ITs that pay as income rather than dividends?

[tjh290633]

Yes, it's about dividends, because the more cash you get from dividends, the less you have to realise by selling shares and so reducing your capital.

Whereas the value of the portfolio will vary up or down as the market fluctuates, the income from dividends is much less variable. If you are dependent only on share values, you are much more a hostage to fortune.

TJH

[gadgetmind]

Yes, I'm pretty happy with the equity side. I could HYP again but TBH the B7 may be more relaxing as I got fed up with tracking corporate actions with an unwrapped HYP.

The bond/interest side is however more taxing (ha!). I could just use SLXX (UK corporate bonds) with a distribution yield of 2.78% and be done with it, but I know others here understand the IT space better.

[Itsallaguess]

Dividends are a capital reduction. Just part of total returns. No different to having sold shares.

A dividend is a fixed amount of cash returned by the company, and that cash amount is extremely unlikely to change once it's announced.

Selling shares is different in the sense that we are partly governed by the market price of a share when we come to sell them, so if we want to raise a fixed amount of income, comparable say to an amount we would have otherwise have gleaned from a dividend return, then of course there is a difference, because we won't know how many shares we will have to sell on any given day to realise the same amount of capital.

Carrying out capital-returns by selling shares in markets that are going through turbulent times can be the absolute worst time to have to sell them, if capital is required, and it's for this reason that of course gaining income via dividend returns is different to selling shares to generate the same return, and to suggest otherwise is simply untrue.

Share prices that vary at the whim of the market creates the clear difference in the two methods of income generation.

Go and try telling someone that has had to sell shares to generate much-needed capital during a really bad market rout that there's 'no difference' in the two approaches....

Cheers,

Itsallaguess

[gadgetmind]

Waaa, I now see that SLXX pays out as dividends! Can this really be right? An ETF holding only bonds paying dividends rather than interest?

The OEIC route looks easier but fees come to 1%+ after their fees and platform fees.

[Alaric]

Waaa, I now see that SLXX pays out as dividends! Can this really be right? An ETF holding only bonds paying dividends rather than interest?

It's classified as taxable interest in the end of year tax statement issued by the Broker. Or that's what TD (now ii) do.

I know the capital value isn't guaranteed, but SLXX seemed as good a way as any of getting a higher return than leaving an equivalent amount on deposit.

[gadgetmind]

OK, even though the iShares page says "dividend" and BestInvest show "Cash Dividend" on the transaction summary, it says "Interest payment" if you click to get more details.

SLXX and maybe some IS15 are a good option unless someone actually knows of any ITs that pay interest.

[Parky]

mickeypops,
For many years I have been doing what you are wanting to do by investing in Zero Dividend Preference shares, which pay no income but rise by a fixed amount each year to redemption. Yields at the moment for those providing data are between 2.4% and 4.1%, see http://www.aicstats.co.uk/splits/analyt ... SectorKey=
These beasts are much less volatile than ordinary shares, and tend to increase in value fairly smoothly.
I just sell what I need each year and if the capital gain is less than the annual allowance ( about £11000 ) there is no tax to pay (and in my case no tax return to fill in).
You can create a ladder of these for different redemption dates and avoid paying trading costs and dealing spreads when they mature.
One slight drawback is that they are less common than they used to be, and it is difficult to find good data for some of them.
Since the scandal involving the collapse of a few of these shares many years ago, this strategy has served me well . It's a pretty safe, if unexciting, way to invest.

[Alaric]

SLXX and maybe some IS15 are a good option unless someone actually knows of any ITs that pay interest.

I suspect there aren't any.

https://www.lexisnexis.com/uk/lexispsl/ ... 94overview

So it's just the ETFs.

[PinkDalek]

mickeypops,
For many years I have been doing what you are wanting to do by investing in Zero Dividend Preference shares, which pay no income but rise by a fixed amount each year to redemption. ...

Parky,

mickeypops doesn't feature in this thread but posted today on the High Yield Shares & Strategies - general board:

Re: Terry Smith says investing for income useless
viewtopic.php?p=122875#p122875

Did you mean to reply over there?

[gadgetmind]

OK, sounds like I need to look at OEICs (where they trouser about 1/3rd of the bond return), ETFs, or directly holding QCBs.

Thanks all.

I'm also musing on the investment strategy for the equity portion and that may also go the ETF router, perhaps with an income bias, perhaps not.

[tjh290633]

For OEICS, the rule is that, if the income comes from more than a certain level of fixed interest securities, then the dividends are considered to be interest and are taxed accordingly.

Typical examples are some of the "Extra Income" funds.

I don't believe that such a rule applies to ITs.

TJH

[Markab01]

I think that you will find that P2P Global Investments PLC (P2P) is an IT that pays interest.

Invests n P2P lending and some of the companies that do it.

Markab01

[gadgetmind]

All the blurb regards P2P Plc refers to dividend income. It would be nice if it were interest income as some P2P would be a good diversifier.

[Markab01]

All the blurb regards P2P Plc refers to dividend income. It would be nice if it were interest income as some P2P would be a good diversifier.

My HL account shows the "dividend" payments for P2P as "Interest Payment Bulk".

My other IT holdings show either "Dividend" or "Overseas Dividend" as I would expect.
It makes no difference to me as the holdings are within an ISA

Markab)!

[gadgetmind]

Thanks for that. Would probably be holding with HL so good to know.

[Chrysalis]

@gadgetmind, if you open a dealing account with iWeb its virtually free to hold OEICs, so you wouldn't be losing so much of the return. Just a thought.

[Parky]

Parky,

mickeypops doesn't feature in this thread but posted today on the High Yield Shares & Strategies - general board:

Re: Terry Smith says investing for income useless
viewtopic.php?p=122875#p122875

Did you mean to reply over there?[/quote]

Sorry, posted in wrong place.

[gadgetmind]

Does anyone know if City Merchants High Yield pays interest or dividends?

It's on an OK discount.

http://citywire.co.uk/investment_trust_ ... undID=2830

[Alaric]

Does anyone know if City Merchants High Yield pays interest or dividends?

It's Jersey based which I believe allows them to distribute as dividends without having to pay tax.

If you Google for the name, there's material relating to when it was set up. That's quite recent when it moved from the UK to Jersey for reasons that appear connected to the tax treatment of UK holders.

[gadgetmind]

OK, I'll do some hunting, but the 1% annual fees don't look that inviting now that I look closer.