble and an excellent account of how London's financial power house started in the early 1700's. Insurance companies and share traders in coffee shops, no less).


20 years of dividends and still going strong

Here's its pick of 20 UK companies that have at least held their annual dividends since 1990, together with their forecast payouts for financial years 2010, 2011 and 2012:

Vodafone Group Mobile Telecoms 180 8.3 8.9 9.5
Royal Dutch Shell Oil & Gas Producers 2,145 107.2 111.2 118.0
Tesco Food Retailers 403 13.1 14.9 16.0
Schroders General Financials 1,851 34.0 37.0 40.0
Serco Group Support Services 553 7.2 8.0 8.8
Meggitt Aerospace & Def. 349 8.6 9.2 10.0
Cobham Aerospace & Def. 209 6.0 6.6 7.3
Derwent London REITs 1,552 29.4 32.1 35.0
PZ Cussons Personal Goods 360 5.9 6.4 6.9
Spirax Sarco Engineering 1,843 41.2 45.3 49.8
Halma Electronics 340 8.5 9.1 9.8
Close Brothers Group General Financials 858 39.0 39.0 39.0
Brown N Group General Retailers 280 10.8 12.3 13.5
Rathbone Brothers General Financials 1,150 42.0 42.0 42.0
Greggs Food Retailers 480 17.5 18.6 19.9
Daejan Holdings Real Estate 2,781 74.0 74.0 74.0
AG Barr Beverages 1,150 23.1 24.5 25.7
Cranswick Food Producers 850 25.0 27.5 30.2
Oxford Instruments Electronics 617 8.4 8.8 9.3

Filed Under: Income Investing,


As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. The author may own shares in any companies discussed, all opinions are his/her own & are general/impersonal. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.

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National Grid plc is an electricity and gas utility company focused on transmission and distribution activities in electricity and gas in both the United Kingdom and the United States. The Company's segments include UK Electricity Transmission, which is engaged in high voltage electricity transmission networks in Great Britain; UK Gas Transmission, which is the gas transmission network in Great Britain and United Kingdom liquefied natural gas (LNG) storage activities; UK Gas Distribution, which includes approximately four of the eight regional networks of Great Britain's gas distribution system, and US Regulated, which includes gas distribution networks, electricity distribution networks and high voltage electricity transmission networks in New York, and New England and electricity generation facilities in New York. Its other activities relate to non-regulated businesses and other commercial operations not included within the above segments. more »

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Severn Trent Plc treats and provides water and removes wastewater in the United Kingdom and internationally. The Company provides clean water and wastewater services through its businesses, Severn Trent Water and Severn Trent Business Services. It operates through two segments: Regulated Water and Waste Water, and Business Services. The Regulated Water and Waste Water segment includes Severn Trent Water Limited's wholesale operations and household retail activities, and related support functions. The Business Services segment includes the Operating Services businesses in the United States, the United Kingdom, Ireland and Italy; its renewable energy business, and Severn Trent Water Limited's non-household retail business. The United Kingdom Operating Services provides contract services to municipal and industrial clients, and the United Kingdom Ministry of Defense (MOD). The United States Operating Services provides contract services to community, municipal and industrial clients. more »

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Aviva plc is a holding company. The Company provides customers with long-term insurance and savings, general and health insurance, and fund management products and services. Its segments include United Kingdom & Ireland; France; Poland; Italy, Spain and Other; Canada; Asia; Aviva Investors, and Other Group activities. The United Kingdom and Ireland segment consists of two operating segments: Life and General Insurance. The principal activities of its French operations are long-term business and general insurance. Its Poland Activities in Poland consist of long-term business and general insurance operations. Its Italian operations are long-term business and general insurance. The principal activity of the Canadian operation is general insurance. Its activities in Asia consist of its long-term business operations in China, India, Singapore, Hong Kong, Vietnam, Indonesia, Taiwan and international operations. The Aviva Investors segment offers a range of asset management services. more »

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334 Posts on this Thread show/hide all

Fangorn 16th Feb '11 275 of 334

Similar view here, Took a position a week or ago though - nice quality company, 30 drugs in pipeline working their way through phase 3 trials I remember reading somewhere. One to tuck away from my point of view.

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Isaac 17th May '11 276 of 334

Fwiw imho the markets in general are going higher and the current blip is a buying opportunity. Too much fear and too many people prepared to raise cash and wait on the sides thinking there is about to be another big crash as QE2 ends.

Time will show how wrong they are. The consensus is wrong time and time again.

People will think I'm talking nonsense because price declines in the market's make them feel 'comfortable' to stay in cash and be bearish etc.

But over the coming months people will see that I am actually correct.

The way these events play out is suddenly markets grind higher and the consense get's left behind as they completely miss the bottom and they scrabble to buy in taking the markets even higher. It really is funny how this pattern always repeats itself and it always seem to fool people over and over again.

The commodity weakness is temporary imho, it is my view that commodities/markets will make new highs this year.

For the recod the FTSE closed at 5861 this evening.



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salty64 22nd May '11 278 of 334

In reply to Isaac, post #277

That will be a reminder to me not to click on this link again.

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Isaac 19th Jul '11 279 of 334

Good article Maynard :

Interesting analysis of holding the HYP shares most commonly held by 'expert' funds & thus avoiding the fees. They seem to have missed AV., BA. & NG. also trading at attractive valuations with decent yields.

It is also interesting to look back at the first post and compare the prices of the HYP with the FTSE 100.

May 2010 the FTSE stood at about 5400. Today the FTSE stands at 5800. An approximate 7.5% gain for the past year.

However rough approximations the HYP has performed as follows :

Aviva up 20%
BP down 13%
UU. up 15%
SSE up 31%
SVT up 26%
RDSB up 26%
NG. down 4%
VOD up 15%
BATS up 35.5%
GSK up 14%
AZN up 5%

The figures above are only capital growth and excludes the avg 6% dividend of the portfolio at the time of purchase. NG. with the dividend is slightly up, BP. is down due to exceptional circumstances. But being the only stock down after adjusting for diviedends is hardly a bad result compared ot the overall market performance of the FTSE 100.

SSE and BATS were the best performers - two defensive stocks.

When the price is right I think it would be worth adding IMT to the portfolio, even SBRY is yielding 4.8% which is respectful for a supermarket on a single digit PE.

It is my view every Investor should hold FTSE 100 high yield defensives & keep adding to them when the opportunties such as now present themselves. I will continue buying High Yielders during depressed markets & reinvest the income.

I think the return above from the HYP is respectful, especially if all one needs to do is go to Digital look, filter for FTSE 350 high yielders and then just buy and re-visit the portfolio every 6 months to check the performance. Easy.

With the exception of a handful of stocks, the majority of the hyp port above are defensive stocks.

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Fangorn 20th Jul '11 280 of 334

BAe is looking nice at 301(missed the sub 300p the otehr day.)

Concur about Sainsbury.

Have been nibbling at AV, Bae, RSA etc all year when market wobbles present a gift entry point.

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Isaac 21st Jul '11 281 of 334

An excellent article by PYAD : Your investing style evolves as you get older.

I very much enjoyed reading this article because I can relate to the following.....

The only way anyone will ever make really big money in the market, starting from a small base, is to play it big and risky. Go in with everything you've got into just one or a very small number of carefully researched value shares. Most investors will never do that and they are right not to do so. But for a tiny number who appreciate fully what they are doing, it's the way to go.

However I don't think I am quite at the same stage in my investment career as PYAD just yet...

Now though I've moved on. I'm in the third and probably final phase of my investment evolution by becoming these days largely HYP. I still go for the occasional value share but with only a modest proportion of my whole portfolio. 

In some cases, shares that are part of my permanent HYP, but which I also think may be good value plays will have far more invested in them than the HYP rules permit


...although my dividend portfolio is still in it's infant stages of growing overtime into a much larger elephant in my portfolio.....


If there is one writer on TMF I enjoy reading consistently it has to be PYAD.

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repobear 21st Oct '11 282 of 334

In reply to Isaac, post #31


Give me the bear case for this one.


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Isaac 27th Oct '11 283 of 334


I have no view without looking at it in detail hard to comment.

I've bought a few EMG today, Euro bailout feels a bit like TARP bail out a few years ago. Think EMG should recover, nice divi, p/tb of 1, cash on balance sheet, forward pe of 7.7, directors bought shed load of shares in recent months etc

Very happy to take 9% dividend to wait it out - Results next week and ex-div a few weeks later, NICE.

Should soon follow the banks and Insurance companies IMO.

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Isaac 27th Oct '11 284 of 334

BMS also doing very well since I bought a few weeks back. Very happy with this one.

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Isaac 27th Oct '11 285 of 334

Bought a load of LLPC - Have been waiting a long time to get into these. I think the time is right....LLOY up over 25% since their lows, LLPC only up about 10% - Any news of payouts restarting in 2012 will see a swift bounce.

Either way I am happy to hold LLPC for a LONG time adding to my Income.

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Fangorn 27th Oct '11 286 of 334

Talking of high yielders, any thoughts on BP Prudhoe Bay royalty trust.
Off lows I see, last week when it hit $96.18 - stonking yield, quarterly payment.

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Isaac 27th Oct '11 287 of 334

thanks Fangorn

I think yield should be a very important part of ones portfolio. Just look at how the high yielders that offered extraordinary dividends have done in recent weeks, especially when you look at Aviva, Braemar, Halfords, Sainsburys, BAE systems etc

They have bounced back swfitly.

So when we have the next big market crash I think I will continue to look at buying high yielders as they tend to bounce back strongly.

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Isaac 28th Oct '11 288 of 334

LLPC....the penny drops :-)

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Fangorn 28th Oct '11 289 of 334

I'll be doing the same Isaac. Nibbling on high yielders.


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Isaac 28th Oct '11 290 of 334

LLPC - The ords were up over 10% yesterday but the prefs hardly budged. Today the penny dropped and the prefs had a decent rally.

Worth looking at for differentials in stocks.

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Fangorn 29th Oct '11 291 of 334

I presume you mean Lloyds Bank Prefs?

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Isaac 30th Oct '11 292 of 334

Yes Lloy prefs.

Keep buying dividend paying stocks is my theme, I need to get exposure to utilities, pharmas, tobacco stocks when they get cheap.

I want to buy more yield stocks, once it is obvious bonds are in a bear market I can see a big influx of cash into dividend paying stocks and these yields being driven lower.

I just don't see higher interest rates for a long time, with hardly any pay rises and inflation the one of the few ways to get a 'pay rise' is to invest in dividend paying stocks that increase their yields annually.

I especially like the blue chip stocks that have an economic moat and pays decent dividends.

I think equities will be one of the best performing asset classes over the next 10 years. I also think it makes sense to buy certain non-commodity related stocks for a long term view.

I seriously want to buy into VOD if the price drops back. I think this is a brilliant company with excellent growth prospects & dividends.

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Fangorn 31st Oct '11 293 of 334

I concur on the absence of interest rate rises for a while. And your approach, of buying decent yield stocks is similar to my own - any thoughts therefore on that BP Prudhoe Royalty trust I mentioned -decent divi there. Only missing Tobacco stocks myself, as have Pharms, Utilities amd other blue chip high yielders.

Intend to siphon off cash to blue chip divi payers over the next two quarters myself on market weakness.

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Isaac 31st Oct '11 294 of 334


When I Invest in stocks I don't just look at yield alone, I do asses othe risk factors and try to gauge the outlook of the underlying stock and whether it can maintain dividend payments and potentially have some growth thrown in.

With VOD I see growth as well as a decent dividend for a long time come, I think VOD is a stonking cash cow & when opportunistic times come to pick up cheap stocks one should fill their boots IMO.

As for BP Prudhoe Royalty trust, well I have taken a brief look. It yields 8.7%, not bad but when you take a deeper look as to how it works and the risks involved it kinda makes sense as to why you get an above average yield because of the extra risk.

Your essentially buying a single oil asset, prudhoe bay. This field has been producing for the last 30 years and the company estimates the field to continue producing for another 12 years, 2024. Maybe most of the Oil has been produced and the field will go in decline at some point in the next 12 years? Hard to say.

When you look at the long term share graph i.e. the last 10 years there has hardly been any growth in the share price in a period when Oil prices have gone up by 1000%. Maybe they have paid stonking dividends? As shareholders made 1,369% between 1997-2007.

If we were in 1998 then I would probably Invest, but to Invest now is not so attractive as I don't expect oil prices to rise 1000% in the next decade. Maybe they will double at most from current levels?

I'd rather own BP equity which offers growth as well as rising dividends over the next few years IMO. Dudley said cashflow is expected to grow by 50% by 2014 and has indicated higher dividends.

Owning an utility paying 6% is lower risk then owning prudhoe bay trust paying 8.7% IMO, I don't think the 2.7% extra return justifies the risk IMO.

I've taken a bit of risk by putting EMG into my HYP, but if it works then I can see significant returns in terms of yield and growth, I'd rather buy now though when sentiment's on it's arse & they have a very good balancve sheet.

It will be interesting to see what they do with the Dividend on Wednesday, markets expecting a cut so even a hold should see a decent rally.

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