High Yield vs Dividend Growth

[IanTHughes]

Neither are investments that don't pay a dividend. Remember you don't have to spend all the dividend you could spend half and reinvest the other half. Equals a growing dividend.

Someone wanting to take a level of dividend will calculate accordingly. Obviously you could buy shares with lower levels of of dividend and let it grow for 30 years and it will effectively become a higher level.

I think up until recently Unilever might have been an example.

Your example is not growing dividend - it's a growing total return by way of reinvesting some of recieved dividend. A growing dividend is just that - a higher payout per share over time.

Whether dividends are re-invested or not, does not affect the total return calculation. The dividend amount has been received whatever you decide to do with it.

Enjoy!


Ian

[vand]

Over the year the cash with replenish from ongoing business, lifiting the shareprice back up - Enjoy!

Complete nonsense I am afraid. If you seriously believe that Yield, in the form of dividends paid away from the company, equals growth. you obviously have no idea how to measure Investment Growth, or indeed Investment Returns generally.

Enjoy!


Ian

I don't even know what you're arguing about. It's clearly possible to grow your investment by reinvesting income and buying more shares even if the income per share doesn't grow over time.

Rather than assume everyone but yourself is an idiot you should consider that others, too, know something of investment and know what they're talking about. This thread isn't about multiplying 1.05 to the nth power, it's a far more nuanced discussion about what is sustainable level of payout, what is a sustainable level of payout increases and what an sensible mix of the two looks like.

[IanTHughes]

Complete nonsense I am afraid. If you seriously believe that Yield, in the form of dividends paid away from the company, equals growth. you obviously have no idea how to measure Investment Growth, or indeed Investment Returns generally.

I don't even know what you're arguing about. It's clearly possible to grow your investment by reinvesting income and buying more shares even if the income per share doesn't grow over time.

Re-investing dividends, like adding new money, may increase the Investment value, but does not equal Investment growth. new cash is new cash, and any dividend cash value was already part of the portfolio value, whether invested or not.

Rather than assume everyone but yourself is an idiot you should consider that others, too, know something of investment and know what they're talking about.

I can assure you that anyone believing that Yield, in the form of dividends paid away from the company, equals investment growth, does not know what they are talking about!

Enjoy!


Ian

[Alaric]

Whether dividends are re-invested or not, does not affect the total return calculation. The dividend amount has been received whatever you decide to do with it.

Depends what total return you want to measure. If you start with assets of £ X, don't put any new money in and don't take any out, but reinvest all dividends, you end up with assets of £ Y. The total return is that rate of growth which takes you from £ X to £ Y over the measurement period. That will be a combined measurement of the effect of share price movement, dividends and the rate of return on wherever the dividends are reinvested.

[IanTHughes]

Depends what total return you want to measure.

The only Total Return I am interested in is the one known as "Total Return", I do not know of any other!

Enjoy!


Ian

[Alaric]

Depends what total return you want to measure.

The only Total Return I am interested in is the one known as "Total Return", I do not know of any other!

If you regard it as the solution of a Dicounted Cash Flow equation, you can get several answers depending on the treatment of the cash flows. In the case of dividends, you can either regard them as taken in cash immediately, left as cash earning the rate of return on cash, if any, reinvested in something else, or reinvested in the underlying portfolio.

By way of example, suppose someone takes a transfer value from a DC scheme, puts it in a SIPP, adds no new money and takes nothing out until they are allowed to retire. To measure the Total Return from whatever investment strategy they might choose over the pre retirement period. I would solve for i which satisfies A * (1+i) ^n = B where A is the start value, B is the final value at retirement age, n is the period in years and i is the rate of return.

[IanTHughes]

The only Total Return I am interested in is the one known as "Total Return", I do not know of any other!

If you regard it as the solution of a Dicounted Cash Flow equation, you can get several answers depending on the treatment of the cash flows. In the case of dividends, you can either regard them as taken in cash immediately, left as cash earning the rate of return on cash, if any, reinvested in something else, or reinvested in the underlying portfolio.

By way of example, suppose someone takes a transfer value from a DC scheme, puts it in a SIPP, adds no new money and takes nothing out until they are allowed to retire. To measure the Total Return from whatever investment strategy they might choose over the pre retirement period. I would solve for i which satisfies A * (1+i) ^n = B where A is the start value, B is the final value at retirement age, n is the period in years and i is the rate of return.

Personally, if I wanted to measure "Total Return", I would calculate "Total Return"!

Enjoy!


Ian

[Alaric]

[

Personally, if I wanted to measure "Total Return", I would calculate "Total Return"!

In the interests of clarity and because you clearly know it all, could you explain how you would do it for those of us whose financial qualifiactions such as being a retired Fellow of the Institute of Actuaries are long since obsolete ?

[IanTHughes]

Personally, if I wanted to measure "Total Return", I would calculate "Total Return"!

In the interests of clarity and because you clearly know it all, could you explain how you would do it for those of us whose financial qualifiactions such as being a retired Fellow of the Institute of Actuaries are long since obsolete ?

By "Total Return" I am referring to "Compounded Annual Growth Rate" (CAGR).

Maybe this will help ...

https://corporatefinanceinstitute.com/r ... gICcPD_BwE

For my portfolio calculations I use MS Excel's XIRR formula.

https://support.microsoft.com/en-gb/off ... 03ad9adc9d

Enjoy!


Ian

[Alaric]

[
For my portfolio calculations I use MS Excel's XIRR formula.

In case you hadn't noticed, the XIRR formula requires a specification of when the cash flows occur, So you do not get the same result when you specify the dates dividends are received as opposed to having them reinvested and measuring the final portfolio value. There's a practical problem that when the dividends are reinvested, the asset value excluding reinvestment may not be readily available.


Some of us in a past life may have written Basic or FORTRAN programs to do XIRR style calculations. That tends to give an understanding of what's going on. Performing calculations equivalent to XIRR using compound interest and log tables was part of the Actuarial exams fifty years ago.

[IanTHughes]

For my portfolio calculations I use MS Excel's XIRR formula.

In case you hadn't noticed, the XIRR formula requires a specification of when the cash flows occur, So you do not get the same result when you specify the dates dividends are received as opposed to having them reinvested and measuring the final portfolio value. There's a practical problem that when the dividends are reinvested, the asset value excluding reinvestment may not be readily available.

What a clever boy you are, I thought you would not notice!

Some of us in a past life may have written Basic or FORTRAN programs to do XIRR style calculations. That tends to give an understanding of what's going on. Performing calculations equivalent to XIRR using compound interest and log tables was part of the Actuarial exams fifty years ago.

it sounds as if your experience in this area is almost up to mine, although mine was post any requirement for the use of log tables!

MS Excel's XIRR formula simply provides sufficient for my current requirements. I have no need of anything more exact, and of course XIRR is readily available.

Enjoy!


Ian

[Alaric]

MS Excel's XIRR formula simply provides sufficient for my current requirements. I have no need of anything more exact, and of course XIRR is readily available.

In the context of this discussion, it's insufficient.

If you want to consider what strategy should be used for accumulation of wealth, the timing and incidence of dividends lacks relevance when the objective is to accumulate wealth, either by reinvestment or share price growth. It's the simplest possible application of XIRR to take the starting value as the initial investment and the end value as the value after reinvestment. It's only a tool after all, so what is being measured is relevant.

[IanTHughes]

MS Excel's XIRR formula simply provides sufficient for my current requirements. I have no need of anything more exact, and of course XIRR is readily available.

In the context of this discussion, it's insufficient.

The only context is my wish to measure the returns attributable to portfolios under my control.

If you want to consider what strategy should be used for accumulation of wealth, the timing and incidence of dividends lacks relevance when the objective is to accumulate wealth, either by reinvestment or share price growth.

I do not need to make any such consideration!

It's the simplest possible application of XIRR to take the starting value as the initial investment and the end value as the value after reinvestment. It's only a tool after all, so what is being measured is relevant.

Your requirements are of course your business, I can only repeat that XIRR is entirely sufficient for my purposes.

Enjoy!


Ian

[Alaric]

Your requirements are of course your business, I can only repeat that XIRR is entirely sufficient for my purposes.

Don't be dogmatic then about those who wish to use the XIRR function for their own purposes, such as measuring a "closed" strategy whereby any dividend is reinvested and the outcome is judged by the total wealth generated. That I thought was one of the the questions posed by the original poster as to whether a strategy of investing for high dividends and reinvesting them would work better than one of lower dividends looking for share price and dividend growth.

[IanTHughes]

Your requirements are of course your business, I can only repeat that XIRR is entirely sufficient for my purposes.

Don't be dogmatic then about those who wish to use the XIRR function for their own purposes, such as measuring a "closed" strategy whereby any dividend is reinvested and the outcome is judged by the total wealth generated.

I have not even mentioned using XIRR for measuring a "closed" strategy, let alone been dogmatic about it! I leave such nonsense to the likes of you.

I know that you often rely on such arguments, as now, but I have to tell you that strawman arguments do not impress me!

That I thought was one of the the questions posed by the original poster as to whether a strategy of investing for high dividends and reinvesting them would work better than one of lower dividends looking for share price and dividend growth.

I initially responded to the post claiming that Yield equals Investment growth, and latterly some nonsense about the existence of more than one "Total Return".

Once again, I have to tell you that strawman arguments do not impress me!

I can only repeat that XIRR is entirely sufficient for my purposes.

Enjoy!


Ian

[moorfield]

Would you prefer a company paying 8% dividend and still raising it's payouts by a 2%, or a company paying 5% dividend but raising its payouts by 5% annually? In theory if the earnings are constant and the valuations are constant then both should deliver the same return. I suspect many here would prefer the latter as it is seen to be the "healthier" company.

A similar question is: How long does it take for a high and rising dividend income to overtake a higher and fixed dividend income? see viewtopic.php?p=5208#p5208

Growth rates are best looked at (and easier to extrapolate) on a whole-portfolio basis. I would put the annual growth rate of a typical HYP or PHY income through the combined effect of dividend increases, cuts, and reinvestment at +7.2%pa or thereabouts. That could or could not include preference shares. And thanks to Gengulphus and MDW1954 we have some empirical data available on this also, see viewtopic.php?p=467610#p467610. (Probably the best/most useful thread here on LF, although many will not grasp why.)

[Arborbridge]

MS Excel's XIRR formula simply provides sufficient for my current requirements. I have no need of anything more exact, and of course XIRR is readily available.

In the context of this discussion, it's insufficient.

If you want to consider what strategy should be used for accumulation of wealth, the timing and incidence of dividends lacks relevance when the objective is to accumulate wealth, either by reinvestment or share price growth. It's the simplest possible application of XIRR to take the starting value as the initial investment and the end value as the value after reinvestment. It's only a tool after all, so what is being measured is relevant.

Don't confuse me! It took me years to accept the usefulness of XIRR as a general indicator of progress and I'm not changing now. Whatever the disadvantages in any particular context or discussion, it is a least a standard measure we have all used and more or less understand.
Yes, it's very limited in that it is recording one's personal activity rather than some neutral measure - but it serves just fine to see how one is jogging along, and that's all most of us here would need.

Anyway, if one produced some other measure I am sure some other person would pop up and say it wasn't quite what was needed, then we'd shatter the glass into a thousand pieces, so to speak.

Arb.

[Gerry557]

Wow this thread is getting a bit tetchy

Where are the unicorns?


https://www.dividendmax.com/united-king ... /dividends


A free site that shows a graph of dividends and their growth. I'd probably accept an orse with a cone on its heeed if you can't find a unicorn

[vand]

Wow this thread is getting a bit tetchy

Where are the unicorns?


https://www.dividendmax.com/united-king ... /dividends


A free site that shows a graph of dividends and their growth. I'd probably accept an orse with a cone on its heeed if you can't find a unicorn

Yes.. LGEN is far from the only one appear to be loads of them:

Can you ask for a more well managed dividend policy that what we see in JLEN since float 10 years ago?
https://www.dividendmax.com/united-king ... /dividends

PHP is a 25yr+ dividend aristocrat with a current 7.2% yield as another example (not well shown in dividendmax due to past special divis)

People are put off by these current plays as they've been sold off in the last couple of years ("ah, the dividend is too high.. it's not sustainable and there's going to be cuts down the line..." ), but the selloff is not their fault - their business models remain the same and no reason why their payouts can't continue to be grown at similar rates going forward

[tjh290633]

Your requirements are of course your business, I can only repeat that XIRR is entirely sufficient for my purposes.

Don't be dogmatic then about those who wish to use the XIRR function for their own purposes, such as measuring a "closed" strategy whereby any dividend is reinvested and the outcome is judged by the total wealth generated. That I thought was one of the the questions posed by the original poster as to whether a strategy of investing for high dividends and reinvesting them would work better than one of lower dividends looking for share price and dividend growth.

It strikes me that there is some confusion about what people do in practice. The concept of total return, when dividends are reinvested in the share from which they came, is seldom reflected in practical situations. In a portfolio as a whole, it is eminently suitable. Dividends accrued within the portfolio are reinvested where the owner of the portfolio thinks fit. If no cash is withdrawn from the portfolio, then you have a true total return scenario.

Otherwise we have the situation for which XIRR is eminently suitable. There may be cash inflows and outflows. With individual shares there will be dividends, sales and purchases plus possibly corporate actions of one sort or another. I know looking at my own records that it can get very complicated. Some shares have seen little or no activity since first bought, while others have been bought in two or three tranches, then top-sliced or topped up on multiple occasions, had returns of capital via special dividends, spun off subsidiaries and even been taken over. XIRR covers all eventualities to provide the Rate of Return.

TJH