Sunday, 27 January 2019

New High Yield Group within SIPP

These days, I'm becoming increasingly uncomfortable with holding large chunks of individual company shares, preferring instead to spread the perceived risk by using funds and trusts that invest across many companies.  I must be getting old ...

Within my combined portfolio, Centrica (CNA.L), GlaxoSmithKline (GSK.L) and Royal Dutch Shell (RDSB.L) may each be a relatively small piece of the whole, but if considered together they'd become my largest equity holding and be quite significant in actual cash terms.

And there's good reason to link them together.  These three shares are amongst the largest contributors to my passive income stream, and in combination produced 18% of last year's total income despite comprising just 6.5% of the total portfolio valuation at the year end. Understandably therefore, I'm very reluctant to ditch them altogether.   

So instead, a few days ago I created my own high-yield 'fund' by actually increasing the number of individual shares within the portfolio but using much smaller holdings.


To start, I sold most of my three existing holdings in CNA.L, GSK.L & RDSB.L, not down to zero but to leave similar smaller values of each, and then I used the sale proceeds to buy into another seven individual companies* to form a high yielding group within the SIPP, so the group now comprises 10 holdings of equal starting value.   

I'll generally consider this group of ten holdings as a single entity, and report progress accordingly.  Within my spreadsheets, I've made a new worksheet for this group which rolls up the valuation subtotals into the main summary sheet.  I've very imaginatively termed this new line item in the summary as the 'High Yield Share Group within SIPP'.   

At the time of implementation, this new group comprised around 6.5% of the combined portfolio total, i.e. the same proportion as the three individual holdings it has replaced in the listings.

The seven new holdings I've chosen are among the 'dogs' of the FTSE350, all generally out of favour with the markets and therefore with historic yields well above the bourse average.  In fact, of this group of ten, the lowest yielding constituent based on the previous 12 months' returns is GSK.L at around 5.5%, based on its valuation at the time of establishment of the group.

I've gone quite aggressively for yield here.  There seemed little point in buying less risky shares and settling for around 5% overall yield since I could have used the cash to either top-up some of my existing funds or bought something like Merchants Trust (MRCH.L) currently yielding ~5.2%.  

But I haven't opted for no-hopers either, and I didn't blindly choose the seven highest yielders from the bourse to supplement the existing three companies.   I can see something positive in all of them, and many were trading at much higher levels before the autumn slump, so there's potential for capital growth too.

So if this new group of 10 can perform similarly to last year, I should actually increase the total amount of passive income received.  Perhaps it's a big 'if', with a real danger of dividend cuts and / or further falls in the share prices, but by spreading the risk over 10 instead of 3 individual holdings I hope to come out of the game ahead, and if one should go tits-up then it's much less of an impact than it was before since each component represents just 0.65% of the combined portfolio.

For the record, here's the full group of ten :-

BATS, British American Tobacco plc
CEY, Centamin plc
CNA, Centrica plc
GSK, GlaxoSmithKline plc
NRR, NewRiver REIT plc
PSN, Persimmon plc
RDSB, Royal Dutch Shell plc
SLA, Standard Life Aberdeen plc
STOB, Stobart Group Ltd
VOD, Vodafone Group plc

As usual, I'll be reinvesting the dividends and the gain / loss column will therefore reflect the total returns.


* one of them is a REIT.

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