Stephen Bland adds insurance giant, Aviva, to his fourth high-yield portfolio.
It's that time of the month again, the first article of it when I add a new share to my fourth High Yield Portfolio, the seventh in this case. I'm going for composite insurer Aviva
. The reason is simple. It is the next share down the FTSE 100 by descending yield whose sector is not already represented in the portfolio, and whose HYP credentials stack up.
Aviva has the desired increasing dividend history. For the year ended 31/12/02 it paid out 23.0p and this rose every year to the latest, being 06, when it delivered 30.0p. The 07 consensus forecast is for 32.2p and, for what it's worth, the analysts are showing us 35.6p for 08. Thus the 07 forecast, if accurate, means a rise of 7.3% which is probably going to be inflation beating. Interestingly, the 08 forecast shows an even bigger rise at 10.6% over 07. None of which is exactly bad news.
At my buying price of 774p including costs then, the historical 06 yield is 3.88%, the forecast for 07 is 4.16% and for 08, 4.6%. With the current FTSE 100 average historical yield at around 3%, Aviva is clearly a high yield share.
Dividend cover for recent years is high relative to other shares at between 2 and 3. It's also high when you look at forecasts.
Note, however, that it's hard to be sure about insurance company EPS because there are several ways it can be calculated. The accounts of these companies can be somewhat impenetrable unless you are a skilled accountant or analyst, principally because a lot of the figures involved require subjective valuations and those can be done on various bases.
Don't worry, one of the attractions of HYPing is that you do not need to know all that stuff. If it's big, it diversifies the portfolio, it appears to be able to afford comfortably recent and very near future dividends, what more do you want?
In fact I've stated frequently that a desire to want to know too much about a business is counter productive in HYP share selection.
Overanalysing was the term I coined. Not dissimilar to that equally undesirable desire of some investors who try and divine the long term future of the business, the sector and the economy, not understanding that this is futile and may lead to poor share selection. The antidote to which is that other term I minted, strategic ignorance. The deliberate refusal to consider any kind of long term factors as part of the HYP strategy.
On another matter, at the time of writing I still don't have details of the F&C Management
dividend cut to which I referred in last month's article. In fact, I find it damned annoying that they announced a cut would be made without quantifying it.
They should either have shut up until they decided upon the figures or else stated the details there and then. But to say there will be a cut whilst teasingly refuse to come out with the details for several weeks doesn't help shareholders at all. Anyway, once the new dividend figures are known, I'll make a decision whether to hold or retain F&C because I do allow trading in HYP4.
Here's HYP4 to date including the latest purchase. Following recent market falls most of the shares are showing a loss at present. Don't forget though that this strategy is very long term and is primarily about income.
BP (LSE: BP.)
Lloyds TSB (LSE: LLOY)
F&C AM (LSE: FCAM)
United Utilities (LSE: UU.)
BT (LSE: BT.A)
DSG International (LSE: DSGI)
Of the shares shown Stephen holds BP, BT, DSGI, Lloyds, United Utilities.