Investment Trust dividends - where next?

[Adamski]

I think the UK market has a good chance of outperforming next year and if the vaccine rollout goes to plan, companies profitability will be restored and the dividend returned back on.

I'm guilty of short term thinking and have been critical in the past on UK hyp but with UK market stocks we all know they've be bad since 2016 with the ftse100 being at about the same level it was then.

However future prices are all that matters. The past is history. If UK value stocks are about to take off (a big if), then this would be the exact wrong time to switch into expensive S&P US, Tech stocks as there may post vaccine be a rotation from stay at home and buy Amazon etc to go out to the high street value stocks, and the valuation gap should in theory close. Things will look different in 1-2 years.

[Arborbridge]

It does matter in terms of the income received. Your graph implies to the casual reader that the income received by the HYP fell below that of the B7 after the first year, when that is definitely not the case. In this comparison, rebasing to a common value is not a legitimate method. You should have started with zero income initially (year zero) and then compared the progress of income year by year. If you wish to put them on a common basis, use income per £100 invested as a suitable comparator.

TJH

I don't know if this is better, or what you meant...




This is the changing income from £100 invested in December 2010. Each point represents the income from the previous four quarters from that constant £100 invested.

The ITs start off generating less income, as you would expect from the difference in yield, but then gradually overtake the HYP income. That trend has be obvious to me for some years, but I keep hoping for a reversal - however, Covid has busted HYP for now. As a result of this knowledge, as I've reported previously, I now have an increasing amount invested in ITs.

Arb.

[TUK020]

It does matter in terms of the income received. Your graph implies to the casual reader that the income received by the HYP fell below that of the B7 after the first year, when that is definitely not the case. In this comparison, rebasing to a common value is not a legitimate method. You should have started with zero income initially (year zero) and then compared the progress of income year by year. If you wish to put them on a common basis, use income per £100 invested as a suitable comparator.

TJH

I don't know if this is better, or what you meant...




This is the changing income from £100 invested in December 2010. Each point represents the income from the previous four quarters from that constant £100 invested.

The ITs start off generating less income, as you would expect from the difference in yield, but then gradually overtake the HYP income. That trend has be obvious to me for some years, but I keep hoping for a reversal - however, Covid has busted HYP for now. As a result of this knowledge, as I've reported previously, I now have an increasing amount invested in ITs.

Arb.

Much more informative, thanks

[tjh290633]

It does matter in terms of the income received. Your graph implies to the casual reader that the income received by the HYP fell below that of the B7 after the first year, when that is definitely not the case. In this comparison, rebasing to a common value is not a legitimate method. You should have started with zero income initially (year zero) and then compared the progress of income year by year. If you wish to put them on a common basis, use income per £100 invested as a suitable comparator.

TJH

I don't know if this is better, or what you meant...

Yes, exactly that. One could also compare the cumulative total received over time, which would show how much leeway there is to build a reserve or buy more shares, compared with the B7 route.

TJH

[Lootman]

The ITs start off generating less income, as you would expect from the difference in yield, but then gradually overtake the HYP income. That trend has be obvious to me for some years.

I would go as far as to say that it will always be that way.

You can choose to focus on higher yielding investments but there is a long-term price to pay for that, as those dividends are less well covered, less safe and will grow more slowly or not at all.

A focus instead on a moderate or market yield will provide less income in the early years but will gradually do better, both in terms of capital growth and dividend growth, over time. At some point the lines cross.

I would be stunned if that were ever not true as a general rule, other than for some exceptional circumstances and periods. It really is a choice between jam today or more jam tomorrow.

[Charlottesquare]

The ITs start off generating less income, as you would expect from the difference in yield, but then gradually overtake the HYP income. That trend has be obvious to me for some years.

I would go as far as to say that it will always be that way.

You can choose to focus on higher yielding investments but there is a long-term price to pay for that, as those dividends are less well covered, less safe and will grow more slowly or not at all.

A focus instead on a moderate or market yield will provide less income in the early years but will gradually do better, both in terms of capital growth and dividend growth, over time. At some point the lines cross.

I would be stunned if that were ever not true as a general rule, other than for some exceptional circumstances and periods. It really is a choice between jam today or more jam tomorrow.

Agreed, though in a portfolio with dividends reinvested it possibly needs to take into account the ROCE enjoyed by the company retaining its earnings and not distributing as against the ROCE for those companies being chosen to be invested in using the dividends that are distributed. As the higher yielding shares tend (as a very general rule) to be more established they do tend to have lower ROCEs.

I tend to be most happy in the 3%-5% dividend range but do carry a few with zero dividends or lower dividends as well, it is very satisfying to observe an IT carrying say a 90% gain (SMT earlier today for me) and calculating how many years divs I would have needed to get that same return at say a 5% dividend yield on a 12 P/E company.

[Arborbridge]

I've updated my results for income by showing my income OEIC basket income too. This rather throws a spanner in the works, because I hadn't expected it to stand up so well - since everyone likes to knock professional OEIC managers! It is more volatile, than the IT curve, which is only to be expected, but it isn't substantially worse - in fact rather better. Of course, all this is very particular to my choice of HYP companies and funds, but it is my own reality. Others might will have their own realities on which to report.




Arb.

[Arborbridge]

BTW, I have noticed some cuts in this quarter to my OEIC income. The charts I published are only correct to the end of September, so the end of this month could reflect some interesting changes.

Arb.

[Lootman]

BTW, I have noticed some cuts in this quarter to my OEIC income. The charts I published are only correct to the end of September, so the end of this month could reflect some interesting changes.

OEICs and ETFs do not have any ability to "smooth" out income in the way that ITs do.

That said I'd expect the cuts in income to be less than in the typical HYP as they are more diversified, especially to the extent that they are diverisifed overseas where dividend cover is higher than in the UK, and so dividends are safer.

[Arborbridge]

BTW, I have noticed some cuts in this quarter to my OEIC income. The charts I published are only correct to the end of September, so the end of this month could reflect some interesting changes.

OEICs and ETFs do not have any ability to "smooth" out income in the way that ITs do.

That said I'd expect the cuts in income to be less than in the typical HYP as they are more diversified, especially to the extent that they are diverisifed overseas where dividend cover is higher than in the UK, and so dividends are safer.

I've just noticed that last year, I had no OEIC dividends paid in December 2019, so my November payements complete the year. That gives a final point on my chart for the OEICS of £5.78 per £100 bought in 2010 (for four quarters together): that is a 21% fall from the previous point in September. The immediacy of their income flow has caught up with them, as with my HYP shares.

I can also report - much to my surprise - that my total income from the three streams is actually higher in November than it was in Novemeber 2019 - mainly due to the good performance of, and reinvestment in, the ITs. Wonders will never cease.

Arb.

[Alaric]

OEICs and ETFs do not have any ability to "smooth" out income in the way that ITs do.

ETF dividends will rise and fall with the markets they track, assuming they sample or replicate correctly. Actively managed OEICs have the option to buy dividends during trading activity.

[Lootman]

OEICs and ETFs do not have any ability to "smooth" out income in the way that ITs do.

ETF dividends will rise and fall with the markets they track, assuming they sample or replicate correctly. Actively managed OEICs have the option to buy dividends during trading activity.

OEICs may also be able to play games by selling options to boost the income.

But both tactics come at the potential cost of the capital base, so it is really just short-term window dressing.

[Itsallaguess]

It's a shame this thread as deteriorated into the discussing the merits or otherwise of HYP/HYP1 versus other investment strategies.

It was intended to discuss the prospects for dividends from income generating IT's in 2021 and beyond.

Hi FD,

I just wanted you to know that I sent you a PM on November 29th, the same day that you posted the above comments, where I apologised to you for playing my part in some of those side-discussions.

I noticed this morning that the PM was still sat in my 'Outbox', which means you've not opened it to read yet, so I wanted to now repeat that apology to you here as well, and I am sorry if some of the discussions I played a part in veered into subject-areas that you'd have preferred to avoid on your interesting topic.

Cheers,

Itsallaguess