Investing PCLS etc. - final decision time - dividend aristocrats?

[gadgetmind]

I've just crystallised my main pension pot, so am now moving money around ready for re-investment. Including other unwrapped funds to hand, we'll have around £425k to invest, with £75k in NS&I linkers and £20k earmarked to remain as cash.

We'll slowly "ISA up" this money, but during the time this takes, some income would be great.

I've run a HYP before, but am disinclined to do this again as tracking CGT and corporate actions was a pain.

A basket of ITs is an option.

But top of the list is some dividend aristocrat ETFs with maybe some ITs alongside.
Based on previous discussions hereabouts, I have this list to work from. There are ten on the list so I could just lob 10% into each, but it seems like a bit of a shotgun approach with lots of overlap.

UKDV UK Dividend Aristocrats 4.09%
EUDV Euro Dividend Aristocrats 3.27%
EMDV Emerging Markets Dividend 2.81%
IAPD Asia/Pacific Select Dividend 30 4.69%
GBDV Global Dividend Aristocrats 4.56%
VHYL Vanguard All World High Dividend 2.99%

ALAI Aberdeen Latin American Income 4.97%
HFEL Henderson Far East Income 5.78%
EAT European Assets Trust 5.94%
AAIF Aberdeen Asia Income 4.43%

FWIW I'll be 50% the above and bonds, so can take a little risk (AKA accept volatility) with the equities.

I've been investing for decades and have never been this indecisive TBH.

Thanks
P.S. I've tried every combination of bar and pipe I can think of to get a table to work! Let me know the secret and I'll edit.

[gadgetmind]

I guess that's really part of what I'm asking!

[Alaric]

But top of the list is some dividend aristocrat ETFs with maybe some ITs alongside.

Being ETFs there have to be rules and formulae for selection of the stocks to be included. That's liable to include what might be termed "junk equity", in other words stocks like Carillion that are paying unsustainable dividends against a collapsing share price which leads to them being reported as high yield. So you might get the income, but capital preservation is suspect.

[Alaric]

Hmmm, such junk is unlikely to be labelled as "dividend aristocrats" though?

There was a stock list of what got included. The name Carillion stood out.

Page 650
https://www.ishares.com/uk/individual/e ... report.pdf

That's the 2016 report, Provident Financial is in there as well.

[tjh290633]

Although there is a tendency to look at ETFs because of their claimed lower fees and charges, what actually matters is how they perform after charges. It may therefore be instructive to compare any chosen funds against competitive ITs, which will have been in existence for many years longer.

If the fund is a tracker of some index, then that index may well have been back calculated before the fund was set up to track it. I am always conscious that a tracker is usually likely to underperform, because of its charges, and if it does better, it is indulging in some form of financial jiggery-pokery.

TJH

[TahiPanasDua]

GBDV Global Dividend Aristocrats 4.56%

Gadge, are you sure? Morningstar has GBDV at 3.44% which is about where I thought it should be. I will buy some if 4.56% is right.

TP2.

[MrDoppleGanger]

[
Gadge, are you sure? Morningstar has GBDV at 3.44% which is about where I thought it should be. I will buy some if 4.56% is right.

TP2.

This could be the difference between what the index yields and what you get paid after withholding tax.

Check out the index and distribution yields on the info sheet

https://uk.spdrs.com/en/professional/etf/spdr-sp-global-dividend-aristocrats-ucits-etf-ZPRG-GY

[swill453]

Why would you have taken out of the pension wrapper in the first place?

If you crystallise it you have to take the PCLS out.

Or do you mean why crystallise? I can think of a few reasonable answers.

(Though I didn't do it myself when I started drawdown.)

Scott.

[gadgetmind]

Gadge, are you sure? Morningstar has GBDV at 3.44% which is about where I thought it should be. I will buy some if 4.56% is right.

TP2.

Um, I might have got that from Hargreaves Lansdown, and you're right, it's much lower. Thanks.

[gadgetmind]

If you crystallise it you have to take the PCLS out.

Yes, as much PCLS as I could, so 25% of the LTA. Crystalising now as no longer working (or adding to pension) and don't want value getting any higher as there would be even more tax to pay for exceeding LTA. I won't be drawing down anything else until tail end of this year as I don't want to hit HR tax and payments from my now ex employers will get me much of the way there.

[Alaric]

Why would you have taken out of the pension wrapper in the first place?

PCLS = Pension Commencement Lump Sum.

Previously known as tax free lump/cash sum, it's the 25% of value you can take out of accumulated pension wealth without suffering tax. It's now possible to take it in nibbles, rather than in one go, but not all schemes allow that.

[gadgetmind]

It's now possible to take it in nibbles, rather than in one go, but not all schemes allow that.

That was my thinking, but I was unaware of the OP's LTA issues

Yes, my LTA issues cropped up rather recently as drop in LTA followed by large drop in sterling pushed me over with no chance at any point to get protection. And then I got a very unexpected bonus that threw me into maximum AA taper and I've got a charge for that too!

[langley59]

I posted this a few months ago on a similar thread:

I have held a number of the SPDR ETFs since 2014 as long term passive income producing assets alongside HYP shares and various other types of asset as I like the dividend aristocrat methodology. GBDV, the global dividend aristocrat ETF, has performed well and I have no reason to change it, yield on cost 4.23% in 2017 with a nice capital gain. Whilst lower yielding the regional ones have fared pretty well, especially PADV (Pan Asia) and UDVD (US). The one disappointment is the UK one UKDV which shows me a capital loss at the moment and has underperformed the ishares ISF ETF which I also hold, both on an income and capital basis. UKDV only holds 30 shares and it has had some bad ones like CLLN, I would not recommend it.

In conclusion I think there is a place for ETFs in a long term buy and hold for income portfolio alongside investment trusts, HYP shares and bonds.

[gadgetmind]

Thanks for that.

A few have commented on UKDV (etc.) holding rubbish such as Carrillion and Provident, yet a large number of well-known fund managers held these too. If you google for any of these fairly recent disasters and "Woodford" you'll get a flavour, but he's far from the only one.

If we can't trust active managers to avoid such companies, then what are we paying them for and why not just hold passives?

I'm leaning towards a big slug (maybe 50%) of GBDV and then perhaps some active income funds such as Aberdeen Latin American Income, Henderson Far East Income, European Assets Trust and Aberdeen Asia Income. I have held most of these in the past and have been happy with them.

[SalvorHardin]

"Dividend Aristocrats" is an American term where in order for a share to qualify as a dividend aristocrat two things must be met:

1) The dividend must have been raised in every one of the last 25 years.

2) The company must be in the S&P 500

Not many companies meet these two criteria; as a rule about 10% of the S&P500 companies qualify as as dividend aristocrats. These tend to be very big companies with decent moats and thus have some degree of pricing power (and their shares don't have high yields). Examples are 3M, Brown-Forman, Coca-Cola, Johnson & Johnson and Procter & Gamble.

I'd guess that a UK equivalent would be FTSE100 members with 25 years of rising dividends. Given the domination of the FTSE100 by banks, oils and miners, sector whose dividends were cut heavily during the 2008 financial crisis, very few FTSE100 companies would qualify. Unilever does qualify whilst Diageo has increased its dividend every since it was formed in 1997.

The Wikipedia page currently shows 53 dividend aristocrats.

https://en.wikipedia.org/wiki/S%26P_500 ... ristocrats

https://www.fool.com/knowledge-center/w ... ocrat.aspx

[langley59]

I'd guess that a UK equivalent would be FTSE100 members with 25 years of rising dividends.

In fact Salvor SPDR relax the rule for their ETFs, the UK one for example only requires 10 years of rising (or stable) dividends:
https://uk.spdrs.com/en/professional/et ... tf-SPYG-GY

[runnygum]

I had a lump sum and split half in IT's and half in ETF's
Very similar income, but ETF's had the better capital gain.

In theory, one stock should rule them all. I like VHYL or GBDV but ended up spreading mine around due to perceived counterparty risk.

Im kind of coming to the mindset that VWRL is the only investment I need.