UK Dividend Aristos

[Arborbridge]

SPDR, UKDV: I'm a little perturbed to find that the final dividend is down around 14%, and the total for the year is down 3.8%.

How can this be? The portfolio consists of companies which have held or increased their dividends for ten years, and the fall of sterling has increased dividends for several companies in the pastsix months. During a telephone conversation with them a few weeks back, they claim to pay out all the income accrued and I find it difficult to reconcile what has happened to my directly held shares with any sort of decrease in payout.

Very unsatisfactory. I feel another phone call coming on!

[AleisterCrowley]

Have they changed the weighting etc? They could have moved more into (a) lower yielding share(s)?
Just an idea

[Arborbridge]

Just an idea

Yes, and it's a possibility - but I couldn't tell without quite a lot of work. In fact, I probably couldn't easily get access to the relevant information.
Each previous year the payout has increased and presumably they have made portfolios changes at times. This year they have the advantage of falling sterling, so the difference stands out like a sore thumb.

[flint]

Possibly partly due to UKDV not seeming to hold RDSB, BP. or BLT in their top 10 - these are 3 megacaps that have done well with $ divs that have increased in £ terms.

[Arborbridge]

Possibly partly due to UKDV not seeming to hold RDSB, BP. or BLT in their top 10 - these are 3 megacaps that have done well with $ divs that have increased in £ terms.

That would only be true if those were removed from the portfolio during the previous year and replaced by others which had reduced their dividends. If (as I believe) BLT, BP and RDSB were not in the portfolio at all, whether they increased or decreased dividends would not have mattered, since they neither contributed, nor detracted.

Without detailed knowledge of the changed, it's impossible to account for what happened. As far as I can see from the website, it isn't possible to see how the holdsings have changed historically. BP would never have been in the portfolio and BLT, if it was in, would have been taken out in 2016. I'm not clear why RDSB does not qualify: I would have thought it the Dividend Aristo par excellence. Maybe to do with currency changes?

Arb.

[Arborbridge]

Called SPDR: they don't know the answer, will email me.

Arb.

[mc2fool]

SPDR, UKDV: I'm a little perturbed to find that the final dividend is down around 14%, and the total for the year is down 3.8%.

How can this be? The portfolio consists of companies which have held or increased their dividends for ten years...

And so it did last year, but that doesn't mean they are the same companies. What companies that were dividend aristocrats last year have been dropped 'cos they are no longer so?

[tjh290633]

At one time I was following IUKD to see how it did, and made a point of keeping a list of its portfolio at each rebalancing date. The holdings were available on the iShares web site, probably still are.

Can you not find similar information on the relevant web sites/

TJH

[Arborbridge]

Can you not find similar information on the relevant web sites/

As far as I can see, one cannot change the date of the full portfolio download. It can only be done for today's date, not retrospective dates.

I'll report back to see if SPDR explain why the dividends have decreased, or if (as happened in the case of IAPD) they decided to re-invest some income instead of paying out.

mc2fool is quite correct to pick up that the payout also dropped between years 2014 and 2015 - which I hadn't noticed. To be even handed with UKDV, the dividend has compounded at 6.8% over four years despite the two wobbles, so perhaps I should be happy with that. One has to take the variability as part of the story, or use an IT which holds back some for a rainy day.

With the payout being about 5% less in 2016 than 2014, one must allow for some variability if depending on an ETF for pension income.


Arb.

[tjh290633]

Can you not find similar information on the relevant web sites/

As far as I can see, one cannot change the date of the full portfolio download. It can only be done for today's date, not retrospective dates.

Arb.

Yes, but I tended to do it about the date of the portfolio reviews, originally annually and latterly six-monthly.

It was easy to see what had entered and what had left. Also ftse.com had a record of the changes to the Dividend+ index.

See http://www.ftse.com/products/index-noti ... ces/?id=UK and http://www.ftse.com/products/index-noti ... id=2067733 for examples.

TJH

[Lootman]

As I recall, when this series of ETFs were introduced, modelled on the successful US-listed version, there was a problem with carrying across the same US dividend rules to UK shares because of the lack of UK shares that had such a long record of increasing dividends. As a result of that, the criteria for inclusion were relaxed to compensate for that.

I'm not sure if the result of that manipulation of the rules led to undue sector concentration or a distortion of the methodology. And I like the idea of a strategy that targets dividend safety and growth rather than nominal yield. But all that said I cannot understand why a fund would have suffered in this way in a good year for the markets. Even if dividend shares reached peak valuation a year ago, as did low volatility funds, that still doesn't explain why dividends are down in absolute terms, aside timing issues. It's not even as if sterling has bounced back up.

Let us know what they say . .

[mc2fool]

mc2fool is quite correct to pick up that the payout also dropped between years 2014 and 2015 - which I hadn't noticed.

Ah, no, you misunderstood me. I haven't followed UKDV and had no idea that happened. My "And so it did last year" comment was in reply to your "The portfolio consists of companies which have held or increased their dividends for ten years".

Last year the portfolio consisted of companies which had held or increased their dividends for ten years as of last year. Now the portfolio consists of companies which have held or increased their dividends for ten years as of now. They may not be the same companies.

If top of the list last year was Very Big Payer plc, which has since soiled its record and been dropped, to be replaced by Much Smaller Payer plc coming in at the bottom, then the payout would drop even though the current portfolio consists of companies which have held or increased their dividends for ten years.

So, the question remains: how has their portfolio changed?

[Hariseldon58]

Could it be as simple as a timing issue of the actual dividends ?
If a portfolio change takes place the overall level of dividends received in a year may be higher but in a specific 12 month period the dates of and the amounts of the dividends may be lower and in subsequent years "catch up".

[Arborbridge]

Ah, no, you misunderstood me.

I did, and I didn't! I understood the principle you put over about the change of companies, but the "and so it did last year" was misunderstood. By a lovely piece of serendipity, this made me look again at the results as I reported.

So, the question remains: how has their portfolio changed?

I don't know, and there seems no easy way to find out. It would be a labour of love to tease out from the portfolio what might have made the difference. Maybe SPDR will tell me in a few days time.
Perhaps what we are seeing here is the limitations of the whole "aristo" theory - it will not between any couple of years necessarily produce a rising income, even if incomes generally are rising.

Munro, anyone

[Lootman]

So, the question remains: how has their portfolio changed?

I don't know, and there seems no easy way to find out. It would be a labour of love to tease out from the portfolio what might have made the difference. Maybe SPDR will tell me in a few days time.

The SPDR website has a time series of annual and semi-annual reports, each one of which lists the portfolio at that point in time and a "schedule of significant porttfolio changes". Looks like it's just one report for all their UK ETFs so it's a bit messy, but you should be able to see a time series of their portfolio at 6-month intervals. Here:

https://uk.spdrs.com/en/professional/et ... tf-SPYG-GY

You'll see the "Fund Documents" tab on the right, along with a tab amusingly called "The Importance of Sustainable Dividends".

[mc2fool]

So, the question remains: how has their portfolio changed?

I don't know, and there seems no easy way to find out.

If you google "UK dividend aristocrats" you can find a couple of articles from the Telegraph from past years that give UKDV's then portfolios. You can even find a 2012 TMF article on it with the top 10 listed. FirstGroup, eh?...

Your best bet may be looking for known holding sources in the Internet Archive. E.g. the internet archive on HL's listing looks fruitful, as it has quite a few captures at different times, with the August 2016 one showing Pearson as their top holding. Go back a year and Amlin was their top holding.

[Dod1010]

What this whole discussion illustrates is the difficulty in knowing what is going on under the bonnet with this ETF and I assume all ETFs compared to say ITs. One reason why I do not like them. Plus of course we could all have our own Dividend Aristocrats by holding a HYP. Since most of the contributors on this thread are contributors on the HYP thread, I guess most hold our own version of dividend aristocrats ourselves directly. Why try to duplicate that?

Dod

[Arborbridge]

What this whole discussion illustrates is the difficulty in knowing what is going on under the bonnet with this ETF and I assume all ETFs compared to say ITs. One reason why I do not like them. Plus of course we could all have our own Dividend Aristocrats by holding a HYP. Since most of the contributors on this thread are contributors on the HYP thread, I guess most hold our own version of dividend aristocrats ourselves directly. Why try to duplicate that?

Dod

I'm not sure I entirely go along with that - although I'm more than half convinced!
The rules of this ETF are clear enough and I have a verbal statement from them that all income is paid out. (Actually, I believe there is a statement about this on their website, but need to recheck that). I'd say that an IT is harder to understand "under the bonnet" since it depends on the judgement of the Manager and the will of Directors within a very wide remit, and the regulatory regime, naturally. An IT is a matter of trusting the manager's judgement: this ETF is matter of believing the "theory" behind it - as we do with HYP. As another prominent poster, Rob, would say: he would prefer a sound process rather than trust to the skill of manager who come as go.

There are only two questions: does the theory produce an acceptable result? do the people running the ETF really pay out all the income accrued?

As for why duplicate?: that's easy enough. I need a) a way of testing my own HYP management, a series of comparisons b) a way of investing when I can longer do so actively, or when I simply lose interest.
When UKDV was launched, it was an interesting experiment in a professionally run mechanical fund which was hyp-like. It still continues so to be so. but has become a little tarnished in the sense that it does not appear to be producing results which are as good as the major income IT warhorses. But I wouldn't be able to test that easily by observing from outside: my feeling is that, as Lootman would say - you need "skin in the game" to keep any sort of interest going.

[Dod1010]

I'd say that an IT is harder to understand "under the bonnet" since it depends on the judgement of the Manager and the will of Directors within a very wide remit, and the regulatory regime, naturally. An IT is a matter of trusting the manager's judgement: this ETF is matter of believing the "theory" behind it - as we do with HYP. As another prominent poster, Rob, would say: he would prefer a sound process rather than trust to the skill of manager who come as go.

There are only two questions: does the theory produce an acceptable result? do the people running the ETF really pay out all the income accrued?

As for why duplicate?: that's easy enough. I need a) a way of testing my own HYP management, a series of comparisons b) a way of investing when I can longer do so actively, or when I simply lose interest.

I have tried to be selective in the above quote but not sure it has worked out very well.

I find an IT totally transparent. I can if I like get a hard copy Annual Report, just like any other company and study its assets and liabilities as at year end, together with its philosophy and then judge for myself if I like what I read or not. That always seems to be much more difficult with an ETF, OEIC or unit trust. Managers of ITs come and go but the basic philosophy (or culture!) does not change much. Take a look at many of the well known ones. The method of reaching their goals may change but the basic style does not. That is because the style, or culture is set by the Directors in most cases, not by the manager. An exception to that is probably trusts run by Baillie Gifford. They seem unusually able to hang on to mandates over a long period and so the corporate manager, it seems to me has an unusually large influence in their trusts.

I take your point about a way of investing when no longer able to do so oneself, but I think I would move to ITs if that happened, although I feel reasonably happy that my portfolio would run itself for some time at a pinch; in fact it might do better if I just kept my hands off! I am on my own nowadays with no dependents but I can see the other side in action if a wife is left. Before any feminist jumps on me, there are widows who are perfectly capable but my late wife for instance had not the slightest interest in matters financial and it used to worry me how she would cope if left alone.

Dod

[77ss]

The rules of this ETF are clear enough and I have a verbal statement from them that all income is paid out. (Actually, I believe there is a statement about this on their website, but need to recheck that). I'd say that an IT is harder to understand "under the bonnet" since it depends on the judgement of the Manager and the will of Directors within a very wide remit, and the regulatory regime, naturally. An IT is a matter of trusting the manager's judgement: this ETF is matter of believing the "theory" behind it - as we do with HYP. As another prominent poster, Rob, would say: he would prefer a sound process rather than trust to the skill of manager who come as go.

It's a tracker. Physical replication.

What happens if a company ceases to be be part of the Index tracked? A high yield may be cut, with knock on effects - not just on dividend income.

Will it be sold? May there be an accompanying capital loss? Just a thought.