StockRank and Yield Based HYP

15th Apr '19 by maffs0

9 comments 2519 reads

Inspired by Stephen Bland's recent HYP post, I thought I would suggest a different approach to putting together a HYP. While I understand that Stephen's focus is on income alone and a hold forever approach, neither of these fit my personality or investing style. So is it possible to have a HYP that seeks to give a great income but also is likely to bring capital appreciation at the same time? Can I have my cake and eat it?

To keep this as simple as possible I have put together a portfolio with a simple 4 factor rules based approach.

BUY RULES:

Market Capitalisation > £350,000
Yield > 4% and < 7.5%
StockRank >=85
Hold 12 shares with equal cost value and with one in each economic sector and the other two in the sector(s) most represented in the scan.

SELL RULES:

Yield falls below 4% especially if profit warning or large absolute dividend cut occur. This may also take out stocks that have appreciated in value faster than their dividend growth.
Stock Rank falls below 70.

I have made a very simple screen for this here that currently gives 44 shares to choose from. From this list, I will feel free to use my judgement regarding the final choice. So far I have bought nine stocks: Bovis Homes (LON:BVS), Headlam (LON:HEAD), Imperial Brands (LON:IMB), Micro Focus International (LON:MCRO), Morgan Sindall (LON:MGNS), Pennon (LON:PNN), Rio Tinto (LON:RIO), Royal Dutch Shell (LON:RDSB), £BT . I'll choose the other three stocks in the next day or so and let you know in the comments section.

I'd love to know if anyone else is trying anything like this or if you have any thoughts or comments.

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maffs0

16th Apr '19

I have now completed the 12 holdings by adding the final three today. Interestingly, there were no stocks in the healthcare sector that passed my screen and so I have decided to omit that sector this year. Instead I have ended up with three stocks from Cyclicals, two from Financials and one from each of the other Economic Sectors.

The final three stocks are Jupiter Fund Management (LON:JUP), Greene King (LON:GNK) and Regional REIT (LON:RGL). This last stock is a bit of an outlier as it is a REIT and so comes under the financial sector, but also give me exposure to office real estate around the UK. There is, therefore, a bit of a Brexit balance to the portfolio as some of the stocks have a lot of earnings in US$ and others are more exposed to the wellbeing of the UK economy.

I'll keep you informed as to the well being or otherwise of the portfolio. My aim is for 12% annual total gain made up of 50/50 growth and re-invested income.

M.

Aesurgenor

I will follow this with interest.
It is perhaps the Holy Grail? Great dividends combined with growth too? At my age and stage of my investing life it is for me anyway.

I agree, Stephen's posts on HYP were interesting but for me, I couldn't stand/sit back and (potentially) watch my capital disappear.

Just one wee point - I presume the MCap of > £350,000 mentioned in your original post is missing 3 x zero's?
:-)

GrahamF

Selling when the SR dips below 70 may mean you are trading too often.

I recall reading some years back that the majority of returns come from the compounding effect of reinvested dividends. So, I suppose that suggests high yield stocks are the way to go if you are still picking stable companies. However, when I look at Morning Star data over 7 and 10 years, the data shows that the average total return for the UK All Companies fund sector was higher than the average total return for the UK Equity Income sector. So, if you are not withdrawing the income then there seems little point in specifically favouring higher yielding companies.

abtan

Very interesting, thank you for posting and, if possible, it would certainly be useful to see how it works out.

I set up a similar screen a while back and bought one holding based on high, seemingly stable dividends, with the expectation that once the yield decreased to a "reasonable" level due to capital appreciation I would sell out.

I also did some research to make sure I was happy with the company and its medium term prospects.

Persimmon (LON:PSN) was the lucky choice and after holding since June last year I'm at break-even.

Incidentally I came close to buying Endesa too using similar rationale, but never quite pulled the trigger.

5cb65b6498f6dScreenshot_2019-04-16_at_23

Thanks for your comments guys.

@Aesurgenor, well spotted. Yes you're right £350m minimum market cap. It's a wee bit arbitrary but I do most of my trading in the US and $500m is my minimum in dollars so thats how I got there.

I will only be reviewing once per year on 31 December so if a stock dips below 70 and then recovers it won't get sold. Profit warnings and absolute dividend cuts are another thing though! I may sell immediately in such situations.

I have bought these shares over the last three weeks or so and here is the portfolio in Stocko. Bovis (I have a 3.4% dividend that went ex-div after I bought it) and Rio have been the stars so far. Pennon and Imperial Tobacco are bringing up the rear.

Rusty2

17th Apr '19

Just lost my long post. Briefly I think you are too exposed to the construction sector and a recession. I favour larger more defensive companies such as GlaxoSmithKline (LON:GSK), J Sainsbury (LON:SBRY) and Unilever (LON:ULVR). I would add Aviva (LON:AV.) You want to buy and hold, not sell otherwise you will lose money.

16th May '19

Just a quick update. Micro Focus International (LON:MCRO) did a tender to return excess cash to shareholders. This meant that I received just over £800 and my investment reduced by a similar amount. As I considered my options, I took the decision to reinvest the money in what appeared to me to be the best StockRank/ dividend yield combination. And so the money, along with some other dividends received were used to purchase some more shares in Jupiter Fund Management (LON:JUP). I chose this as it has a high StockRank at 97 and a nice growing yield forecast to be 6.5%. So Jupiter Fund Management (LON:JUP) is now overweight and Micro Focus International (LON:MCRO) underweight.

The only stock that has gone below 70 StockRank is Imperial Brands (LON:IMB) but as I said before I will only do major changes at the turn of the calendar year. None of the stocks have put out profits warnings or cut their yields so all are held. Over all, we are a bit down but planning to hold these so long as none of my rules are broken.

M.

5cdd2ba126369Screenshot_2019-05-16_at_10

8th Jun '19

Another quick update. The portfolio is down about 0.5% even including the dividends. So not great, but not surprising as the market has fallen since inception generally. Bovis Homes (LON:BVS), £BT.A, and especially Imperial Brands (LON:IMB) are all having a big drag on the portfolio. Headlam (LON:HEAD) has done well up over 12% if you include it's dividend (past ex-div date). Imperial Brands (LON:IMB) remains the only stock below 70 on the Stock Rank measure, but this is mainly due to poor momentum which could quickly change if it rallies.

5cfbceff043f5Screenshot_2019-06-08_at_15

lightningtiger

12th Jun '19

Interesting set of rules. You may find dividenddata.co.uk useful.Hit the dividend impact box. I use it quite a bit to select the best dividend payers for the following month, which have to pay at least 5%, with the share price in an upward trend.
From that site you can see CCH paying 7.78% XD 4/7/19 paid 30/7/19.The StockRank is 73 which is a bit on the low side but above 70 which is your selling criteria..
The theory goes 5% / mth x12 = 60% pa & @ 7% x 12 = 84%.
It is always good to have a plan to work on.
I currently have 11 shares paying a dividend in July.
Good hunting.

StockRank and Yield Based HYP

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Maffs0

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