HYP is a passive/non-trading large-cap income investing strategy articulated by writer/investor, Stephen Bland back in 2000. It aims to achieve - as an alternative to purchasing an annuity - a well diversified portfolio of shares in big, solid companies chosen primarily for high yield (i.e. significantly above the FTSE 100 average), as well as some other characteristics that help to ensure security of dividend (and to a less extent, capital). A HYP portfolio typically has 10-15 stocks. As dividends are received, they are reinvested.
Background
Stephen Bland is a writer for Moneyweek and the Motley Fool (known as TMFPyad). He previously ran an accountancy practice in London, and has been an active private investor for some 40 years. Bland ran a TMF Value Investing newsletter which has since closed based around the concept of PYAD (P/E ratio, Yield, Assets, Debt) as the 4 key value ratios.
The idea of the HYP (High Yield Portfolio) emerged from a series of Motley Fool articles in 2000 as a higher return alternative to safer income source like bank interest or gitls. You can see the composition of the original UK HYP detailed here. Since then, it has been extensively discussed/debated/revised on TMF by Pyad and other posters like Gengulphus. In March 2008, Stephen set up his own investment newsletter based on the HYP strategy. It is called The Dividend Letter and is part of the Moneyweek/Agora Group.
How it Works
This is a passive strategy which aims to build a sector-diverse high-yielding portfolio of large-cap shares that will provide a high and increasing income from dividends. Its intended advantages are liquidity, no management charges, no third party involvement, and very little time required to manage the investment. It shares some of the same thinking as the Dogs of the Dow, although it is a bit less mechanical.
This is a strategy that has evolved over time, as well as being re-interpreted by others, and not all of the writeups are consistent, but, in broad terms the approach is as follows:
- Rank the large-cap universe (i.e. FTSE100 or maybe the FTSE 350 shares - usually with a market capitalisation above £1 bilion) by descending forecast yield.
- Select one stock from the list from each sector to ensure broad sector diversification (total diversification should be employed so that there is no…
