Lootman wrote: StepOne wrote:
IanTHughes wrote:Investor A purchases a share yielding 2.5% which increases its dividend by 10% each year
Investor B purchases a share yielding 5.0% which never increases its dividend
It will be 9 years before Investor A enjoys a higher annual dividend than Investor B
It will be 15 years before Investor A's accumulated dividend overtakes that of Investor B
And that is assuming that Investor A's selection never stumbles and Investor B's never picks up. Do the maths yourself if you do not believe me
Just a quick note to say I'm sure that maths is correct, but if you try it with company A starting on 3.7% and increasing it's dividend about 14% a year it'll catch up much quicker, which is what I've seen in my HYP.
What his calculation is also missing is consideration of capital.
HYP is an Income Strategy and I was merely responding to StepOne
posting about the level of income
from a low yielding ULVR overtaking that from some of his higher yielding holdings.
Lootman wrote:Other things being equal share A will tend to increase in value by 10% a year as well, for a constant yield. Share B won't move, again for a constant yield. In fact A would double in value every 7 years or so if the dividends are reinvested.
Take that into account and A will be ahead in total return terms much sooner.
If Investor A is going to rely on re-investing his dividends then you must accept that Investor B would also re-invest his dividends, which being higher will buy more capital and earlier too. I believe you will find that the Capital appreciation would then be the same, all other things being equal of course. Please, do the calculation yourself if you do not believe me.
Lootman wrote:And before Ian comes back with the "capital doesn't matter" mantra.
Why you persist with this canard only you can know, all I can do is point out to you that HYP is an Income Strategy. This simply means that Capital appreciation is NOT
the strategy's aim. That is not a mantra just a fact. Do read up about it, there are plenty of articles to choose from.
Lootman wrote:I suspect that even he would agree that at that 15 year crossover point A will be worth about 4 times what B is worth. That's not nothing and would buy 4 times the income, to put it in those terms.
Only true if A and B both draw all the income and irrelevant to my point about the relative levels of income, over the years
Lootman wrote:Factor in also that B has a higher risk premium and the situation is much less clear than is implied.
Well of course B has a higher risk premium, but what has that got to do with the very clear point about relative Income streams?