BVT 7% Yield

[yieldhog]

BVT currently has a dividend policy as, stated in it's last half yearly report for end-March 2021, saying it will aim to pay an annual dividend of 7% of the NAV at the start of the financial year.

The last two dividends announced by BVT were an interim of 3.0p paid in September 2021 and a final of 3.5p for March 2022 exactly the same as the two previous interims and finals.

A total dividend of 6.5p would require the NAV to have been 92.86 at the start of each financial year (September) and yet, according to the chart on Hargreaves Lansdown's website, the BVT NAV doesn't appear to have been above 90 since the second half of 2018.

Can anyone explain how BVT gets to it's dividend numbers?

Y

[Alexland]

I believe the 7% is just rough forward guidance of what to expect rather than a strict policy the board are following. If you look at the AIC website you can see the divis are a mix of income and capital distributions which will vary a bit with performance each year and they tend to round the overall dividend to the nearest half or whole penny.

[yieldhog]

Hi Alexland,

I appreciate that the 7% was guidance but the actual dividends are so far away from this figure that the guidance is misleading. I accept that BVT do round off the numbers but that would only account for a small adjustment. For the financial years 2020 and 2021, the market price yields were 9.60% and 8.67% respectively and even if you take account of the average 5% discount to NAV we are still a long way from the 7% guidance figure.

I own some BVT in my SIPP and paid an average of about 80.5p, so I'm a little bit bit underwater against the current market price of 75 - 78, but on a TR basis my return has been acceptable. So I'm not complaining, just a bit puzzled. I may average in at the current price to bring down my average cost.

Y

[dealtn]

BVT currently has a dividend policy as, stated in it's last half yearly report for end-March 2021, saying it will aim to pay an annual dividend of 7% of the NAV at the start of the financial year.

The last two dividends announced by BVT were an interim of 3.0p paid in September 2021 and a final of 3.5p for March 2022 exactly the same as the two previous interims and finals.

A total dividend of 6.5p would require the NAV to have been 92.86 at the start of each financial year (September) and yet, according to the chart on Hargreaves Lansdown's website, the BVT NAV doesn't appear to have been above 90 since the second half of 2018.

Can anyone explain how BVT gets to it's dividend numbers?

Y

Why would you want the NAV to be above 90p to get a 7% Dividend yield. You would want it lower, which it is. Currently it looks like the (historic) dividend yield is (3p+3.5p)/75p = 8.7%

Personally I would want the share price to appreciate and care about Total Return. Give me a appreciation from 75p to 80p (and the same dividends) over a fall to 70p (and the same dividends) but if some would rather a higher yield than a higher return, perverse though that is to me, that's their preference.

[dealtn]

BVT currently has a dividend policy as, stated in it's last half yearly report for end-March 2021, saying it will aim to pay an annual dividend of 7% of the NAV at the start of the financial year.

The last two dividends announced by BVT were an interim of 3.0p paid in September 2021 and a final of 3.5p for March 2022 exactly the same as the two previous interims and finals.

A total dividend of 6.5p would require the NAV to have been 92.86 at the start of each financial year (September) and yet, according to the chart on Hargreaves Lansdown's website, the BVT NAV doesn't appear to have been above 90 since the second half of 2018.

Can anyone explain how BVT gets to it's dividend numbers?

Y

Why would you want the NAV to be above 90p to get a 7% Dividend yield. You would want it lower, which it is. Currently it looks like the (historic) dividend yield is (3p+3.5p)/75p = 8.7%

Personally I would want the share price to appreciate and care about Total Return. Give me a appreciation from 75p to 80p (and the same dividends) over a fall to 70p (and the same dividends) but if some would rather a higher yield than a higher return, perverse though that is to me, that's their preference.

Thinking (more) about this I can only imagine I have misinterpreted your question.

You say

Can anyone explain how BVT gets to it's dividend numbers?

So are you asking how the Directors of the VCT decide on the dividend payouts (and these are too "generous" given the NAV of the underlying investments assets?

[yieldhog]

Hi dealtn,

After your last post I think we are indeed on the same page. As you rightly point out, some people would rather get a high yield than a high total return, it all depends on your personal preferences and circumstances. Personally, I have no problem with funds that pay a fixed percentage dividend through returning some capital as well as income earned, but that's a seperate discussion that has been well aired on this board.

As you conclude, the question is why has BVT deviated so significantly from it's stated dividend policy i.e. to pay a fixed 7% of NAV? As you say, this is a question for the BVT Directors and should be asked at the upcoming AGM.

Does it matter? Yes, I think it does. Using BVT's own figures from the last Annual Report, the NAV-based actual returns for 2020 and 2021 were 9.1% and 9.6% respectively, significantly above the stated objective of 7%. The actual NAV fell from 71.6p to 67.9p over the same period, a fall of 5.2%. Clearly it would be preferable to see a steady or increasing NAV as well as a generous dividend but again it comes down to personal preferences and circumstances as to whether or not BVT is a suitable investment. I'm happy to accept more generous dividends than expected but also accept that recent returns on BVT have resulted in a modest errosion of capital. This is after all a long-term investment and the hope is that BVT management will, going forward, make investments that boost NAV as well as enabling regular distributions.

Y

[Alexland]

I applied for BVT this time and am in camp of just wanting my money back as quickly as possible so am happy to see a higher yield and capital being returned. I'm expecting to sell shortly after 5 years so having NAV returned to me at full value via dividends is better than it suffering a discount later. Although the charges on BVT are not untypical for VC they are still a lot higher than I am used to paying on my S&S portfolio so the sooner the money is out the better and it will help fund further VCT purchases in future tax years. Given BVT maintains a higher income yield than most VCTs then maybe it ends up with shareholders more aligned to my way of thinking who are only really doing it for the tax relief and appreciate the higher dividend?