Mercenary wrote:I created an ETF based HYP and a FTSE100 share only HYP five years ago and left them alone until now. Included in the ETF portfolio was the iShares IUKD ETF which selects high dividend payers down to the FTSE250. The FTSE100 share only portfolio had a good but not complete sector spread.
IUKD is up 15% and the FTSE100 is up 25%. The dividend yield advantage of IUKD was only some 2%!
Are the 15% and 25% total-return figures or capital-only figures? I think capital-only because they match what I see in 5-year charts of the IUKD share price and the FTSE100 index (which is a capital-only figure - there's a seldom-quoted total-return version), but am not certain because you might be talking about the two 'HYPs' you say you created, and the performance of an actual portfolio can differ from that of a share or index...
The reason I ask is because if they are total-return figures, they already take the ~2% yield advantage into account and contrasting them with it is effectively taking it into account one more time than it should be, but if (as I think) they are capital-only figures, then IUKD has had that extra ~2% in each of the last 5 years, totalling ~10%!
As a first approximation, that is. Compounding 2% for five years is actually about a 10.4% advantage, but more important, your phrase "some 2%" says that the 2% figure isn't very precise. If it's only accurate to the nearest percentage point, which is all I can be reasonably certain of from what you say, the precise figure could be anything from 1.5% to 2.5%, which compounded for five years means anything from about a 7.7% advantage to about a 13.1% advantage.
Also note that the outperformance of growing by 25% over growing by 15% is less than 10%. E.g. if two £100 investments grow by those amounts, to £125 and £115 respectively, then the first has outperformed by a factor of £125/£115 = about 1.087, i.e. by about 8.7%. That's towards the bottom of the above range of income advantages, but not below it. So on the figures you've given, it looks more likely to be IUKD that gave the better performance, but it also looks too close to be able to say for certain - and probably close enough that fairly short-term stockmarket movements could easily change the answer.
And even that's only a second approximation. Something fully accurate would need to take things like compounding between the capital return and the income return and the timing of the dividend payments into account - but I don't think those are likely to make a big enough difference to alter that 'probably IUKD, but really too close to call' conclusion.
And (IMHO) most important of all is the question of the investor's aims. If they're for instance considering investing £100k in a FTSE100 tracker with a 3% yield or in IUKD with a 5% yield, and they need to take £4k per year out of the investment, then a standing order to do that from the accumulated cash will do the job for IUKD without them having to pay any further attention - some further attention is advisable because they'll accumulate £1k cash per year, and leaving it uninvested will be a bit less than optimal, but nothing goes seriously wrong if they neglect to invest it. Doing the same for the FTSE100 tracker instead requires them to sell £1k worth of the tracker per year - and if they neglect to do that for too long, money they need doesn't arrive! So for an investor who wants a quiet life, without their investments demanding their attention, there may be reasons to prefer IUKD other than strictly financial ones.
Gengulphus
, which is something I continue to monitor.