This is part 5 in the Stockopedia High Yield Portfolio series by Stephen Bland (HYP).  Last week I compared the various methods of holding the shares in an HYP from the taxation and other angles. Also I reviewed briefly the suitability of the strategy for more elderly investors likely to be requiring immediate income, dismissing common industry advice that equities for such people ought to be avoided or minimised. In fact immediate income investors, of any age, were the original inspiration for my public launch of the approach back in 2000.

This week I’ll have a look at whether shares that turn out to very poor investments from an HYP point of view can in some way be avoided by the initial selection checks. To make it clear, I will define first what constitutes a lousy share for HYP purposes. There are two main categories of lousiness but note that it is what has happened to the income with which I am principally concerned. Capital, remember, is very much secondary or irrelevant.

The worst is a share in the portfolio that has gone bust so that there is no possibility of any future income from it, the latter point being the very reason for holding it in this strategy. The capital will have been lost too.

The less worse is a share that has suspended dividend payments for a long period, a crime in the HYP world, but is still listed on the market thereby presenting the chance of income recovery at some stage. In such circumstances the share price will very likely have fallen dramatically from cost.

I am quite willing to admit that even with my very lengthy experience in the market spanning several decades, I have picked shares that have gone on to do very badly in HYPs that I have constructed. Which is not at all the same thing as saying those portfolios as a whole have done badly. Quite the contrary.

My worst examples were two banks that I selected at various stages years ago, before the financial crisis. These were Lloyds and Royal Bank of Scotland. Both have retained their listings and therefore still remain in the portfolios but have remained dividendless for many years now and their share prices are down 80-90% on cost. But it is the lack of any payout for such long periods which… Unlock this article instantly by logging into your account

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Share this post with friends The Royal Dutch Shell plc explores for crude oil and natural gas around the world, both in conventional fields and from sources, such as tight rock, shale and coal formations. The Company's segments include Integrated Gas, Upstream, Downstream and Corporate. The Integrated Gas segment is engaged in the liquefaction and transportation of gas and the conversion of natural gas to liquids to provide fuels and other products, as well as projects with an integrated activity, ranging from producing to commercializing gas. The Upstream segment includes the operations of Upstream, which is engaged in the exploration for and extraction of crude oil, natural gas and natural gas liquids, and the marketing and transportation of oil and gas, and Oil Sands, which is engaged in the extraction of bitumen from mined oil sands and conversion into synthetic crude oil. The Downstream segment is engaged in oil products and chemicals manufacturing, and marketing activities. more » LSE Price
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About Stephen Bland Stephen Bland

I’m Stephen Bland and have been investing in shares, following markets and advising others on this for around 47 years, with a particular interest in value and high yield approaches. My professional background is that I qualified in 1971 as a chartered accountant and after a short time set up my own practice, running it successfully for several decades and retiring from it in the early noughties. More recently I have qualified as a Member of the Chartered Institute for Securities & Investment. For many years until 2013 I wrote about my value and high yield share investing methods for the Motley Fool UK website. In 2008 I decided to start my own equity income tipsheet, The Dividend Letter, which has since grown its circulation strongly. It follows my own high yield portfolio strategy that I had developed earlier, the novel attraction being the exclusive focus on dividend income and giving up on the whole idea of trading for gains. more »
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