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ADrunkenMarcus' 'Dividend Growth Portfolio'.

A helpful place to also put any annual reports etc, of your own portfolios
ADrunkenMarcus
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ADrunkenMarcus' 'Dividend Growth Portfolio'.

#55267

Postby ADrunkenMarcus » May 21st, 2017, 6:39 pm

'Evening all.

I've chosen 'dividend growth portfolio' for want of a better name. The focus is more on total return as opposed to a high starting income, but I realise it's an odd name given that the portfolio's largest holding does not yet pay any dividends!

This is a long running portfolio but it was only unitised as of 30 April 2016. Therefore 1 May 2016 to 30 April 2017 marks the first full year to report on.

TRADES
During the year, GlaxoSmithKline was trimmed and the cash proceeds removed from the portfolio in August 2016; other than that, in April 2017 Diageo was topped up; Standard Chartered and Acorn Income were trimmed and much of the proceeds went into a new position in the Finnish Kone.

CURRENT HOLDINGS



TOTAL RETURN - INDEX

The portfolio returned more than double the best performing of the chosen benchmarks, benefiting in large part from the 95% rise in DP Poland. However, other holdings performed very strongly, too, including Spirax Sarco Engineering which rose 52%. It will likely perform very differently to the market, for better or worse. It's highly concentrated, with the top ten holdings accounting for 80% and the top two holdings around 40%.



INCOME

The income per unit for the first year (comprising May 2016 to April 2017) came to 3.05 pence, representing a 'yield on cost' of 3.05% and a current yield (at the yearly close) of 2.29%. The 'real' dividend yield on cost is 2.95%.

The split in 2016-17 was 90.8% of returns came from capital appreciation and 9.2% from dividends. I'd expect this to tilt more towards dividends over time.

RUNNING COSTS

The running costs are based on portfolio's capital value at the end of each period, so I have a reasonable estimate for April 2016. Costs declined and are reasonably low, but I hope they can fall further.



HOLDINGS FROM PURCHASE TO DATE



*Note the current values for these were updated a bit earlier in 2017 so won't quite match the close of business on Friday. Paddy Power Betfair's dividend altered in that the payments shifted from one tax year to another, but in fact grow on an annual basis.

Best wishes

Mark.

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Re: ADrunkenMarcus' 'Dividend Growth Portfolio'.

#55303

Postby YeeWo » May 22nd, 2017, 8:00 am

An interesting read! Have you reduced your StanChart holding? Is it not time to get-shot completely?
Why did you trim GSK? As you've trimmed I've added ab-initio! :lol:

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Re: ADrunkenMarcus' 'Dividend Growth Portfolio'.

#55328

Postby ADrunkenMarcus » May 22nd, 2017, 10:40 am

Hi YeeWo

Glad it interested you. It was my first review so I was never quite sure what to include but I think I covered the main elements. As it’s not ‘HYP’ I realise it will have a smaller interested audience.

Now that I have established the dividend income per unit for 2016-17 I will be able to compare the dividend growth rates for future years, which is a key test. Of course the hope is that a reasonably fast pace of dividend growth will also lead to capital appreciation as well. I am hoping I can get high single digit dividend growth on a nominal basis, but we’ll see.

Yes, the Standard Chartered holding was reduced. Bear in mind it was split (some in ISA, some not) and so one of the holdings was sold entirely which left the remainder. I participated in the rights issue and had banked a considerable profit from that. I have a lot of faith in Bill Winters but the position is certainly under review. For years now, holders of bank equity have been hoping for a recovery and a situation where companies such as Standard Chartered and Barclays trade above their book value (both stand at a considerable discount). It’s almost at the point where you might think – time’s run out.

On the other hand, the functioning of the economy depends on healthy, profitable and well-capitalised banks so it will simply not be sustainable for them to deliver returns below their cost of capital. Barclays seems to be finally getting their act together and maybe 2018 will, finally, see a significant increase in the dividend. And I keep considering that, having endured a torrid decade, the next ten years will be better for bank equity holders.

At some point I could sell both and replace with something much more growthy like Visa, which has – I think – the potential to deliver mid teens dividend growth from a low base for a considerable time to come. I don’t mind holding foreign stocks, as you can see from Kone (listed in Finland). Ideas are always welcome!

There were a mix of reasons on trimming GlaxoSmithKline, involving tax and other matters. It was one holding I could trim and still have a meaningful position size left. As with Astra, I think it’s undervalued but it’s something of an odd holding given that its dividend has been frozen (as has Astra’s). I suspect it will maintain the dividend but at the cost, potentially, of investment in the company’s future. One that’s under review: I did hold from 1998 to 2010. Johnson & Johnson has higher earnings quality and an extraordinary dividend growth record. Nonetheless, I got a high starting dividend yield when I re-bought in 2015 and so I only need low single digit earnings growth to get to a double digit total return (CAGR).

Best wishes


Mark.

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Re: ADrunkenMarcus' 'Dividend Growth Portfolio'.

#55397

Postby LongbeardRanger » May 22nd, 2017, 3:40 pm

Hello Mark,

An interesting portfolio you've got there. There's some overlap between what you hold and what I hold. I hold just under 30 stocks, and share holdings in Domino's Pizza, Unilever, Reckitts, Diageo and Kone. My wife holds shares in Rotork. And last year I bought (but then sold) a holding in DP Poland. (I sold it as I thought the price had gone quite a way ahead of the business.)

For me, I wouldn't want such a large %age holding in DP Poland but I do understand why you're letting your winners run.

Relating to banks, I have looked at quite a few, both in the UK and outside - at the moment I hold one bank stock, Metro Bank (MTRO) which is really quite a different proposition to the big established banks in that it has a clean, simple balance sheet, no legacy problems, and a focussed, rollout-driven source of growth, based on obtaining cheap deposits through service and convenience and lending them out at low risk. Although MTRO is expensive (on a price to book basis) and clearly pricing in a lot of future growth, I also view it as the stock with the clearest path to high returns that I've seen in some time. But, in looking at MTRO I've looked at the other banks and, you're right, they are cheap. I did think Barclays' turnaround plan made sense but at the same time they don't seem to me to have a particularly compelling market position. Whereas I could actually see Lloyds as a very good investment over the next 5 years. (Incidentally, on price-to-deposits, which is the way I like to look at bank stocks, RBS is actually by some margin the cheapest of the big UK banks.)

If you're prepared to consider non-UK banks, the ones I looked at that were (and still are) of interest to me, were:

- Svenska Handelsbanken - a very conservatively run Swedish bank with an interesting decentralised operating model and a growing UK arm
- Wells Fargo - huge US bank currently beset by fake account scandals but still with a very strong market position
- Cullen/Frost Bankers Inc - the largest regional (i.e. non national) bank in Texas, with a very strong deposit franchise
- Bank of Hawaii - a large bank based in Hawaii (a somewhat oligopolistic market for banking services).

I have looked at others too, but those are the standouts. Hopefully that's of interest.

Anyway, your portfolio is doing very well so feel free to ignore :lol:

Rgds
Phil

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Re: ADrunkenMarcus' 'Dividend Growth Portfolio'.

#55667

Postby ADrunkenMarcus » May 23rd, 2017, 9:07 pm

Hi Phil

Thanks for your comments.

We do seem to hold quite a few of the same companies, don’t we?

Two of the key things I tend to look for are high Return on Capital Employed (ROCE) and operating margin. For example, the average ROCE is pretty good IMHO:



And then there are particular qualitative reasons for each company, whether it's Unilever, Reckitt and Diageo's enduring brand strengths and distribution networks or Renishaw, Kone and Spirax Sarco's niche positions in attractive markets. Spirax Sarco has a phenomenal long term dividend growth record but it's one of many companies that so many seem to overlook. As for pizza delivery, I love the business model and think Domino's is a great brand.

I fully agree with you that the current market capitalisation of DP Poland is well ahead of the business’s development. I think that has been the case for some time, but it became particularly acute in the second half of last year. If we go back to April 2015 (pre unitisation) then I think DP Poland was around 7% of the portfolio and it has risen very strongly since then: from a low of about 8p around February 2015, it surged to a recent high of 59p (up 625%). The consequence is it’s now over one-fifth of my portfolio. I intend to keep a close watch and run with it as there is no guarantee it will get significantly cheaper. I think the business will ‘grow into’ the share price, as it were. It has a profitable store estate and, after narrowing group losses significantly in 2018, a profit of about £700,000 is forecast for 2019 and then rising to over £1,200,000 in 2020. It seems plausible to me that it could be making several million a year in the early 2020s and that there is long term potential for hundreds of stores, which would be a dramatic expansion on where it is now. My justification is I am valuing it on where I ‘think’ it will be in five or ten years, which is clearly subject to uncertainty!

Thanks for your suggestions on banks. Handelsbanken seems to have a fortress balance sheet and I see it came through the early 1990s pretty well at a time when other Swedish banks suffered very badly. I also like wells Fargo but will look into the other two that you have mentioned as well. It may be that, if I decide to exit the Barclays and Standard Chartered positions, I’ll put the proceeds into a single replacement in the banking sector or maybe exit altogether. We have to accept that banks have a tendency to blow up every generation or so and the last crisis saw ruinous dilution for many equity holders. The challenger banks are options but then payment companies such as Visa or Paypal capture the growth in financial transactions without any credit risk. I could merely top up some of the smaller portfolio positions where value presents at the time.

Of course, I’m pleased with how the portfolio did in the last year but I am not convinced it was due to any skill on my part and one year is a very short period. All advice is gratefully received and considered: it won’t be ignored.

Thanks again.

Best wishes


Mark.

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Re: ADrunkenMarcus' 'Dividend Growth Portfolio'.

#55719

Postby YeeWo » May 24th, 2017, 10:09 am

ADrunkenMarcus wrote:I fully agree with you that the current market capitalisation of DP Poland is well ahead of the business’s development........DP Poland was around 7% of the portfolio and it has risen very strongly since then: from a low of about 8p around February 2015, it surged to a recent high of 59p (up 625%). The consequence is it’s now over one-fifth of my portfolio.
- Why not sell sufficent DP Poland to recover your initial invested capital?
- Where did the annualised ROCE figures come from?
- Do you have XIRR figures including Dividends for your holdings?

On the 1st January ADrunkenMarcus tipped Unilever, I tipped Inchcape: -


You're Tip for '17 is beating mine slightly, did you have some insight that Warren Buffett was going to express an interest in Unilever?(!) :lol:

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Re: ADrunkenMarcus' 'Dividend Growth Portfolio'.

#55743

Postby ADrunkenMarcus » May 24th, 2017, 12:18 pm

I'm tempted to do that with DP Poland, YeeWo - just not yet!

The ROCE figures were calculated using the financial statements in companies' annual reports. They will differ from some sources given that some ROCEs are calculated on adjusted earnings whereas these are not. Kone's published figures, for example, don't quite match but I wanted to be consistent and calculate all on the same basis.

I'd forgotten about that tip, although I do love Unilever. Another 30.21p dividend is due shortly!

I don't do XIRRs but do have the total return figures (calculated per share, comprising the usual capital gain + dividends) and CAGR as in the table in my review.

Best wishes


Mark.

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Re: ADrunkenMarcus' 'Dividend Growth Portfolio'.

#123641

Postby ADrunkenMarcus » March 9th, 2018, 7:50 pm

My report for the second year won't be available until May, as I work on an end April to end April basis. However, I did cast an eye over my holdings with a focus on their dividend growth over this past year. The figures are based on the dividends received/declared per share from one tax year to another and look at ordinary dividends:



* Paddy Power changed the timing of their dividend payments so one dividend fell outside the 2016-17 tax year - for purposes of comparison, I've adjusted it here to make it a like for like calculation.

**In the case of AstraZeneca, the dividend payment remained the same in Dollars but was less due to the strengthening of Sterling.

Barclays and GlaxoSmithKline held their dividends at the same level for these years, while Marlborough Multi Cap Income Fund's second payment is due at the end of March so I don't have the full figures for that yet. DP Poland, M&G Recovery and Standard Chartered didn't pay dividends for the period. The latter has resumed dividend payments but the payment is not due until May 2018, which falls in the 2018-19 tax year. Meanwhile, I only bought Kone in April 2017 but the dividend they've declared in Euros for 2017 represents a 6.5% increase on 2016.

I expect the rate of dividend growth for the portfolio as a whole will be reasonably healthy when I calculate it at the year's end, but it's undoubtedly been held back by currency movements: AstraZeneca is responsible for an unhealthily large proportion of dividend income and the Sterling amount represents a significant decline. (The benefit of dividends in foreign currency being converted into a weaker Sterling after Brexit also meant that it increased the level of dividends received in 2016-17, which forms the baseline for dividend growth.)

Best wishes

Mark.

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Re: ADrunkenMarcus' 'Dividend Growth Portfolio'.

#136635

Postby westmoreland » May 3rd, 2018, 6:22 pm

good call on Kone. i've got to say, the economics are quite incredible. pretty much flawless from what i can see.

no wonder terry smith likes lift companies.

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Re: ADrunkenMarcus' 'Dividend Growth Portfolio'.

#137085

Postby monabri » May 5th, 2018, 12:45 pm

If I might ask, how are you purchasing shares in Kone? My trading platform doesn't list it. Also, what are the tax implications? Sorry for these basic questions!

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Re: ADrunkenMarcus' 'Dividend Growth Portfolio'.

#137106

Postby ADrunkenMarcus » May 5th, 2018, 2:18 pm

monabri wrote:If I might ask, how are you purchasing shares in Kone? My trading platform doesn't list it. Also, what are the tax implications? Sorry for these basic questions!


They are listed in Finland on the Helsinki exchange, and the ticker is KNEBV:

KONE OYJ CORPORATION NPV ORD 'B'

Provided you have a broker who lets you buy on European exchanges including Finland then there should be no issue. Tax wise, Finland has a 30% dividend withholding tax which I cannot reclaim as I hold my shares in an ISA. Nonetheless, they yield 2.8%. Brokers' foreign currency charges are worth checking, too.

Best wishes

Mark.
Last edited by ADrunkenMarcus on May 5th, 2018, 2:21 pm, edited 1 time in total.

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Re: ADrunkenMarcus' 'Dividend Growth Portfolio'.

#137107

Postby ADrunkenMarcus » May 5th, 2018, 2:21 pm

westmoreland wrote:good call on Kone. i've got to say, the economics are quite incredible. pretty much flawless from what i can see.


Yes, the returns on capital are great. Qualitatively, I also like the entrenched nature of their business and the ongoing security of recurring maintenance and service revenues for their installed equipment. I was very glad to be able to purchase more this April, at a slightly lower share price than my first tranche purchased the previous April.

It will likely be late May when I can put together my annual report for 1 May 2017 to 30 April 2018. :)

Best wishes

Mark.

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Re: ADrunkenMarcus' 'Dividend Growth Portfolio'.

#137125

Postby westmoreland » May 5th, 2018, 4:01 pm

ADrunkenMarcus wrote:
westmoreland wrote:good call on Kone. i've got to say, the economics are quite incredible. pretty much flawless from what i can see.


Yes, the returns on capital are great. Qualitatively, I also like the entrenched nature of their business and the ongoing security of recurring maintenance and service revenues for their installed equipment. I was very glad to be able to purchase more this April, at a slightly lower share price than my first tranche purchased the previous April.

It will likely be late May when I can put together my annual report for 1 May 2017 to 30 April 2018. :)

Best wishes

Mark.


i wonder why this is? why can't unbranded lift maintenance companies compete away those returns? if the engineers have the appropriate training / qualifications it shouldn't matter who they work for. or does the oligopolistic model mean the companies can get away with only selling lifts with servicing contracts?

article here suggests these huge excess returns may not be as good going forwards:

Yet from the customer’s perspective, lifts have evolved little since they first appeared 150 years ago. You walk in. You press a button. You avoid talking to the people standing next to you. You get off. Slim margins historically kept competition at bay. Now that the lift market is lucrative, however, it may grow more crowded.


https://www.economist.com/news/business ... oor-please

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Re: ADrunkenMarcus' 'Dividend Growth Portfolio'.

#137240

Postby ADrunkenMarcus » May 6th, 2018, 11:37 am

westmoreland wrote:i wonder why this is? why can't unbranded lift maintenance companies compete away those returns? if the engineers have the appropriate training / qualifications it shouldn't matter who they work for. or does the oligopolistic model mean the companies can get away with only selling lifts with servicing contracts?


There are four large companies which, essentially, dominate the market and I think it is pretty hard for rivals to compete. If you are building a large tower block in China and need a reliable lift, then Kone is the number 1 in the market. They already have the offices, network of suppliers and such like. Having bought a Kone product then I can't see why you wouldn't then lock in a maintenance and serving contract.

I am sure there are certain economies of scale for procurement, transport of materials and such like, which are enjoyed by the four and which would not be replicated by any rival start-up. Therefore a new company would find it harder to undercut them. They would also find it harder to compete on quality of product without the massive R&D spend of Kone and others which has given them a key advantage. Or what if you are a company with high rise offices in North America, EMEA, China and Europe? If you deal with a global company then why would you change to a start-up which would surely be only in one of those territories, or, at least, would not have the same geographical reach of Kone, Schindler or such like?

It doesn't follow that future returns will be the same but I suspect they will be more than good.

Best wishes

Mark.

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Re: ADrunkenMarcus' 'Dividend Growth Portfolio'.

#139922

Postby ADrunkenMarcus » May 18th, 2018, 9:05 pm

My review for the year 2017-18 (1 May 2017 to 30 April 2018)

TRADES
In January 2018, I sold the small remaining holding of Barclays. Even on the basis it might recover substantially, my patience essentially ran out. There are better businesses with more growth, sounder business models and better returns on capital. The proceeds went into Rotork, which promptly went on a tear and is since up 25%. More luck than judgement.

In February 2018, GlaxoSmithKline was sold. I felt it was essentially eating itself by paying dividends and sacrificed some current yield. In April 2018, the proceeds went into topping up Kone (at a lower price than the first shares were acquired last April); adding to Acorn Income Fund; adding to Spirax Sarco Engineering; and a small top up of DP Poland. A small bit of spare cash went into topping up Marlborough Multi Cap Income.

CURRENT HOLDINGS (% OF PORTFOLIO)



TOTAL RETURN – INDEX
After a very good first year, the second year went less well. The portfolio’s total return was less than inflation and lagged every benchmark. It remains ahead of the benchmarks chosen since inception.



I decided to switch to CPI inflation rather than RPI inflation as my inflation benchmark, but the CPI data isn’t out yet.

For current individual holdings, their total return is as follows:


Victrex, Renishaw and Rotork had very good years. I am pleased the portfolio generated a positive total return considering that DP Poland was such a large proportion of the portfolio at the start of the year and then fell so substantially. That also solved the worry of it being too large a proportion of the portfolio! However, it does show the risks of concentration as well as the benefits: I estimate the fall of DP Poland alone wiped about 8-9% off the total return for the year.

INCOME:
The income per unit for the second year (May 2017 to April 2018) came to 3.23 pence, plus a special dividend of 0.14 pence per unit (Victrex), representing (for the normal dividends) a ‘yield on cost’ of 3.23% and a current yield of 2.52%. The ‘real’ dividend yield on cost is probably about 3.1% assuming inflation rises by 2.5% for the year when the CPI inflation figures are released.

Dividend growth comes to 5.9%, which is quite respectable to me: it would have been 8.6% but the sales of Barclays and GlaxoSmithKline meant that I lost their final dividends due in the period. Similarly, the base year represented a period where sterling had weakened and benefited dividends whereas this year the opposite happened. AstraZeneca accounts for a substantial amount of income and pays in dollars, so the appreciation of sterling for their final dividend alone took 1.1% off dividend growth. I think that underlying dividend growth was, therefore, a bit stronger.

Murray International accounts for about 30% of total dividends; AstraZeneca almost 13% (yes, a risk). It is certainly the case that the holdings growing their dividends faster have lower yields and also account for a smaller proportion of dividend income received.

To date, about 80.7% of returns came from capital appreciation and 19.3% from dividends. Without dividends, the total return this year would have been slightly negative. I still expect the proportion coming from dividends to rise over time.

RUNNING COSTS
The running costs, based on the portfolio’s capital value at the end of the period, were virtually the same as last year’s:


HOLDINGS FROM PURCHASE TO DATE



Let's see what next year brings!

Best wishes

Mark.

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Re: ADrunkenMarcus' 'Dividend Growth Portfolio'.

#139930

Postby doug2500 » May 18th, 2018, 10:19 pm

I really admire your thoroughness Mark, that's one comprehensive review.

Some simple question's that I'd be interested in hearing more about:

How do you work out your annual return on holdings? I used to get tied in knots over this, dealing with dividends, top ups and sales. I ended up using XIRR, which I see you track too.

Do you track your portfolio as acc and inc units to find out the split between capital growth and dividends?

What all goes into your costs? I would assume broker annual fees and stamp but not spread?

How do you track it all? Have you managed to streamline things, or do you just run multiple spreadsheets recording everything and accept that you need to enter a dividend payment into 2 or 3 different spreadsheets?

I must thank you for promoting unitisation and inspiring me to start last year. I just wish I'd started ten years ago when I started investing for myself.

Doug

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Re: ADrunkenMarcus' 'Dividend Growth Portfolio'.

#139970

Postby ADrunkenMarcus » May 19th, 2018, 10:52 am

Hi Doug

doug2500 wrote:How do you work out your annual return on holdings? I used to get tied in knots over this, dealing with dividends, top ups and sales. I ended up using XIRR, which I see you track too.


The performance data for current individual holdings in 2016-17 and 2017-18 is from an analysis tool my broker provides - I think it's sourced from Fundsnet or something of that sort. It only goes back five years which is typically annoying and short-termist. And I need to remember to run it on 30 April!!!

I meant to add a note on the other table as to the method. The holdings' performance from purchase to date, some of which go back to 1993 and 1998, is basically a unitised model so I take a single share of each investment, note the capital gain and then add the dividends received per share to get an accumulation unit value to compare to the initial purchase price. However, for accumulation units of course we need to track when every dividend was withdrawn and I haven't done this: therefore it will understate somewhat the total returns because this method simply has the dividends building up in each unit, there they will never be reinvested. (In the case of my dividend growth portfolio, dividends are withdrawn 12 times a year so each month you have fewer units every single month: if they'd all been treated as staying in the portfolio, as for my individual holdings' performance, then the accumulation unit price would be 16% lower. The effect will be far greater compared to holdings where dividends are withdrawn twice a year.)

For a truly correct comparison I would need to note every single dividend received and the share price when the dividend was withdrawn and I don't have that data for all holdings. This issue doesn't affect M&G Recovery or DP Poland, which don't pay dividends. However, the method would be fine for income units as it has the capital value of each share and the dividends received meanwhile and the dividend CAGR over the time period - it just understates the total return somewhat, likely by less than 1% a year on a CAGR basis.

I would quite like if there was some software which had this historic and current data and then I would have the total return data in a truly accurate form for every individual holding. Something like Spirax Sarco Engineering would be harder due to special dividends accompanied by share consolidations. Any recommendations, anyone?

doug2500 wrote:Do you track your portfolio as acc and inc units to find out the split between capital growth and dividends?


Yes.

doug2500 wrote:What all goes into your costs? I would assume broker annual fees and stamp but not spread?


Yes, broker's fees, costs of dealing, stamp duty. There is a 1% fee on conversion for foreign dividends which isn't included and would only relate to Kone. It amounts to so little as I doubt it would change the figure even by 0.01%. For collective investments, I have the annual TER (not that it includes everything). Nonetheless, it gives a very rough idea of how annual running costs are progressing.

doug2500 wrote:How do you track it all? Have you managed to streamline things, or do you just run multiple spreadsheets recording everything and accept that you need to enter a dividend payment into 2 or 3 different spreadsheets?


I only need to do dividends once a month. They are all collected up and paid out monthly in a single amount by my broker, so I take the total dividend amount withdrawn and add it in as a withdrawal each month for the accumulation unit tab; the income unit tab is essentially a slave to the accumulation one, as it fills in the capital value automatically. The accumulation unit table has three columns made up of both the capital value and the normal dividends and special dividends received, then the total value, so the income tab has a formula that just copies the capital value from the accumulation unit table.

I do have a number of spreadsheets but, now they're set up, it's not too time-consuming!

Best wishes

Mark.


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