High Yield vs Dividend Growth

[Alaric]

. The concept of total return, when dividends are reinvested in the share from which they came, is seldom reflected in practical situations

I would suggest a somewaht weaker definition where total return just means that you consider dividend return and capital growth to be equally valid for comparisons at any rate. In other words the strange concept from HYP that "capital doesn't matter" is ignored.

Income investors may not want the extra complication of asset sales to generate income whilst growth investors may wish to avoid having to reinvest dividends.

[IanTHughes]

Would you prefer a company paying 8% dividend and still raising it's payouts by a 2%, or a company paying 5% dividend but raising its payouts by 5% annually? In theory if the earnings are constant and the valuations are constant then both should deliver the same return. I suspect many here would prefer the latter as it is seen to be the "healthier" company.

A similar question is: How long does it take for a high and rising dividend income to overtake a higher and fixed dividend income?

Well let us look at the example described above. The same amount invested in:

1. Lower yield of 5.00% growing at 5.00% annually.
2. Higher yield of 8.00% growing at 2.00% annually.

Only in the 19th year will the annual income on the lower yield holding surpass that being received from the higher yield holding. With regard to accumulated dividends, it will be 31 years before the total amount accumulated from the lower yield holding surpasses the amount accumulated from the higher yield holding.

Mind you, such an example is quite extreme, assuming as it does a 3.00% difference in starting yield. Here is an example with less of a difference to the starting yields. The same amount invested in:

1. Lower yield of 5.00% growing at 5.00% annually.
2. Higher yield of 6.00% growing at 2.00% annually.

Now it will be in the 9th year when the annual income on the lower yield holding surpasses that being received from the higher yield holding. With regard to accumulated dividends, it will still be 15 years before the total amount accumulated from the lower yield holding surpasses the amount accumulated from the higher yield holding.

It appears to me that, in the short to medium term, higher yield trumps a lower yield with a superior dividend growth rate. Only in the long term does the lower yield win out. I would suggest that, for a retiree with an HYP where income is required right now to pay bills, the higher yield is the better option.

Not that any of us can see so perfectly into the future!

Enjoy!


Ian

[IanTHughes]

. The concept of total return, when dividends are reinvested in the share from which they came, is seldom reflected in practical situations

I would suggest a somewaht weaker definition where total return just means that you consider dividend return and capital growth to be equally valid for comparisons at any rate. In other words the strange concept from HYP that "capital doesn't matter" is ignored.

Not concerning oneself with Capital value is not a strange concept to an income investor whose only aim is to generate income.

Anyone using the High Yield Portfolio (HYP) strategy must accept that an increasing capital value is not the aim of the strategy. If an investor cannot accept that, they would be well advised to use a more appropriate value-based strategy, one which does have increasing capital value as its aim!

Just because capital value does matter to you, it does not mean that it matters to others. There is nothing wrong with either approach, they are just different. Your investment aims are your's, but they are not mine! Seriously, why can you not simply accept that?

Enjoy!


Ian

[vand]

You can prove out the annualised return and how the relative effect of dividend increases vs share price inceases affect the overall performance

Here I have done so
https://docs.google.com/spreadsheets/d/ ... sp=sharing

sorry for the tabulation below.. I have tried my best..

flat yield and constant shareprice you earn a constant return - 10%/yr in this example

Year	Divid growth	Capital growth	SharePrice	DividendperShare	Shares	Capital	Total Dividend	Yield	Total	Annualised Return
1	0.0%	0.0%	100.00	10.00%	100.00	£10,000	£1,000	10.00%	£11,000	10.00%
2	0.0%	0.0%	100.00	10.00%	110.00	£11,000	£1,100	10.00%	£12,100	10.00%
3	0.0%	0.0%	100.00	10.00%	121.00	£12,100	£1,210	10.00%	£13,310	10.00%
4	0.0%	0.0%	100.00	10.00%	133.10	£13,310	£1,331	10.00%	£14,641	10.00%
5	0.0%	0.0%	100.00	10.00%	146.41	£14,641	£1,464	10.00%	£16,105	10.00%
6	0.0%	0.0%	100.00	10.00%	161.05	£16,105	£1,611	10.00%	£17,716	10.00%
7	0.0%	0.0%	100.00	10.00%	177.16	£17,716	£1,772	10.00%	£19,487	10.00%
8	0.0%	0.0%	100.00	10.00%	194.87	£19,487	£1,949	10.00%	£21,436	10.00%
9	0.0%	0.0%	100.00	10.00%	214.36	£21,436	£2,144	10.00%	£23,579	10.00%
10	0.0%	0.0%	100.00	10.00%	235.79	£23,579	£2,358	10.00%	£25,937	10.00%
11	0.0%	0.0%	100.00	10.00%	259.37	£25,937	£2,594	10.00%	£28,531	10.00%
12	0.0%	0.0%	100.00	10.00%	285.31	£28,531	£2,853	10.00%	£31,384	10.00%
13	0.0%	0.0%	100.00	10.00%	313.84	£31,384	£3,138	10.00%	£34,523	10.00%
14	0.0%	0.0%	100.00	10.00%	345.23	£34,523	£3,452	10.00%	£37,975	10.00%
15	0.0%	0.0%	100.00	10.00%	379.75	£37,975	£3,797	10.00%	£41,772	10.00%
16	0.0%	0.0%	100.00	10.00%	417.72	£41,772	£4,177	10.00%	£45,950	10.00%
17	0.0%	0.0%	100.00	10.00%	459.50	£45,950	£4,595	10.00%	£50,545	10.00%
18	0.0%	0.0%	100.00	10.00%	505.45	£50,545	£5,054	10.00%	£55,599	10.00%
19	0.0%	0.0%	100.00	10.00%	555.99	£55,599	£5,560	10.00%	£61,159	10.00%
20	0.0%	0.0%	100.00	10.00%	611.59	£61,159	£6,116	10.00%	£67,275	10.00%
21	0.0%	0.0%	100.00	10.00%	672.75	£67,275	£6,727	10.00%	£74,002	10.00%
22	0.0%	0.0%	100.00	10.00%	740.02	£74,002	£7,400	10.00%	£81,403	10.00%
23	0.0%	0.0%	100.00	10.00%	814.03	£81,403	£8,140	10.00%	£89,543	10.00%
24	0.0%	0.0%	100.00	10.00%	895.43	£89,543	£8,954	10.00%	£98,497	10.00%
25	0.0%	0.0%	100.00	10.00%	984.97	£98,497	£9,850	10.00%	£108,34	10.00%
26	0.0%	0.0%	100.00	10.00%	1083.47	£108,34	£10,83	10.00%	£119,18	10.00%
27	0.0%	0.0%	100.00	10.00%	1191.82	£119,18	£11,91	10.00%	£131,10	10.00%
28	0.0%	0.0%	100.00	10.00%	1311.00	£131,10	£13,11	10.00%	£144,21	10.00%
29	0.0%	0.0%	100.00	10.00%	1442.10	£144,21	£14,42	10.00%	£158,63	10.00%
30	0.0%	0.0%	100.00	10.00%	1586.31	£158,63	£15,86	10.00%	£174,49	10.00%

5% yield, 5% growth, 5% shareprice appreciation each year - the same, you annualise at 10%/yr

Year	Divid growth	Capital growth	SharePrice	DividendperShare	Shares	Capital	Total Dividend	Yield	Total	Annualised Return
1	5.0%	5.0%	100.00	5.00%	100.00	£10,000	£500	5.00%	£11,000	10.00%
2	5.0%	5.0%	105.00	5.25%	104.76	£11,000	£550	5.00%	£12,100	10.00%
3	5.0%	5.0%	110.25	5.51%	109.75	£12,100	£605	5.00%	£13,310	10.00%
4	5.0%	5.0%	115.76	5.79%	114.98	£13,310	£666	5.00%	£14,641	10.00%
5	5.0%	5.0%	121.55	6.08%	120.45	£14,641	£732	5.00%	£16,105	10.00%
6	5.0%	5.0%	127.63	6.38%	126.19	£16,105	£805	5.00%	£17,716	10.00%
7	5.0%	5.0%	134.01	6.70%	132.20	£17,716	£886	5.00%	£19,487	10.00%
8	5.0%	5.0%	140.71	7.04%	138.49	£19,487	£974	5.00%	£21,436	10.00%
9	5.0%	5.0%	147.75	7.39%	145.09	£21,436	£1,072	5.00%	£23,579	10.00%
10	5.0%	5.0%	155.13	7.76%	152.00	£23,579	£1,179	5.00%	£25,937	10.00%
11	5.0%	5.0%	162.89	8.14%	159.23	£25,937	£1,297	5.00%	£28,531	10.00%
12	5.0%	5.0%	171.03	8.55%	166.82	£28,531	£1,427	5.00%	£31,384	10.00%
13	5.0%	5.0%	179.59	8.98%	174.76	£31,384	£1,569	5.00%	£34,523	10.00%
14	5.0%	5.0%	188.56	9.43%	183.08	£34,523	£1,726	5.00%	£37,975	10.00%
15	5.0%	5.0%	197.99	9.90%	191.80	£37,975	£1,899	5.00%	£41,772	10.00%
16	5.0%	5.0%	207.89	10.39%	200.93	£41,772	£2,089	5.00%	£45,950	10.00%
17	5.0%	5.0%	218.29	10.91%	210.50	£45,950	£2,297	5.00%	£50,545	10.00%
18	5.0%	5.0%	229.20	11.46%	220.52	£50,545	£2,527	5.00%	£55,599	10.00%
19	5.0%	5.0%	240.66	12.03%	231.03	£55,599	£2,780	5.00%	£61,159	10.00%
20	5.0%	5.0%	252.70	12.63%	242.03	£61,159	£3,058	5.00%	£67,275	10.00%
21	5.0%	5.0%	265.33	13.27%	253.55	£67,275	£3,364	5.00%	£74,002	10.00%
22	5.0%	5.0%	278.60	13.93%	265.63	£74,002	£3,700	5.00%	£81,403	10.00%
23	5.0%	5.0%	292.53	14.63%	278.28	£81,403	£4,070	5.00%	£89,543	10.00%
24	5.0%	5.0%	307.15	15.36%	291.53	£89,543	£4,477	5.00%	£98,497	10.00%
25	5.0%	5.0%	322.51	16.13%	305.41	£98,497	£4,925	5.00%	£108,34	10.00%
26	5.0%	5.0%	338.64	16.93%	319.95	£108,34	£5,417	5.00%	£119,18	10.00%
27	5.0%	5.0%	355.57	17.78%	335.19	£119,18	£5,959	5.00%	£131,10	10.00%
28	5.0%	5.0%	373.35	18.67%	351.15	£131,10	£6,555	5.00%	£144,21	10.00%
29	5.0%	5.0%	392.01	19.60%	367.87	£144,21	£7,210	5.00%	£158,63	10.00%
30	5.0%	5.0%	411.61	20.58%	385.39	£158,63	£7,932	5.00%	£174,49	10.00%

Now when the dividend grows faster or slow than the shareprice is when you need to ask the question of "how long before the dividend grower outgrows the flat-high yield?"

In this scenario with 8% dividend growth but only 2% capital growth, it takes 17 years for your annualised return to exceed 10%/yr:

Year	Divid growth	Capital growth	SharePrice	DividendperShare	Shares	Capital	Total Dividend	Yield	Total	Annualised Return
1	8.0%	2.0%	100.00	5.00%	100.00	£10,000	£500	5.00%	£10,700	7.00%
2	8.0%	2.0%	102.00	5.40%	104.90	£10,700	£566	5.29%	£11,480	7.15%
3	8.0%	2.0%	104.04	5.83%	110.35	£11,480	£644	5.61%	£12,354	7.30%
4	8.0%	2.0%	106.12	6.30%	116.41	£12,354	£733	5.94%	£13,334	7.46%
5	8.0%	2.0%	108.24	6.80%	123.18	£13,334	£838	6.28%	£14,439	7.62%
6	8.0%	2.0%	110.41	7.35%	130.77	£14,439	£961	6.65%	£15,688	7.79%
7	8.0%	2.0%	112.62	7.93%	139.31	£15,688	£1,105	7.05%	£17,107	7.97%
8	8.0%	2.0%	114.87	8.57%	148.93	£17,107	£1,276	7.46%	£18,725	8.16%
9	8.0%	2.0%	117.17	9.25%	159.82	£18,725	£1,479	7.90%	£20,579	8.35%
10	8.0%	2.0%	119.51	10.00%	172.20	£20,579	£1,721	8.36%	£22,712	8.55%
11	8.0%	2.0%	121.90	10.79%	186.32	£22,712	£2,011	8.86%	£25,177	8.76%
12	8.0%	2.0%	124.34	11.66%	202.49	£25,177	£2,361	9.38%	£28,041	8.97%
13	8.0%	2.0%	126.82	12.59%	221.10	£28,041	£2,784	9.93%	£31,386	9.20%
14	8.0%	2.0%	129.36	13.60%	242.62	£31,386	£3,299	10.51%	£35,313	9.43%
15	8.0%	2.0%	131.95	14.69%	267.63	£35,313	£3,930	11.13%	£39,950	9.67%
16	8.0%	2.0%	134.59	15.86%	296.83	£39,950	£4,708	11.78%	£45,457	9.93%
17	8.0%	2.0%	137.28	17.13%	331.13	£45,457	£5,672	12.48%	£52,038	10.19%
18	8.0%	2.0%	140.02	18.50%	371.64	£52,038	£6,875	13.21%	£59,954	10.46%
19	8.0%	2.0%	142.82	19.98%	419.77	£59,954	£8,387	13.99%	£69,540	10.75%
20	8.0%	2.0%	145.68	21.58%	477.35	£69,540	£10,30	14.81%	£81,231	11.04%
21	8.0%	2.0%	148.59	23.30%	546.66	£81,231	£12,74	15.68%	£95,596	11.35%
22	8.0%	2.0%	151.57	25.17%	630.72	£95,596	£15,87	16.61%	£113,38	11.67%
23	8.0%	2.0%	154.60	27.18%	733.40	£113,38	£19,93	17.58%	£135,58	12.00%
24	8.0%	2.0%	157.69	29.36%	859.83	£135,58	£25,24	18.62%	£163,54	12.35%
25	8.0%	2.0%	160.84	31.71%	1016.7	£163,54	£32,23	19.71%	£199,04	12.71%
26	8.0%	2.0%	164.06	34.24%	1213.2	£199,04	£41,54	20.87%	£244,57	13.08%
27	8.0%	2.0%	167.34	36.98%	1461.5	£244,57	£54,05	22.10%	£303,51	13.47%
28	8.0%	2.0%	170.69	39.94%	1778.1	£303,51	£71,02	23.40%	£380,60	13.88%
29	8.0%	2.0%	174.10	43.14%	2186.1	£380,60	£94,29	24.78%	£482,51	14.30%
30	8.0%	2.0%	177.58	46.59%	2717.1	£482,51	£126,5	26.23%	£618,74	14.74%

Reverse this and with 2% dividend growth but 8% price appreciation, your annualised returns are immediate higher, but they fall over time as the yield falls due to the higher price and falling yield, eventually tending toward 10% over the long run

Year	Divid growth	Capital growth	SharePrice	DividendperShare	Shares	Capital	Total Dividend	Yield	Total	Annualised Return
1	2.0%	8.0%	100.00	5.00%	100.00	£10,000	£500	5.00%	£11,300	13.00%
2	2.0%	8.0%	108.00	5.10%	104.63	£11,300	£534	4.72%	£12,738	12.86%
3	2.0%	8.0%	116.64	5.20%	109.20	£12,738	£568	4.46%	£14,325	12.73%
4	2.0%	8.0%	125.97	5.31%	113.71	£14,325	£603	4.21%	£16,074	12.60%
5	2.0%	8.0%	136.05	5.41%	118.15	£16,074	£639	3.98%	£17,999	12.47%
6	2.0%	8.0%	146.93	5.52%	122.50	£17,999	£676	3.76%	£20,116	12.35%
7	2.0%	8.0%	158.69	5.63%	126.76	£20,116	£714	3.55%	£22,439	12.24%
8	2.0%	8.0%	171.38	5.74%	130.93	£22,439	£752	3.35%	£24,986	12.13%
9	2.0%	8.0%	185.09	5.86%	134.99	£24,986	£791	3.17%	£27,775	12.02%
10	2.0%	8.0%	199.90	5.98%	138.95	£27,775	£830	2.99%	£30,828	11.92%
11	2.0%	8.0%	215.89	6.09%	142.79	£30,828	£870	2.82%	£34,164	11.82%
12	2.0%	8.0%	233.16	6.22%	146.52	£34,164	£911	2.67%	£37,808	11.72%
13	2.0%	8.0%	251.82	6.34%	150.14	£37,808	£952	2.52%	£41,785	11.63%
14	2.0%	8.0%	271.96	6.47%	153.64	£41,785	£994	2.38%	£46,122	11.54%
15	2.0%	8.0%	293.72	6.60%	157.03	£46,122	£1,036	2.25%	£50,847	11.45%
16	2.0%	8.0%	317.22	6.73%	160.29	£50,847	£1,079	2.12%	£55,994	11.37%
17	2.0%	8.0%	342.59	6.86%	163.44	£55,994	£1,122	2.00%	£61,595	11.29%
18	2.0%	8.0%	370.00	7.00%	166.47	£61,595	£1,166	1.89%	£67,688	11.21%
19	2.0%	8.0%	399.60	7.14%	169.39	£67,688	£1,210	1.79%	£74,313	11.13%
20	2.0%	8.0%	431.57	7.28%	172.19	£74,313	£1,254	1.69%	£81,512	11.06%
21	2.0%	8.0%	466.10	7.43%	174.88	£81,512	£1,299	1.59%	£89,332	10.99%
22	2.0%	8.0%	503.38	7.58%	177.46	£89,332	£1,345	1.51%	£97,824	10.92%
23	2.0%	8.0%	543.65	7.73%	179.94	£97,824	£1,391	1.42%	£107,041	10.86%
24	2.0%	8.0%	587.15	7.88%	182.31	£107,041	£1,437	1.34%	£117,041	10.79%
25	2.0%	8.0%	634.12	8.04%	184.57	£117,041	£1,484	1.27%	£127,889	10.73%
26	2.0%	8.0%	684.85	8.20%	186.74	£127,889	£1,532	1.20%	£139,652	10.67%
27	2.0%	8.0%	739.64	8.37%	188.81	£139,652	£1,580	1.13%	£152,404	10.62%
28	2.0%	8.0%	798.81	8.53%	190.79	£152,404	£1,628	1.07%	£166,225	10.56%
29	2.0%	8.0%	862.71	8.71%	192.68	£166,225	£1,677	1.01%	£181,200	10.51%
30	2.0%	8.0%	931.73	8.88%	194.48	£181,200	£1,727	0.95%	£197,423	10.45%

[Alaric]

Not concerning oneself with Capital value is not a strange concept to an income investor whose only aim is to generate income.

It's a misleading approach when Companies mask returns of capital as "dividends". It's a little pointless when the generated income is used not for spending but for reinvestment. Once the cash has been fully reinvested, it's basically functioning as a growth portfoliio and can be compared directly.

[IanTHughes]

Not concerning oneself with Capital value is not a strange concept to an income investor whose only aim is to generate income.

It's a misleading approach when Companies mask returns of capital as "dividends".

It is only misleading if an investor has capital value as an aim of their investment strategy. For an income investor with no interest at all in capital value, it is not misleading in the least!

1. Investor has a capital value aim = misleading approach
2. Investor has no capital value aim = not a misleading approach

Can you see that the 2 above investment aims are entirely different? It is allowed you know, whatever you might think.

It's a little pointless when the generated income is used not for spending but for reinvestment. Once the cash has been fully reinvested, it's basically functioning as a growth portfoliio and can be compared directly.

My portfolio has all dividends invested, no cash at the moment, but the investment aim is still Income Generation! The Investment aim of Income Generation does not change when cash is/is not invested.

Whatever your investment aim is, mine is Income Generation. I have no aim with regard to capital value.

Any portfolio can be compared directly with any other. They do not need to be following the same strategy. If you don't know how I shall try to find time to explain it to you.

Enjoy!


Ian

[Alaric]

Any portfolio can be compared directly with any other.

Of course. Your fully reinvested portfolio can be compared to a hypothetical one where there were no dividends but a growth rate of x% which came out to exactly the same market value at the measurement point.

[IanTHughes]

Any portfolio can be compared directly with any other.

Of course. Your fully reinvested portfolio can be compared to a hypothetical one where there were no dividends but a growth rate of x% which came out to exactly the same market value at the measurement point.

I am not sure that you fully understand. Just to be clear, my portfolio, whether fully re-invested or not, can very easily be compared with any other portfolio, whether hypothetical or not, whether receiving dividends or not, whether the market value was the same or not.

If you do not know how, I can assure you that it really is not that difficult just so long as appropriate valuations and details of cash movements to and from both portfolios are available.

Enjoy!


Ian

[Alaric]

I am not sure that you fully understand. Just to be clear, my portfolio, whether fully re-invested or not, can very easily be compared with any other portfolio, whether hypothetical or not, whether receiving dividends or not, whether the market value was the same or not.

If you ignore market value or treat it as of secondary importance, what is the value of the comparison?

Which is the better performing portfolio by your logic? Is one with a starting value of £ 100,000, reinvested dividends of £ 50,000 and a closing value of £ 100,000 better than one with a starting value of £ 100,000 , no dividends or interest and a closing value of £ 100,000?

[tjh290633]

Anyone using the High Yield Portfolio (HYP) strategy must accept that an increasing capital value is not the aim of the strategy. If an investor cannot accept that, they would be well advised to use a more appropriate value-based strategy, one which does have increasing capital value as its aim!

As we know, the HYP objective is to achieve a high and growing income from dividends, which may be accompanied by capital growth. Much of the discussion above has been comparing a high but static dividend with a low but growing dividend. Obviously what is wanted is a compromise, where an initially high dividend grows and pulls the share price up with it.

I happened to pick up IMI in 2009 at 265p with a dividend of 20.7p, giving a yield of 7.8%. By 2019 the dividend has risen to 41.1p the share price being about £10, the final being cancelled then reinstated. The dividend was reduced to 22.5p in 2020 and has risen to 28.3p, the share price being currently 1887p. I have top sliced on 3 occasions and there was s B-share issue in 2014. I have also topped up on 4 occasions when the price has been depressed. XIRR gives me a rate of return of over 40%, but the yield is now below 2%.

On the other hand I bought Diageo in 2009 at 843p with a yield of 4.3%. the dividend was 36.8p. I have neither top-sliced nor topped up. The price is now 2855p and the dividend is about 81p, with a yield of about 2.5%. XIRR tells me that my rate of return has been 12.6%. The share price has been near £40 in 2022. The dividend has risen each year

Both have done well for me, but IMI has been stellar. The ideal selection is probably a share with a yield a little above the market average which provides an XIRR of 10-15% over the years.

The ones to avoid are those whose performance emulates the Oozlum Bird, of which I have had some

TJH

[SalvorHardin]

High yield shares which also have a high rate of dividend growth are rare. A high yield is usually a sign of a mature business which can't find many decent things in which to reinvest its profits so it pays them out. Which means low dividend growth in the future because it's going to find it difficult to grow its profits.

Another instance is where the share price has fallen sharply, turning an average to low dividend payer into a high dividend payer. In this case the share price has fallen because the market has considerable doubts about the company's prospects. A good example is Burberry, whose shares currently yield 5.2p at 1,200p. Burberry's dividend in 2023 was 61p whilst in 2013 it was 29p, which is 7.7% p.a. growth over ten years. That's high yield and high dividend growth, but there's a problem.

Burberry shares have a high yield because its share price has fallen by 53% in the past twelve months, primarily due to two profits warnings. Falling demand for luxury goods has been seen in other luxury goods companies' results (even LVMH) and there is considerable speculation that Burberry's dividend might be cut when its annual results are announced tomorrow morning (Wed 15th May 2024). Burberry has also been heavily hit by the "tourist tax", the recent abolition of duty free sales in Britain for international tourists has reduced demand whilst encouraging tourists (particularly Chinese) to go to Paris and Milan for their luxury goods shopping (where there isn't a tourist tax).

Burberry is my 5th largest holding, I bought heavily when they fall below 1,160p a couple of weeks ago. I hold them not for the income, but as a recovery prospect (and as takeover candidate).

EDIT - I've just seen TJH's post (posted as I was typing this) where Diageo is mentioned. I too bought Diageo in 2009 at a similar price and it's a good example of a high yield having been produced by a sharp share price fall (in this case due to the 2008 financial crisis).

[IanTHughes]

I am not sure that you fully understand. Just to be clear, my portfolio, whether fully re-invested or not, can very easily be compared with any other portfolio, whether hypothetical or not, whether receiving dividends or not, whether the market value was the same or not.

If you ignore market value or treat it as of secondary importance, what is the value of the comparison?

I never said that I ignore Market Value. what I said was that Capital Value is not an Investment Aim. It can still be measured.

Which is the better performing portfolio by your logic? Is one with a starting value of £ 100,000, reinvested dividends of £ 50,000 and a closing value of £ 100,000 better than one with a starting value of £ 100,000 , no dividends or interest and a closing value of £ 100,000?

Both portfolios had an original investment of £100,000, and a closing value of £100,000. Surely even you can work that one out!

More generally the performance one would measure would depend on what the Investment aim was.

If Market Value, I would compare the Market Value of each portfolio
If Total Return I would compare the Total Return of each portfolio
If Income Generation I would compare the Income Generation from each portfolio.

... etc ... etc ...

Enjoy!


Ian

[Alaric]

[
If Income Generation I would compare the Income Generation from each portfolio.

Are you saying that a portfolio worth £ 100,000 against a starting value of £ 100,000 has partly achieved its aims if the reinvested dividends totalled £ 50,000 but has failed if the reinvested dividends were zero?

[IanTHughes]

If Income Generation I would compare the Income Generation from each portfolio

Are you saying that a portfolio worth £ 100,000 against a starting value of £ 100,000 has partly achieved its aims if the reinvested dividends totalled £ 50,000 but has failed if the reinvested dividends were zero?

First of all, I was discussing comparing the results of different portfolios' not determining the success/failure level of a single portfolio. Please stop your pathetic strawman debating tactics and stick to the original subject under discussion.

When comparing the results of two or more portfolios, where the investment Aim is Income Generation, then the portfolio with the highest amount of Income Generation is the more successful. A classic example of this would be the comparison of the Income Generation from two or more High Yield Portfolios (HYP)s.

I really thought that was simple enough not to require an explanation, even for Alaric.

Enjoy!


Ian

[Alaric]

When comparing the results of two or more portfolios, where the investment Aim is Income Generation, then the portfolio with the highest amount of Income Generation is the more successful. A classic example of this would be the comparison of the Income Generation from two or more High Yield Portfolios (HYP)s.

What is the point of Income Generation when all that it's used for is reinvestment?

We've had this arguments before. Do you claim that a portfolio with 8% income and 4% capital loss is more successful than one with 6% income and no capital loss? You could make an outside case if the idea is to remove the income for spending, but surely not if it's just reinvested.

[IanTHughes]

When comparing the results of two or more portfolios, where the investment Aim is Income Generation, then the portfolio with the highest amount of Income Generation is the more successful. A classic example of this would be the comparison of the Income Generation from two or more High Yield Portfolios (HYP)s.

What is the point of Income Generation when all that it's used for is reinvestment?

If the Investment Aim is Income Generation, Income Generation is entirely the point! After all it is what the investor is hoping to achieve, and how success or failure will be measured.

Do you claim that a portfolio with 8% income and 4% capital loss is more successful than one with 6% income and no capital loss? You could make an outside case if the idea is to remove the income for spending, but surely not if it's just reinvested.

What is the Investment Aim?

If the Investment Aim is Income Generation, then the portfolio with the higher amount of Income Generation is clearly the better.
If the Investment Aim is Total Return, then the portfolio with the higher Total Return is clearly the better.

Is it really a concept which is too difficult for you to understand?

Enjoy!


Ian

[Alaric]

Is it really a concept which is too difficult for you to understand?

It is actually. A stragegy that has reduced your net wealth is better than one that increases it. That to my mind is what you have just written. That's provied sonme sub objective such as quantity of dividend imcome is achieved.

[tjh290633]

Is it really a concept which is too difficult for you to understand?

It is actually. A stragegy that has reduced your net wealth is better than one that increases it. That to my mind is what you have just written. That's provied sonme sub objective such as quantity of dividend imcome is achieved.

It's what you have written into it in your mind. The simple fact is that living off dividends rather than selling assets to live does not reduce your net wealth. The other method can be disastrous if the market takes a big downturn, while dividends are maintained, or even growing. Dividends are much less variable than share prices.

TJH

[IanTHughes]

Is it really a concept which is too difficult for you to understand?

It is actually. A stragegy that has reduced your net wealth is better than one that increases it. That to my mind is what you have just written. That's provied sonme sub objective such as quantity of dividend imcome is achieved.

if maintaining or increasing Net Wealth was the Investment Aim. I would of course agree with you. But when the Investment Aim is Income .....

You would advise an investor needing income to pay bills, that all can be achieved with Capital Value. You would claim that selling part of one’s portfolio each year, possibly during a severe market downturn such as the approximately 30% drop in Market Value that occurred during the economic lockdown just a few years ago, was preferable to having had the foresight to invest in Income Generation.

Each to their own I guess but you should be aware that many investors are not so blinkered as you. Many see an investment strategy that forces asset sales, possibly during a severe market downturn, simply in order to pay bills that one knew in advance would need payment, as simply not employing the most appropriate investment strategy for that particular Investment Aim. A failure in fact.

Enjoy!


Ian

[Alaric]

[ The simple fact is that living off dividends rather than selling assets to live does not reduce your net wealth.

It does when the share price reduces by more than the dividend and that doesn't need asset sales to be an issue. If the idea is that the value of the portfolio on death doesn't matter, that may be fine. Itr's not in my view a terribly sensible approach to stock selection when dividends are being reinvested.