End of year Divi income totals. Do you include cash distributions?

[DelianLeague]

End of year Divi income totals. Do you include cash distributions?

Hello everyone, I just wondered whether any Lemon Fools out there include ‘Cash Distributions’ as part of their dividend income 'Totals' for the year?

In 2022. I had a payment of £3,500 in addition to the normal dividend from one of my shares and this obviously skewed my monetary distribution total for the year (in a positive way).
I have always found it easier to include the additional cash distributions, but if you are lucky enough to receive a large payment it just seems to distort the end of year total a bit.

I am actually still up this year (2023) just on normal dividends but I just wandered if anyone else has a different approach, and why?

Many thanks, D.L.

[kempiejon]

It has been mentioned here viewtopic.php?p=636181#p636181.

As I have been accumulating and reinvesting it is largely academic but I do see all returns of capital as potential income, my idea being that surplus income in any year, like a special dividend can either be reinvested, held as reserve or spent depending on my needs in drawdown.
Another valid view is that returns of capital should be put back into the portfolio. The we can get more abstract and say all profit say from dividends, special or normal and appreciation in share price are useable to fund post employment activities.

[DelianLeague]

Just to add. The cash distribution last year was a result of a company selling a part of the business.

Regards, D.L.

[tjh290633]

Personally I count special dividends and cash distributions separately from ordinary dividends.

They are both part of portfolio income, but their sporadic and variable nature distort the ordinary dividend flow.

Typically they are reinvested in most cases, so do not feature in cash flow calculations.

TJH

[Arborbridge]

Just to add. The cash distribution last year was a result of a company selling a part of the business.

Regards, D.L.

In a case like this which is clearly not a dividend in the usual sense, and is also hugely distorting - I would definitely not include it. I am more interested in year on year progress, and this would just muddy the waters.

Arb.

[Itsallaguess]

Hello everyone, I just wondered whether any Lemon Fools out there include ‘Cash Distributions’ as part of their dividend income 'Totals' for the year?

In 2022. I had a payment of £3,500 in addition to the normal dividend from one of my shares and this obviously skewed my monetary distribution total for the year (in a positive way).

I have always found it easier to include the additional cash distributions, but if you are lucky enough to receive a large payment it just seems to distort the end of year total a bit.

I am actually still up this year (2023) just on normal dividends but I just wandered if anyone else has a different approach, and why?

I've tracked the long-term regular dividend-returns from my income-portfolio for many years now, and I wouldn't include your £3,500 cash distribution into my own figures.

My reasoning for that is to do with why I track my income in the first place, and I do so because I want to be able to use regular dividends returned over previous years to gain confidence in a future level of regular returns, and it's clear that in this case, where a company has sold down a chunk of it's own business and returned some of the proceeds to existing holders, that it would be important for me not to have to rely on such irregular processes in the future, where I'm trying to predict regular incoming dividend payments in later years.

Another way of looking at this, perhaps, is to ask how you'd see a complete return of capital from a holding, and not just this partial one...

Personally, if one of my income-portfolio holdings were to be fully taken over, and the capital returned to me in a similar way, then I'd still class that returned capital as part of my investment-capital, and I'd look for the most appropriate way to get the returned cash back into my income-portfolio so that it would again be able to deliver on the strategic investment requirement of the original holding.

As that would be the case for a complete return of previously-invested capital, then I would personally treat your meaningful 'partial take-over' as being no different, and if the level of capital is not enough to justify a new holding, then perhaps a top-up of a different holding or even the original holding might be a suitable approach.

Lastly, I'd consider that if you were to treat this return of capital as 'income' this year, then it has to be seen as a one-off 'income-event' where that capital-allocation to your 'income-stream' can never work for you again in future years to deliver any 'income' of it's own, and I think this final aspect is an important one, because if you take it to it's extreme conclusion, there would be nothing to stop you liquidating all of your current income-investments and classing the capital raised from the portfolio sale as 'income' this year...

But if that were to happen, then what of next year?

Clearly, if you've got no invested capital working to provide you with dividends from that point, then your 'boosted income' this year will drop to a flat zero next year, and so this extreme example, for me at least, justifies why these types of meaningful and irregular cash returns should be maintained in your mental-segregation as still being 'portfolio capital', rather than 'income', with the final step now being to ask yourself how this particular irregular return of capital can be rotated back into a working position within your holdings, and not classed as 'income' in any regular sense of the word...

Cheers,

Itsallaguess

[idpickering]

In a case like this which is clearly not a dividend in the usual sense, and is also hugely distorting - I would definitely not include it. I am more interested in year on year progress, and this would just muddy the waters.

Arb.

I'm with Arb on this.

Ian.

[Arborbridge]

But if that were to happen, then what of next year?

Clearly, if you've got no invested capital working to provide you with dividends from that point, then your 'boosted income' this year will drop to a flat zero next year, and so this extreme example, for me at least, justifies why these types of meaningful and irregular cash returns should be maintained in your mental-segregation as still being 'portfolio capital', rather than 'income', with the final step now being to ask yourself how this particular irregular return of capital can be rotated back into a working position within your holdings, and not classed as 'income' in any regular sense of the word...

Cheers,

Itsallaguess

Leading on from those thoughts - it also one reason why I am not keen on the idea of realising capital to pay an income using high TR growth companies: so called "asset harvesting".

[Dod101]

Pedantry to the fore. A dividend is a cash distribution.

Dod

[DelianLeague]

Just to add. The cash distribution last year was a result of a company selling a part of the business.

Regards, D.L.

In a case like this which is clearly not a dividend in the usual sense, and is also hugely distorting - I would definitely not include it. I am more interested in year on year progress, and this would just muddy the waters.

Arb.

I think I agree, I was never completely happy when I included the payment as divi income but as It just seemed an easy thing at the time. Its not the same as a special dividend.

D.L.

[Arborbridge]

Pedantry to the fore. A dividend is a cash distribution.

Dod

Practicality to the fore: a dividend can be (and has been) paid from additional borrowings! I don't regard that as being healthy even though it masquerades as the same thing.

Arb.

[chris]

If it comes through my account as 'dividend', then that is how I record it. I have a spreadsheet of all shares that I have held in the last 10 years since I started HYP investing and used SUMIFS to pull the data for each share. Where there is a name change, I have changed the historic data to match.

The problem with not including special dividends is where do you stop. I can sort of understand with Tate & Lyle where part of the business was sold but what about a company simply having a few good years where it pays an enhanced dividend and what about a company like Next whose 'special' dividend was very much a part of the annual dividend history.

Tate & Lyle was announced as a dividend but the subsequent dividend was a lot lower than the previous year and so in some way, part of that special dividend could be counted as 'normal'. If you were keeping the investment and looking back in several years time, it would just look as though they had cut the dividend.

Anyway, where there are significant jumps in dividends, I tend to highlight them in red because for me the bottom line is how much income my portfolio is generating and whether that is increasing. I can understand those who split them out though.

[Gerry557]

Personally I would include specials such as those like insurance whose special is because of larger profits. If it was due to selling off part of the company probably not.

Vodafone selling off Verizon for instance would be seen as a return of capital.

It's a bit of a judgement call.

It does make shares such as Admiral difficult to judge the yield and work out if its underlying performance/yield is improving.

[Dod101]

Personally I would include specials such as those like insurance whose special is because of larger profits. If it was due to selling off part of the company probably not.

Vodafone selling off Verizon for instance would be seen as a return of capital.

It's a bit of a judgement call.

It does make shares such as Admiral difficult to judge the yield and work out if its underlying performance/yield is improving.

As far as Admiral is concerned, I count all the so called Specials as plain dividends. These are releases of surplus reserves from earlier years and have become a regular part of Admiral’s dividend payments. Calling them ‘Specials’ I suppose gives Admiral the chance to vary the payments up and down as the outcome warrants without having to explain each time what is going on.

Dod

[tjh290633]

Personally I would include specials such as those like insurance whose special is because of larger profits. If it was due to selling off part of the company probably not.

Vodafone selling off Verizon for instance would be seen as a return of capital.

It's a bit of a judgement call.

It does make shares such as Admiral difficult to judge the yield and work out if its underlying performance/yield is improving.

Vodafone did not sell Verizon. The shareholders received shares in Verizon unless they sold Vodafone before the split. I did, and bought back in soon afterwards to avoid getting the Verizon shares. Debatable whether that repurchase was a good idea. Time will tell.

TJH

[DelianLeague]

Personally I would include specials such as those like insurance whose special is because of larger profits. If it was due to selling off part of the company probably not.

Vodafone selling off Verizon for instance would be seen as a return of capital.

It's a bit of a judgement call.

It does make shares such as Admiral difficult to judge the yield and work out if its underlying performance/yield is improving.

As far as Admiral is concerned, I count all the so called Specials as plain dividends. These are releases of surplus reserves from earlier years and have become a regular part of Admiral’s dividend payments. Calling them ‘Specials’ I suppose gives Admiral the chance to vary the payments up and down as the outcome warrants without having to explain each time what is going on.

Dod

I also remember Glencore having a fairly regular Special Dividend.

[kempiejon]

I also remember Glencore having a fairly regular Special Dividend.

and Persimmon's returns of capital, which have just finished.

[daveh]

I also remember Glencore having a fairly regular Special Dividend.

and Persimmon's returns of capital, which have just finished.

I treated those PSNs "capital returns" as dividends as there was no share consolidation.