[Stephen Bland]

I’ve been called worse in my time.

[Stephen Bland]

Predictions, especially about the future, are not something in which I indulge Nicola. Strategic ignorance rules.

Investors including HYPers should not be in equities at all if they can’t countenance big falls in share values which can happen in really bad bears. Many companies may cut their dividends as well in such conditions, where cash may be tight. But I’ve seen it all before, several times, and HYPs in particular are likely to survive and go on to do well though there can never be any guarantees. Shares and their dividends are risk investments and HYPers have to accept that fact if they wish to invest this way.

[Stephen Bland]

As you say Nicola, I am not permitted to give personal financial advice so that does restrict substantially my response to your points.

As a generality, I always suggest that HYPers use ISAs as far as possible for their portfolios. And as another generality, I much prefer them to SIPPs because the latter are overloaded with restrictions of which the rules change often and I see little or no attraction in the purported tax advantages compared with ISAs. But having said that, individual circumstances vary so much that each investor has to make their own decision.

On your other point, assuming ISAs are of benefit to you personally upon which I won’t comment, I think it preferable to move HYP shares held in a direct account into the ISA. I have done this myself, repeatedly. That does constitute a sale and repurchase in the ISA because you can’t make a direct transfer, but it’s the only way to do it so I don’t consider that such a transaction breaches my “never sell” rule. This will involve some costs but in my view the attractions of ISAs are such that it is worth it provided that suits your personal circumstances.

For HYPers constructing a portfolio, it’s simpler to place the cash in the ISA first then buy the shares. But for those like yourself who already hold shares outside the ISA, then I do find it worthwhile to to make the sale and repurchase in order to relocate the holdings into the ISA. If doing so, watch the timing of xd dates to avoid missing a dividend between the sale and repurchase.

Thanks for your comments on TDL, much appreciated.

[Stephen Bland]

There’s no David here but I presume this is for me.

I don’t consider SAGA to be in the holiday business and in my view it is predominantly in the insurance business because insurance delivers the overwhelming majority of its profits (91% before central costs in the 6m to 31.07.17, compared with just 9% for travel). Consequently I don’t see it as in the same sector as TUI which is a pure holiday play. Also, SAGA is in the FTSE250 rather than in the FTSE100 index and I prefer where possible to choose shares from the biggest caps for the HYP strategy. There are several insurers in the 100 and therefore I have no need to look in the 250 for shares in that industry.

Agreed that TUI has complications with foreign tax deduction and currency implications for its dividend because regrettably they haven’t bothered to arrange a proper UK payment system, but nevertheless it is a pure holiday play.

I am not permitted to give personal financial advice to individual readers so any decision by you on SAGA would be yours alone in which I can play no part, but I am just answering your question on why I haven’t selected it previously.

[Stephen Bland]

TDL is about individual HY share portfolios so no plans to include ITs though I have nothing against them. Readers can add them or any indeed any share to their HYP but that is entirely their own decision in which I can play no part. As you may know I am prohibited from giving personal financial advice so will not say much more on this.

What I can say in general is that I see little point in adding an IT which duplicates a lot of the shares held individually in an HYP because this would not improve diversification much. As a generality readers wishing to add an income IT to their HYPs should consider those based on different shares entirely, which would then satisfy one of the crucial requirements of HYP construction – diversification.

[Stephen Bland]

As far as I know S32 dividends, because of arrangements it has made with UK authorities, are treated like any other UK dividend in that no overseas tax is deducted. Same as BLT for example. So there are no particular tax issues indicating that this share is especially better off in an ISA but as a generality I advocate that HYPers use ISAs to the max anyway.

TUI is entirely different in that German withholding tax is applied to the dividend. Holding in an ISA makes no difference to that fact and the tax is not recoverable. However if held direct outside an ISA, foreign dividends like this are taxed differently from UK payouts in that credit is given for the German tax deducted up to the investor’s marginal income tax rate. Such foreign dividends are not part of the annual tax free dividend allowance.

[Stephen Bland]

That perhaps is something to ask the individual “platform” John.

You may be thinking of the trend towards brokers’ nominee holdings where investors don’t appear on the share register of the companies held. Where HYPs are held in ISAs, which for tax purposes is in my view advisable for most, there is no option and all holdings will be in nominee form. Where held direct, it is still possible to avoid nominees and hold paper certificates or use CREST, an electronic system which has the best of both worlds, being paperless whilst maintaining the holder’s name on the register. However both of these attract higher transaction and other costs so really only practicable for large non-ISA portfolios.

The advantage of nominee holding, outside an ISA, is the much lower transaction costs offered to investors so this has become very common even for non-ISA shareholdings. It has the further strong advantage of providing very simple online trading, which is not possible with paper though it is with CREST.

But yes, I agree there is a very small additional risk undertaken by using nominee services compared with holding direct, just because the investor is not a registered shareholder. As for compensation in the event of failure, I suggest as mentioned above that you ask your broker what may happen in that event.

[Stephen Bland]

I don’t indicate maximum buy prices because price alone is inadequate to determine the yield or other merits of a share due to changing dividend amounts and other factors which alter over time. The Dividend Schedule which accompanies every issue of TDL shows my latest opinion on every past share I have selected that still exists in any portfolio, indicating Buy or Hold status, and this takes into account my assessment of the share at that point including price and dividend forecasts etc. The latest edition shows Buy for BLT.

[Stephen Bland]

No matter your age, the procedure for those who wish to reinvest dividends is as I’ve outlined and I wish you every success with your HYP.

[Stephen Bland]

If I understand you correctly, this is a common situation for HYPers. There is no need to constantly seek new companies provided your portfolio is sufficiently diversified, which it must be if you followed one of my TDL HYPs. Just reinvest the dividend cash in topping up your existing holdings once it has accumulated to an economic amount having regard to costs, sticking only to those shown as Buys in TDL at the time you are doing this.

My recommended procedure for this is to work your way through your portfolio, investing the same amount in each share/sector where still a Buy at that stage. After having topped up every qualifying share/sector in this way, repeat indefinitely. Reinvesting dividends will have the very beneficial effect of boosting the eventual income when the time comes.

Hope this helps.

[Stephen Bland]

I don’t quite follow what you mean here. Are you saying that your portfolio is insufficiently diversfied?

[Stephen Bland]

The portfolio is built up by a new selection in a new sector each month. Occasionally that new selection may consist of two shares in the same sector – which I term Multiple Choice – if I feel that this suits the portfolio under construction. There is a minimum of 15 sectors and usually no more than 20 in a portfolio though the upper limit is not fixed. Thus it will normally take 15-20 months to complete the construction.

I picked both RDSB and BP. as my oil sector MC for HYP7 so as you are catching up and following this latest portfolio, you should own both. Note that where I suggest MC for a sector, you must split your unit sector investment equally between them so as not to overweight it. So if for example you are catching up with an investment of £5,000 per sector, then you should put £2,500 in each of RDSB and BP. so that the total invested in oils is still £5,000, same as the other sectors.

Hope this helps but please ask if you have any futher queries.

[Stephen Bland]

Thanks for the positive comments. I reiterate as mentioned in the latest TDL and on previous occasions that it is extremely rare for a large company to go bust and this is principally the reason I stick to such shares for HYP selections. But there are no guarantees, shares and their dividends are always a risk investment. The defence, which forms the foundation of HYP construction, is a widely diversified portfolio so as to reduce the risks specific to any particular industry or share. Risk remains of course, that cannot be eliminated from an equity investment but it can be ameliorated in this way.

And the ultimate test of the success of the approach is a growing portfolio income over the long term, not what happens to each individual share.

[Stephen Bland]

Yes, all is lost on CLLN. No I did not take account of the short position but because of their financial difficulties I moved it to Hold some time ago. I don’t do Sells (except in very rare technical circumstances not applicable here) as you probably are aware, for reasons I’ve mentioned previously and which I’ll reiterate in this week’s TDL which will be about the CLLN failure.

If you think short term trading opinion, long or short, has any place in the HYP strategy, it doesn’t. Most traders lose money so their view is of no consequence in my opinion. And I’ll say further that even if I were to take account of a strong majority view on a share, I’d probably go the opposite way provided my analysis supported this. Long experience tells me that the majority is all too frequently, but not always, wrong. One case where they were right does not disprove this.

[Stephen Bland]

I don’t object to criticism but as you might expect, if I disagree I’ll say so and explain why.

As for Carillion, I don’t propose repeating yet again the reasons for my treatment of the share, having stated them extensively both on this forum and in TDL previously. I hold it too.

Incidentally, you are incorrect to say that my never sell advice arises from my concept of Strategic Ignorance. SI refers to ignoring long term opinion of a share, a sector or the economy in general when selecting a new holding. I gave in my earlier explanations on CLLN the reason for never selling, which is not due to SI.

Clearly TDL is only advisory and I’d guess that many readers add their own judgements to mine as you say and I have no quarrel with that at all. Whether that leads their portfolios over time to perform better than mine, as measured by the pattern of long term total income, is something only they will know.

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