If you were picking a new basket of 7/8 ITs for income

[dealtn]

So maybe explain, clearly what it is that I am not "getting".

I have tried, but one last time...

Here was someone saying they care to a degree. They stick to income investments. None of which I have a problem with, and my posts have been in synch with.
My sole intervention here was regarding solely measuring dividend income, when my view, backed up by others in this thread and many others on the board is the reality that that isn't the sole concern - hence talking about XIRR and the ability for capital to grow to allow for that steady rising income desired.

Well, measuring the dividend income is clearly a necessary part of satisfying the aim of the OP, which was to target "approx 4-5% (presumably, starting) yield". However, the objective was also to look for "a steadily growing income stream, without consuming its own capital. A basket to last you 30 years." So, I don't think anyone was under the illusion that that is the "sole concern" or has stated as such.

Is anyone here really saying they are unconcerned by a scenario where a portfolio of 4% dividend yield growing at 5% might have turned £100k into £200k, against a 6% growing by 1% that remains at £100k over 12 years? The former has a 6.7% yield in year 12 (an improvement?) with the latter a 3.4% yield (a deterioration?)

No, I don't believe anyone here is saying that. The key word in your example is "might". In an earlier post, I illustrated that those outcomes "might" well be reversed and that lower yield and higher dividend growth twelve years ago doesn't necessarily guarantee a superior total return up to today. The point is that if we concentrate on assessing the prospects for a sustainable and growing dividend of potential investments (and no reason not to consider historic IRR/total return figures as part of that assessment) then we shouldn't have to worry unduly about the prospects for capital growth. The aim is to build a portfolio that produces reliable (growing) income so that the short to medium term volatility (or noise) in capital value can largely be ignored. That isn't the same as being unconcerned about long-term capital performance which, if the portfolio has been researched well, hopefully shouldn't cause concern.

More importantly, would it be of no concern were the 6% original portfolio to have dropped to £50k in value, with the same income pay out, as one that remained at £100k (or indeed against one that had risen to £150k)? The exact same £76k of dividends received (looking backwards) and a now 13.4% yield versus the 6.7% one (or 4.5%).
I am unconvinced holders of the portfolio in the £50k scenario wouldn't be having thoughts about the stability of the dividend stream going forward, and perhaps pondering whether previous dividends had unnecessarily been paid out of unearned income maybe, or from capital on the balance sheet?

I am sure it would be of concern, and I agree that holders of the portfolio in the £50k scenario would be extremely likely to be having thoughts about the stability of the income going forward! However, I would suggest that most (if not all) investors here are savvy enough to recognise the alarm bells and reassess their strategy long before such a scenario developed.

I will have to concede if there are people that can't see the difference, or who can see it but would literally be unconcerned in such scenarios there is little I can do to convince them. I contend that most can see the difference, or would have at least thoughts about what that would mean to them should that scenario pan out.

I really don't think you need to worry about convincing anyone. I don't remember seeing anyone suggest that they wouldn't be concerned in such scenarios, and it difficult to understand why you keep bringing them up

As such I can't see the dogma that dividend income is all that matters to income investors

Perhaps it would be more accurate (and less provocative) to say that a sustainable/growing dividend income is what matters most to income investors. Clearly, consideration of capital is an integral part of ensuring that sustainability/growth is maintained. However, maximising TR is less important than feeling comfortable being able to draw solely on dividend income rather than having to sell to generate that income. To that end, a long-term TR of 7% (comprising 4% dividend and 3% capital growth) may actually be more acceptable in some circumstances than a long-term TR of 8% (comprising 2% dividend and 6% capital growth) if it avoids the potential of having to sell into short term depression of the share price to acquire the desired income. It may be this slight trade off that is anathema to you, but I don't believe anyone is ignoring the greater picture and simply being guided by dividend yield alone. The main driver (for me, at least) is that I seem to find it easier to spot reliable dividend growth than capital growth. Anyway, if I haven't managed to explain this clearly enough, please start another thread as this one has been corrupted enough by this diversion.

I don't think we disagree on much then, so fail and to see the condescension. I am not advocating an alternative investment approach, or promoting anything that aims to maximise Total Return.

[TUK020]

I don't think we disagree on much then, so fail and to see the condescension. I am not advocating an alternative investment approach, or promoting anything that aims to maximise Total Return.

Dealtn,
You have made lots of comments about Total Return etc, but I don't recall you contributing any suggestions in this thread about what you would pick for investments.
Even if you disagree with the yield target, what would you propose for ITs to generate a growing income stream?
tuk020

[richfool]

I don't think we disagree on much then, so fail and to see the condescension. I am not advocating an alternative investment approach, or promoting anything that aims to maximise Total Return.

Dealtn,
You have made lots of comments about Total Return etc, but I don't recall you contributing any suggestions in this thread about what you would pick for investments.
Even if you disagree with the yield target, what would you propose for ITs to generate a growing income stream?
tuk020

That would be refreshingly getting back on topic (on to the original topic).

Perhaps certain posters could start a new thread to discuss TR, and leave this one to OP TUK020's request.

[dealtn]

I don't think we disagree on much then, so fail and to see the condescension. I am not advocating an alternative investment approach, or promoting anything that aims to maximise Total Return.

Dealtn,
You have made lots of comments about Total Return etc, but I don't recall you contributing any suggestions in this thread about what you would pick for investments.
Even if you disagree with the yield target, what would you propose for ITs to generate a growing income stream?
tuk020

I am agreeing with the yield target, and furthermore explaining how the 2nd and 3rd parts of your request are satisfied by earnings needing to exceed what is paid out.

It is others that are looking at yields outside your requested range. Or are ignoring your other parts in your criteria. It seems even a simple mention of the words Total Return bring out the blinkers where people can't actually read what is written and assume what is being argued is an attack on Income investing. Does anyone have an alternative phrase that is less controversial perhaps?

I don't invest in IT's, mainly as I am able to pick individual shares, and am comfortable doing so. Many aren't.

So it's not my area of expertise by any stretch, but if pushed with your criteria in mind I would look at something like LTI. Although I suspect many would not want an IT so dominated by a single stock. Its annual charges look reasonably low relative to others, and its got a well covered dividend with many investments in companies with above average ROC and moats.

Alternatively I would look at REITs but suspect that is cheating, or at least face the argument of being too sector specific.

[MDW1954]

Moderator Message:
This thread has been significantly sidetracked by familiar arguments which contribute little to the OP's original request, and do little to help people who are similarly interested in the same broad question.

If the thread doesn't return to the core question, it will be closed. --MDW1954

[CryptoPlankton]

As one who was drawn into the digression, I thought the least I could do was provide my own answer to the original question. I've found it quite difficult, as I hold far more ITs than the number requested. This is partly because I believe it's necessary to get the diversification I desire (I know others disagree), partly to provide a mix of stodgy higher yields and "growthier" lower yields, and also simply because I don't like having too much of my money, in absolute terms, invested in individual entities (apart from my house, of course!)

Anyway, given the basket was meant to provide a steadily growing income stream, I settled for the following:

Lindsell Train (LTI)
JP Morgan Global Growth and Income (JGGI)
Law Debenture (LWDB)
Invesco Perpetual UK Small Companies (IPU)
Princess Private Equity (PEY)
International Biotechnology (IBT)
Renewables Infrastructure Group (TRIG)
Ecofin Global Utilities and Infrastructure (EGL)

Equally weighted, this would give a yield of about 4% and, hopefully, scope for decent dividend growth.

[nmdhqbc]

forgive me if this nuance has been well covered previously but there's a lot of words i haven't got the time to read above...

looking for a steadily growing income stream, without consuming its own capital

Anyway, given the basket was meant to provide a steadily growing income stream, I settled for the following:

Lindsell Train (LTI)
JP Morgan Global Growth and Income (JGGI)
Law Debenture (LWDB)
Invesco Perpetual UK Small Companies (IPU)
Princess Private Equity (PEY)
International Biotechnology (IBT)
Renewables Infrastructure Group (TRIG)
Ecofin Global Utilities and Infrastructure (EGL)

off the top of my head i'm pretty sure JJGI and IBT both have a 4% of NAV dividend policy. looking at JGGI the dividend cover seems to be between 0.3-0.6 in recent years which is consistent with that policy. so it is consuming its own capital or at least would be doing so in down or flat markets. also in down markets it would have reductions in the dividend paid per share not steady rises. and in good times the divi increases may be non-steady on the upside too.

[CryptoPlankton]

forgive me if this nuance has been well covered previously but there's a lot of words i haven't got the time to read above...

looking for a steadily growing income stream, without consuming its own capital

Anyway, given the basket was meant to provide a steadily growing income stream, I settled for the following:

Lindsell Train (LTI)
JP Morgan Global Growth and Income (JGGI)
Law Debenture (LWDB)
Invesco Perpetual UK Small Companies (IPU)
Princess Private Equity (PEY)
International Biotechnology (IBT)
Renewables Infrastructure Group (TRIG)
Ecofin Global Utilities and Infrastructure (EGL)

off the top of my head i'm pretty sure JJGI and IBT both have a 4% of NAV dividend policy. looking at JGGI the dividend cover seems to be between 0.3-0.6 in recent years which is consistent with that policy. so it is consuming its own capital or at least would be doing so in down or flat markets. also in down markets it would have reductions in the dividend paid per share not steady rises. and in good times the divi increases may be non-steady on the upside too.

Fair points. Personally, I would be happy to hold for the long-term because of the impressive overall NAV total return, which looks relatively sustainable to me. Yes, technically consuming their own capital, but unlikely to be reducing the portfolio capital (much more likely the opposite) in the long-term. As for the potentially "bumpy" dividend growth, I can accept that within a larger portfolio, where other constituents are increasing their dividends more steadily. Granted, with only 8 holdings (I have considerably more) this effect may or may not prove to be inconvenient, depending on just how smooth the "steady" income growth needs to be.

It is, after all, only what I would pick now, as requested...

[Arborbridge]

forgive me if this nuance has been well covered previously but there's a lot of words i haven't got the time to read above...

looking for a steadily growing income stream, without consuming its own capital

Anyway, given the basket was meant to provide a steadily growing income stream, I settled for the following:

Lindsell Train (LTI)
JP Morgan Global Growth and Income (JGGI)
Law Debenture (LWDB)
Invesco Perpetual UK Small Companies (IPU)
Princess Private Equity (PEY)
International Biotechnology (IBT)
Renewables Infrastructure Group (TRIG)
Ecofin Global Utilities and Infrastructure (EGL)

off the top of my head i'm pretty sure JJGI and IBT both have a 4% of NAV dividend policy. looking at JGGI the dividend cover seems to be between 0.3-0.6 in recent years which is consistent with that policy. so it is consuming its own capital or at least would be doing so in down or flat markets. also in down markets it would have reductions in the dividend paid per share not steady rises. and in good times the divi increases may be non-steady on the upside too.

Fair points. Personally, I would be happy to hold for the long-term because of the impressive overall NAV total return, which looks relatively sustainable to me. Yes, technically consuming their own capital, but unlikely to be reducing the portfolio capital (much more likely the opposite) in the long-term. As for the potentially "bumpy" dividend growth, I can accept that within a larger portfolio, where other constituents are increasing their dividends more steadily. Granted, with only 8 holdings (I have considerably more) this effect may or may not prove to be inconvenient, depending on just how smooth the "steady" income growth needs to be.

It is, after all, only what I would pick now, as requested...

It is no different to what people do here regularly: paying out part of the growth of capital as income. It's just that they are doing it for you.

Arb.

[CryptoPlankton]

forgive me if this nuance has been well covered previously but there's a lot of words i haven't got the time to read above...

looking for a steadily growing income stream, without consuming its own capital

Anyway, given the basket was meant to provide a steadily growing income stream, I settled for the following:

Lindsell Train (LTI)
JP Morgan Global Growth and Income (JGGI)
Law Debenture (LWDB)
Invesco Perpetual UK Small Companies (IPU)
Princess Private Equity (PEY)
International Biotechnology (IBT)
Renewables Infrastructure Group (TRIG)
Ecofin Global Utilities and Infrastructure (EGL)

off the top of my head i'm pretty sure JJGI and IBT both have a 4% of NAV dividend policy. looking at JGGI the dividend cover seems to be between 0.3-0.6 in recent years which is consistent with that policy. so it is consuming its own capital or at least would be doing so in down or flat markets. also in down markets it would have reductions in the dividend paid per share not steady rises. and in good times the divi increases may be non-steady on the upside too.

Fair points. Personally, I would be happy to hold for the long-term because of the impressive overall NAV total return, which looks relatively sustainable to me. Yes, technically consuming their own capital, but unlikely to be reducing the portfolio capital (much more likely the opposite) in the long-term. As for the potentially "bumpy" dividend growth, I can accept that within a larger portfolio, where other constituents are increasing their dividends more steadily. Granted, with only 8 holdings (I have considerably more) this effect may or may not prove to be inconvenient, depending on just how smooth the "steady" income growth needs to be.

It is, after all, only what I would pick now, as requested...

It is no different to what people do here regularly: paying out part of the growth of capital as income. It's just that they are doing it for you.

Arb.

Indeed, and when in the hands of people who appear to be good at it (unlike me!) I am very comfortable with that. I have held both the ITs in question for several years and they have delivered excellent dividend and capital growth. If others are uncomfortable with their dividend strategy then they can leave well alone, I was only giving my answer to the OP.

[nmdhqbc]

Indeed, and when in the hands of people who appear to be good at it (unlike me!) I am very comfortable with that. I have held both the ITs in question for several years and they have delivered excellent dividend and capital growth. If others are uncomfortable with their dividend strategy then they can leave well alone, I was only giving my answer to the OP.

"they can leave well alone", "i was only giving my answer" makes it seem like you are unhappy that i made comment on your suggestions. seems like you are showing the world why my criticism was not warranted. weird because you said something like "fair points" on your initial response to them. my comments were not in any way criticising your investment choices. my points were purely aimed at their suitability given the remit of the original post. the OP did not ask what we invest in given our own requirements. it laid out some requirements to which we can make suggestions or not respond. if someone had not pointed out those dividend policies someone looking for steady dividend increases may have blindly bought those and not get what they expected. so i think pointing it out is not the slight or petty thing you seem to be implying it to be.

[Bagger46]

forgive me if this nuance has been well covered previously but there's a lot of words i haven't got the time to read above...

looking for a steadily growing income stream, without consuming its own capital

Anyway, given the basket was meant to provide a steadily growing income stream, I settled for the following:

Lindsell Train (LTI)
JP Morgan Global Growth and Income (JGGI)
Law Debenture (LWDB)
Invesco Perpetual UK Small Companies (IPU)
Princess Private Equity (PEY)
International Biotechnology (IBT)
Renewables Infrastructure Group (TRIG)
Ecofin Global Utilities and Infrastructure (EGL)

off the top of my head i'm pretty sure JJGI and IBT both have a 4% of NAV dividend policy. looking at JGGI the dividend cover seems to be between 0.3-0.6 in recent years which is consistent with that policy. so it is consuming its own capital or at least would be doing so in down or flat markets. also in down markets it would have reductions in the dividend paid per share not steady rises. and in good times the divi increases may be non-steady on the upside too.

Fair points. Personally, I would be happy to hold for the long-term because of the impressive overall NAV total return, which looks relatively sustainable to me. Yes, technically consuming their own capital, but unlikely to be reducing the portfolio capital (much more likely the opposite) in the long-term. As for the potentially "bumpy" dividend growth, I can accept that within a larger portfolio, where other constituents are increasing their dividends more steadily. Granted, with only 8 holdings (I have considerably more) this effect may or may not prove to be inconvenient, depending on just how smooth the "steady" income growth needs to be.

It is, after all, only what I would pick now, as requested...

It is no different to what people do here regularly: paying out part of the growth of capital as income. It's just that they are doing it for you.

Arb.

Indeed, and when in the hands of people who appear to be good at it (unlike me!) I am very comfortable with that. I have held both the ITs in question for several years and they have delivered excellent dividend and capital growth. If others are uncomfortable with their dividend strategy then they can leave well alone, I was only giving my answer to the OP.

I agree. If I was to pick a portfolio in line with the OPs request( which I declined to do for other reasons as posted), there would certainly be some growth oriented ITs who pay a fixed percentage of year-end NAV as a divi. JGGI and IBT would be high on my shortlist, looking at their 10-year NAV returns, and their underlying investments. I would not cram a portfolio with such of course, but as part of a broad portfolio, no problem from my point of view.

Bagger

PS

' technically consuming their own capital' is the common objection: Well, any company paying any kind of divi is doing some form of this anyway. (That is why my own portfolios are crammed with outfits who prefer to compound all these potential distributions internally by reinvesting in growing the business in the first place, or distribute only a minor part of what is available).

The other objection is the fluctuation of such' year-end NAV divis': Two answers, look at the huge variation which occur more than occasionally with, say, HYP. Or in any case any kind of investor needing portfolio income ( from 'pure' divis , capital, or a mixture), should hold a suitable reserve anyway to smooth such inevitable bumps along the investing road.

[CryptoPlankton]

Indeed, and when in the hands of people who appear to be good at it (unlike me!) I am very comfortable with that. I have held both the ITs in question for several years and they have delivered excellent dividend and capital growth. If others are uncomfortable with their dividend strategy then they can leave well alone, I was only giving my answer to the OP.

"they can leave well alone", "i was only giving my answer" makes it seem like you are unhappy that i made comment on your suggestions. seems like you are showing the world why my criticism was not warranted. weird because you said something like "fair points" on your initial response to them. my comments were not in any way criticising your investment choices. my points were purely aimed at their suitability given the remit of the original post. the OP did not ask what we invest in given our own requirements. it laid out some requirements to which we can make suggestions or not respond. if someone had not pointed out those dividend policies someone looking for steady dividend increases may have blindly bought those and not get what they expected. so i think pointing it out is not the slight or petty thing you seem to be implying it to be.

Not at all, nmdhqbc, I fully appreciated the reason for your post, hence the "Fair points" in my reply to you. You have quoted my response to Arb's post, which seemed to be unnecessarily re-emphasising the point you had already made, and that I had already acknowledged. Not knowing why he did this, I felt I should qualify my answer further.

To be fair to myself, I (probably mis-) interpreted the OP's "without consuming its own capital" as not paying dividends in excess of long-term earnings and growth (i.e. TR!). If, as I now see appears likely, it meant paying solely from earnings, then your comments will have proved to be particularly useful.

[nmdhqbc]

...You have quoted my response to Arb's post, which seemed to be unnecessarily re-emphasising the point you had already made, and that I had already acknowledged. Not knowing why he did this, I felt I should qualify my answer further.

Arb's post seemed to me to be backing up your point. others sell capital so why not have IT's that do it was what i got from that post. in support of your suggestions if anything. that's why it seemed like you were repeating a point you had already made for no reason.

[CryptoPlankton]

...You have quoted my response to Arb's post, which seemed to be unnecessarily re-emphasising the point you had already made, and that I had already acknowledged. Not knowing why he did this, I felt I should qualify my answer further.

Arb's post seemed to me to be backing up your point. others sell capital so why not have IT's that do it was what i got from that post. in support of your suggestions if anything. that's why it seemed like you were repeating a point you had already made for no reason.

Well, he recced your post, and just seemed to be explaining the strategy for no apparent reason to me, but maybe I misinterpreted him. I don't know, trying to communicate over this medium (for me, at least) seems to be becoming more and more like traversing a minefield! Time to bow out for a while...

(Sorry to TUK020 for inadvertently taking things OT again - I was just trying to add something on topic!)

All the best

CP

[Itsallaguess]

On the first page of this thread, I posted a table of AIC-listed income-IT options with the following criteria -

• Yield of 3.5% or over (with a view that overall portfolio yield can still potentially be over 4% if blended with other higher-yielding options..)

• Market Cap over £100m

• Share price 3-year total-return divided by 3 is greater than the current yield (testing for non-eaters...)

• Share price 5-year total-return divided by 5 is greater than the current yield (testing for non-eaters...)

https://www.lemonfool.co.uk/viewtopic.php?f=31&t=35503#p520882


The above returned quite a range of investigative options, but I'm conscious of the fact that it doesn't take the 'dividend growth' aspect of TUK's original requirements into too much initial consideration.

With that in mind, I thought I'd enhance the above filter to see if we can come up with a smaller list of options that does so, whilst also taking into account a lower initial-yield filter, with a view to hopefully catching those up-and-coming dividend-growing options.

Here's the new criteria, along with the resulting table of data -

• Yield of 2.5% or over

• Share price 3-year total-return divided by 3 is greater than the current yield (testing for non-eaters...)

• Share price 5-year total-return divided by 5 is greater than the current yield (testing for non-eaters...)

• Five-year dividend growth rate of 3% or over per-year

The resulting table of data is sorted by AIC sector, and then ranked within each sector by yield -




Please note that the first column in the above table is a URL link to the relevant underlying portfolio page for each IT on the AIC site, from where various information tabs can be used to check other important aspects of each IT.

Whilst seeing people's lists of IT's is always interesting, we should be cognisant of the fact that they are likely to be very much 'of their time' in terms of when they are offered up, and sometimes with little wider understanding of how and why they've been selected, and so I've always preferred to explore repeatable, data-driven processes that can help people to carry out these types of 'optioneering exercises', both for themselves from a standing-start, and also at any point in the future, where things may have moved on with regards to any 'current performance' of those being suggested now, or any future performance of those that might perhaps not be getting selected now, but which might perform better in the future, where a process-driven investigation might then expose those possible future options...

Anyone wishing to have a play with the brilliant AIC screener that helps to expose these filterable criteria can do so by following the step-by-step instructions detailed below my regular monthly IT sector-and-yield posts, the most recent of which for August is linked here -

https://www.lemonfool.co.uk/viewtopic.php?f=31&t=35409

Cheers,

Itsallaguess

[richfool]

One for the OP to consider, bearing in mind his desire for a growing income, albeit that it has a lower starting yield:
Securities Trust of Scotland (STS). See article for details:

https://www.trustnet.com/news/13316779/ ... volatility

[vand]

Yield is a mirage if it is at the expense of capital which is where HFEL falls down and so does for instance EAT.

Well I have read HFELs financial statements and it seems to me that it has been covering its dividend well enough (see above), and is not "eating capital" as some put it. So I don't agree with you, but am happy to be proven wrong.

What are we missing here Dod? https://cdn.janushenderson.com/webdocs/ ... t_2021.pdf

If the longer term TR is less than the long term yield+inflation, then I think Dod would argue the income is at the expense of capital. To look at it another way, if my TR is 5% and the yield is 5%, that's a fair indication that my capital is losing out to inflation.

Where I think Dod may be incorrect is that the yield is abnormally high for HFEL at the moment - it isn't usually 8% - so this might suggest it is a good time to buy since ITs rarely go belly-up and the price is likely to recover.

Another point to watch: the above considers SP not NAV. Company reports are more based around NAV which should be more important in the long term than SP.

Arb.

Nobody seems to be able to provide a good answer to if the question that if HFEL's payout is substantially above what the aggregate dividend payouts are on their underlying holdings - which they undoubtedly are - then how is it being paid for?

Is it all income from their options writing? As explained this isn't a freebie as sometimes options will get exercised and they have to sell their holdings. HFEL's annual statement rather conspicuously doesn't directly answer this question.

There is also the question of the expense ratio. In a fund that is already paying more than the raw dividends bring in, an additional 1% annual charge again has to be paid for - how?

[Dod101]

Well if you look at the latest Annual Report the dividend for the year was 23.40p against revenue of 23.22p. There is a modest charge to the revenue reserves but not very significant. Management fees are charged 50/50 to revenue and capital and the revenue charge has been made before the above 23.22 is calculated.

It is all disclosed in the Annual Report and I recommend that those with queries read it.

Dod

[vand]

Well if you look at the latest Annual Report the dividend for the year was 23.40p against revenue of 23.22p. There is a modest charge to the revenue reserves but not very significant. Management fees are charged 50/50 to revenue and capital and the revenue charge has been made before the above 23.22 is calculated.

It is all disclosed in the Annual Report and I recommend that those with queries read it.

Dod

I'm mostly interested in the breakdown of "revenue". Looking at their top 10 holdings most of then offer 2-4% yield (with a couple of noticeable exceptions - but they are not nearly enough to get us to that 8% figure. It literally does not add up.

More and more I suspect that a lot of it is from option writing against their underlyings which have then been called in the strong rising market we had since 2020, forcing them to liquidate many positions and leaving their capital base unable to participate in the broad rising market.