And For My Next Trick...

Stephen Bland picks a third share for his latest high yield portfolio.

I'm repeating the sleight of hand made with the first purchase for my fourth high yield portfolio, BP, in that I'm jumping out of the descending yield list of FTSE100 shares to pick for my third choice F&C Asset Management (LSE: FCAM) , a member of the FTSE250. My reason is similar to the BP selection, namely that I think FCAM shares have been pushed down rather a lot in the last few days for no particular reason I can see other than poor sentiment and I am taking advantage of that because it increases the yield. It wasn't going to be my third choice, a more obvious share was earmarked to fill the slot, but I couldn't resist the slide in FCAM.

The company is a fund manager, a business I don't mind having in an HYP if there is one available at a decent yield. And FCAM certainly delivers that on a forecast chunky 5.7% based on a dividend of 11p at my buying price including costs of 192.2p. At this level it's up there with the highest yielders in the market amongst big caps.

Note that the company is controlled by the quoted life insurer Friends Provident (LSE: FP) , a situation which perhaps in my view is unlikely to continue in the longer run. However, strategic ignorance prevents me from reading too much in that possibility and it was irrelevant to my selecting the share for HYP4.

Much more importantly since HYPs are about income, this is a company that has not increased its dividend for some years due to patchy eps, a similar story to that other popular HYP share, Lloyds TSB (LSE: LLOY) . Normally I want to see increasing dividends in recent years for my HYP selections, it's one of my criteria, but sometimes I may over ride that requirement for a share with a very high yield as a trade-off. FCAM directorspeak has indicated that they wish to see cover of 1.5 before increasing the payout, again a position which echoes comments from Lloyds.

I should point out that with a market cap of £900m, FCAM is very much the lowest size of company which I would advocate investors consider for an HYP. Nearly all the companies I pick will be from the FTSE100 and therefore much larger than FCAM but occasionally I do find room for one or two smaller business in a portfolio depending on what's available at the time of selection and this is one such choice.

FCAM is a share I've picked before for my HYPs though that had nothing to do with my reasoning behind choosing it now. There is absolutely no sentiment behind HYP share selection, all I'm interested in for this purpose are the numbers and especially the income numbers. The reason that many shares appear as frequently repeated choices in various HYPs over long periods is that some high yielders tend to remain that way often for years. Which of course begs the question why certain HY shares do remain HY shares for such lengthy periods.

There are a couple of fairly obvious reasons that occur to me. Often these shares have erratic historical and forecast eps showing no clear growth pattern and thus are on modest P/Es because investors are naturally less attracted to shares with no growth than those exhibiting it. Similarly, these shares will often show a static dividend picture, another reason for many investors to ignore them, even many income investors, in favour of those growing divis.

HYPers though buy and hold for income and will ignore what anyone else thinks.

Here's HYP4 details to date, cost includes all costs:

Stephen holds shares in BP, F&C Asset Management and Lloyds TSB.