|Reaching for low-hanging fruit|
For a variety of lurid crimes (which differ according to the sources) Tantalus was punished by temptation without satisfaction. He was made to stand in a pool of water beneath a fruit tree with low branches. Whenever he reached for the fruit, the branches raised his intended meal from his grasp. Whenever he bent down to get a drink, the water receded before he could get any. Finally, over his head towered a threatening stone like the one that Sisyphus (my own particular favourite) has as his own punishment to eternally roll up a hill.
I'm hoping that you are starting to see the parallels with investing...
For me, as a DIY Income Investor, the biggest temptation is the urge to sell a winner. I don't have a particular problem holding onto losers, provided that I think they have some reasonable chance of recovery - usually they will have some redeeming qualities. But winners - they are like the low-hanging fruit that tempted Tantalus: wait too long and they are snatched away.
And the income (from dividends or bond returns) are like the water that Tantalus would bend down to drink from - too often suddenly seeping away.
Finally, there is the all-too-present danger of the double-whammy: the giant rock that falls on your head when the dividend is cut and the share price falls.
So it is - unfortunately for me - with National Grid (LSE:NG). It is hitting new highs daily, although these are still below the all-time high set in June 2013. Yet the dividend cover is slender indeed - and with all the bad press surrounding the power companies, it is only a matter of time that public opinion turns against the owners of the network infrastructure too.
I should have sold last year and saved myself a lot of tantalisation. Still, I'm up 40% since buying in June 2011 and the portfolio has benefited from the flow of income from the dividends.
And if this were the only one, it would not be so bad. But there are others, oh yes: Carillion (LSE:CLLN) and Balfour Beatty (LSE:BBY) are both showing plump valuations.
Regular readers will know that my own 'sell' indicator is based on the ratio of capital increase divided by current annual income: I think about selling when the gain is greater than 5-years'-worth of income (and when the yield is significantly lower than the portfolio average). This helps a lot to reduce the temptation to sell - but it's not the complete answer because all of the above have hit that target.
Poor Tantalus, I know how he felt...
Update 20/2/14: And down again goes the market - and out of reach go the low-hanging fruit!
I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.
I've recently top-sliced both BBY & CLLN because they had become too large a % of my portfolio. Also, at the time they seemed to have stalled near their 52 week highs. Of course, they've now made new highs and like you I'm wondering if I should sell out.ReplyDelete
However, I'm hoping that construction is entering a sweet spot and I'm tempted to run both of these with a close stop-loss.
Hi DIY, whats your take on the I shares Emerging Market Dividends ETF (SEDY). I bought this ETF recently and its in your portfolio. They declared a distribution (payable in March) of only $0.0083 ! Do you think the distributions of June, Sept, Dec will make up for this low March distribution ? This is the first income ETF I bought from I shares. Normally buy dividend shares. Seems to be difficult to know what these ETFs will actually payout.ReplyDelete
I don't hold SEDY but I hold other Emerging Market ETFs (see the Portfolio Page). Bloomberg is still showing the trailing 12 month yield for SEDY as 4.51 but you could try to check the actual quarterly dividends with iShares.
Emerging Markets have been shunned by investors of late - potentially bargains to be had, unless it all goes pear-shaped. I;m holding onto my EM ETFs and have even added to them.
Thanks DIY. The official response from I shares for SEDY was:ReplyDelete
With respect to your query, the underlying dividend income is substantially lower than previous quarters for both funds and in addition they have suffered from realised currency losses. Similar to Brazil the currency positions have been closed out to prevent further unrealised movements impacting the available income. However this has resulted in a lower than usual distribution rate for this quarter.
Impressive follow-up Anon. Rather disconcerting ETF gymnastics going on there...Delete
Hi DIY, well I'd like to get to the bottom of this. I've contacted Dow Jones. SEDY tracks Dow Jones Emerging Markets Select Dividend Index. I would like to know what dividends the Dow Jones index should have paid for Q1 2014 and if SEDY is meant to track the dividends as well as total return. I also hold SPDR EMDV (like you) and they paid a nice $0.40 this January and they hold Brazil, Taiwan, China just like SEDY.ReplyDelete