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Citywire article: Weak pound gives false idea of UK dividends

General discussions about equity high-yield income strategies
BrummieDave
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Citywire article: Weak pound gives false idea of UK dividends

#237952

Postby BrummieDave » July 20th, 2019, 9:09 am

An interesting article about the state of UK dividends, and concluding with the view that ‘most of the high-yielding stocks generating genuine dividend growth are to be found outside of the FTSE 100’.

https://citywire.co.uk/investment-trust ... ider+Daily

OhNoNotimAgain
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Re: Citywire article: Weak pound gives false idea of UK dividends

#237969

Postby OhNoNotimAgain » July 20th, 2019, 10:31 am

Dividend growth is less important than dividends being maintained.

Just keeping payouts steady gives annual returns of 4 to 5% and if that is reinvested it generates its own, natural, dividend increases.

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Re: Citywire article: Weak pound gives false idea of UK dividends

#237980

Postby Spet0789 » July 20th, 2019, 11:16 am

OhNoNotimAgain wrote:Dividend growth is less important than dividends being maintained.

Just keeping payouts steady gives annual returns of 4 to 5% and if that is reinvested it generates its own, natural, dividend increases.


Do the mathematics and you’ll find that’s untrue. What matters is the sum of dividend yield and dividend growth, unless of course you need the dividend income to live on.

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Re: Citywire article: Weak pound gives false idea of UK dividends

#237983

Postby Julian » July 20th, 2019, 11:30 am

OhNoNotimAgain wrote:Dividend growth is less important than dividends being maintained.

Just keeping payouts steady gives annual returns of 4 to 5% and if that is reinvested it generates its own, natural, dividend increases.

It depends on your situation. For someone living off the income if one assumes something like 2% to 2.5% inflation then needing to re-invest half the income to keep the income stream growing with inflation only leaves 2% to 2.5% available to withdraw for living costs. I suspect that many HYP-ers a decade or so ago had hoped that natural increases in dividend declarations, together with corresponding increases in share values so that yields didn't tend towards infinity, would mean that their entire dividend stream (at maybe 4% to 5% current-value yield or even higher at times over the past couple of decades) could potentially be used for living expenses with any amount set aside and not spent being a safety margin designed to buffer against a run of bad years rather than an ongoing requirement to simply keep up with expected inflation.

If the premise of the article is correct then for HYP-ers sticking strictly to the only-fish-in-the-FTSE100-pond principle (and I appreciate that not all HYP-ers do stick to that principle) I fear that they will see their realistically drawable cash reducing vs a decade ago unless they are willing to abandon any attempt to inflation-proof their income and/or forgo any attempt to implement a safety margin.

As an HYP-er that has flip-flopped on the onIy-FTSE100-shares principle I have probably had more disasters than successes when I ventured outside the FTSE 100 but that's probably my failure in analysis and reaching too high for yields. I actually now like the fact that many of the UK income ITs that I hold now include not only typical FTSE 100 HYP favourites but also a tail of other shares that my stick-to-the-FTSE100 HYP does not hold.

I suppose I can say this here since I'm not on the HYP practical board but I am very much on a transition away from directly-held individual HYP shares towards a mixture of internationally diverse ITs and passive trackers with a strong global focus.

- Julian

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Re: Citywire article: Weak pound gives false idea of UK dividends

#238063

Postby Charlottesquare » July 20th, 2019, 3:50 pm

Julian wrote:
OhNoNotimAgain wrote:Dividend growth is less important than dividends being maintained.

Just keeping payouts steady gives annual returns of 4 to 5% and if that is reinvested it generates its own, natural, dividend increases.

It depends on your situation. For someone living off the income if one assumes something like 2% to 2.5% inflation then needing to re-invest half the income to keep the income stream growing with inflation only leaves 2% to 2.5% available to withdraw for living costs. I suspect that many HYP-ers a decade or so ago had hoped that natural increases in dividend declarations, together with corresponding increases in share values so that yields didn't tend towards infinity, would mean that their entire dividend stream (at maybe 4% to 5% current-value yield or even higher at times over the past couple of decades) could potentially be used for living expenses with any amount set aside and not spent being a safety margin designed to buffer against a run of bad years rather than an ongoing requirement to simply keep up with expected inflation.

If the premise of the article is correct then for HYP-ers sticking strictly to the only-fish-in-the-FTSE100-pond principle (and I appreciate that not all HYP-ers do stick to that principle) I fear that they will see their realistically drawable cash reducing vs a decade ago unless they are willing to abandon any attempt to inflation-proof their income and/or forgo any attempt to implement a safety margin.

As an HYP-er that has flip-flopped on the onIy-FTSE100-shares principle I have probably had more disasters than successes when I ventured outside the FTSE 100 but that's probably my failure in analysis and reaching too high for yields. I actually now like the fact that many of the UK income ITs that I hold now include not only typical FTSE 100 HYP favourites but also a tail of other shares that my stick-to-the-FTSE100 HYP does not hold.

I suppose I can say this here since I'm not on the HYP practical board but I am very much on a transition away from directly-held individual HYP shares towards a mixture of internationally diverse ITs and passive trackers with a strong global focus.

- Julian


Providing there is excess dividend cover within the company and the retained earnings are sensibly reinvested by the company (not always a given), in the long term earnings growth and therefore dividend growth ought to occur from the larger capital base.

Accordingly both dividend cover as well as current yield need taken into account, in effect P/E should come into the decision making matrix if growth is also required.

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Re: Citywire article: Weak pound gives false idea of UK dividends

#238078

Postby TahiPanasDua » July 20th, 2019, 5:04 pm

[quote="Julian"][quote="OhNoNotimAgain"

I suppose I can say this here since I'm not on the HYP practical board but I am very much on a transition away from directly-held individual HYP shares towards a mixture of internationally diverse ITs and passive trackers with a strong global focus.

- Julian[/quote

I have noted an increasing number of people saying the same thing. I suspect the relatively poor performance of typical HYP shares is one factor. I would expect time to resolve what may be a cyclical event. They should come good in the medium to long term.

However, I have not bought any new HYP shares for years. I still hang on to them but now only buy ITs and ETFs. And.......dare I say it?......I rarely read the HYP Practical board at all now!!!!

TP2

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Re: Citywire article: Weak pound gives false idea of UK dividends

#238134

Postby tjh290633 » July 20th, 2019, 11:33 pm

All I can say is that in my HYP, dividend growth measured as dividend per unit has been about 3 times the change in the RPI, over 30 years. Unfortunately I am away from home, so cannot produce the figures to justify the claim but, if you search through my posts you will find the data on this site.

The growth has not been steady, and has required some work to restore the level after the 2008 hiatus.

TJH

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Re: Citywire article: Weak pound gives false idea of UK dividends

#238177

Postby monabri » July 21st, 2019, 11:19 am

tjh290633 wrote:All I can say is that in my HYP, dividend growth measured as dividend per unit has been about 3 times the change in the RPI, over 30 years. Unfortunately I am away from home, so cannot produce the figures to justify the claim but, if you search through my posts you will find the data on this site.

The growth has not been steady, and has required some work to restore the level after the 2008 hiatus.

TJH


Terry,

Am I interpreting your data correctly?

From the first link, posting 172846 by TJH , we have a baseline of 2.87 for divs per unit (year to April 88)

viewtopic.php?f=15&t=8189&p=172843&hilit=Tjh%2A+rpi#p172843

From posting 219198 by TJH, the table indicates a figure of 31.25 divs per unit by April 19..a factor of 10.88.

RPI baseline at 100 in 1988 has increased by a factor of 3 (approx).

https://www.ons.gov.uk/economy/inflatio ... /chaw/mm23

(Graph says 1987 ..close enough).

Thus the divs/unit has increased by ~3.6x RPI.

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Re: Citywire article: Weak pound gives false idea of UK dividends

#238198

Postby tjh290633 » July 21st, 2019, 12:33 pm

Yes, that is correct.

TJH


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