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If you were picking a new basket of 7/8 ITs for income

General discussions about equity high-yield income strategies
BullDog
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Re: If you were picking a new basket of 7/8 ITs for income

#522045

Postby BullDog » August 13th, 2022, 9:08 am

Itsallaguess wrote:
dealtn wrote:
Do golfer's decide tournaments on "fairways hit" or "fewest puts", despite a high score on the former, or a low score on the latter, indicating success?

I'm aware of "Total shots" being the usual determinant of the winner.


I think a better analogy in terms of where income-investors often come from with these TR-based arguments is related to cars...

Do car owners decide which car to buy purely on miles-per-gallon metrics?

Clearly that's not the case, because whilst the miles-per-gallon efficiency of a particular car might be a consideration, there are often many other over-riding factors behind which particular car might ultimately be bought, over and above a given 'winning' miles-per-gallon metric, and which are often determined by personal circumstances and particular requirements...

I think the same thing is being covered in many of the TR-based points already mentioned on this thread by income investors, in that many, including myself I might add, see little point in looking for dividend-based income-returns if the ultimate price of some of those income-investment options might feel like an eating away of the underlying investment capital. I made that point clearly on my first post here, when I opted to test for 'non-eaters' as part of the filtering process when I posted my income-IT table.

That's TR being 'a consideration' for income-investors, rather than it being an absolute 'driver' when looking for income-investment options, which again highlights the middle-ground that I think is often lost in these types of discussions...

Total Return is the miles-per-gallon of the investment world, but there's an odd disconnect I think, where it might hopefully be generally agreed that miles-per-gallon might well not be the most important metric to use when choosing a car for a particular situation, and yet that never seems to be an accepted approach for some people, to personal investment strategies as well...

Cheers,

Itsallaguess

To add another dimension to that analogy. Depreciation is perhaps a bigger cost issue than fuel efficiency when running a car. And that may well also apply to capital too.

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Re: If you were picking a new basket of 7/8 ITs for income

#522046

Postby TahiPanasDua » August 13th, 2022, 9:14 am

Itsallaguess wrote:
dealtn wrote:
Itsallaguess wrote:
Taken in that specific context


In that specific context, and measured against an annuity, then I have little issue with what you say. But that specific context wasn't a constraint mentioned by the OP (nor the poster to whom I replied).

In that case you would also need to assess life expectancy, and the appropriateness of 12 years as the measure of those alternative income streams, and also to consider the investors attitude to the destination of the inherited capital on expiry to its beneficiaries. Does the investor place any value on that, or not? (And if not why is income, not likely drawdown, more important?).


But I think it might be more appropriate, when an income investor simply and clearly says that 'they are not overly interested in capital growth, but the income delivery from it', to assume that *for them*, all those additional questions have been answered to their own satisfaction, and that they are content to proceed with what might hopefully be a broadly low-maintenance income-delivery strategy that doesn't initially require the complete relinquishing of their initial capital funds, as an annuity would...

There's no 'In that case you would also need....' about it to be honest.

Investors don't need to satisfy a list of other people's 'needs' to be happy with their own investment approaches, surely?

Cheers,

Itsallaguess


I have made this point in the past.

I am 78 years old and we live almost entirely on portfolio income. I cannot expect to be in any position to adjust our portfolio in say 12 years time. Neither can I expect to be in a fit state to sell shares for income for too much longer. More importantly, I have to ensure a steady income for my wife who, despite having 3 university degrees, has no knowledge of or interest in investment. In the event I fall under the proverbial bus, she needs a steady effort-free income.

As IAAG suggests, there are people whose circumstances demand a simple income solution.

TP2.

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Re: If you were picking a new basket of 7/8 ITs for income

#522048

Postby TUK020 » August 13th, 2022, 9:26 am

One of the ITs that I have in my basket, that no one else has mentioned, is HICL Infrastructure.
I would be interested to hear other people's thoughts on this one.

Yield 4.6%, steady but very unspectacular growth in NAV over 10 years, dividend growing some 2.5%/year, stalled over the last couple of years. Went through COVID without missing a beat in either dividend of share price terms.
Nature of the assets should prove a sound inflation hedge.

It is on a premium of nearly 9%, but has pretty much been around this for the last 10 years (only dipping to a discount in 2017).

The definition of boring & reliable income generator for the long term?

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Re: If you were picking a new basket of 7/8 ITs for income

#522054

Postby ReformedCharacter » August 13th, 2022, 9:51 am

TUK020 wrote:One of the ITs that I have in my basket, that no one else has mentioned, is HICL Infrastructure.
I would be interested to hear other people's thoughts on this one.


I like HICL. I've held since 2013 and it's provided an IRR of 9.2%

RC

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Re: If you were picking a new basket of 7/8 ITs for income

#522058

Postby CryptoPlankton » August 13th, 2022, 10:03 am

TUK020 wrote:One of the ITs that I have in my basket, that no one else has mentioned, is HICL Infrastructure.
I would be interested to hear other people's thoughts on this one.

Yield 4.6%, steady but very unspectacular growth in NAV over 10 years, dividend growing some 2.5%/year, stalled over the last couple of years. Went through COVID without missing a beat in either dividend of share price terms.
Nature of the assets should prove a sound inflation hedge.

It is on a premium of nearly 9%, but has pretty much been around this for the last 10 years (only dipping to a discount in 2017).

The definition of boring & reliable income generator for the long term?

I have held it in my B20+ for several years and, though it certainly hasn't shot the lights out, I feel very comfortable holding it for its stability and the extra diversification it brings. I'm not sure I'd include it in a B7/8 though - it would depend on the other constituents...

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Re: If you were picking a new basket of 7/8 ITs for income

#522073

Postby CryptoPlankton » August 13th, 2022, 11:12 am

dealtn wrote:
CryptoPlankton wrote:
dealtn wrote:
88V8 wrote:
steveal wrote:One of the data points from the AIC site which seems to get little attention is '5 Year Dividend Growth (%pa)'.
Does it not make sense to aim for a more modest initial dividend, which is growing quickly?
I noticed that many of the ITs mentioned in this thread have very low dividend growth rates. MCT, for example, grew at only 0.4% pa over the past 5 years.

Very true.

But taking a random example of a 4% yield growing at 5%, and a 6% yield growing at 1%, it takes twelve years for the tortoise's annual divi to catch the hare's, and twenty years for the cumulative payout to catch up.

If you're going to start with a low yielder, you'd better be very sure of your growth rate!

V8


Only if you ignored Total Return and solely focussed on dividend income. What might happen to your capital over those 12 years or don't you care?


Well, the remit was to select a basket of ITs with a target yield of 4-5%, without any reference to TR. However, I would suggest that the answer to your question "what might happen to your capital?" if you focus solely on dividend income is surely that it might go up, down or stay roughly the same. If your implication is that a faster growing lower starting yield will lead to greater capital gain then, though it may prove to be more likely, it is far from certain. A few examples from the FTSE 100 over the past ten years:



Well, I think you are making my point for me.

The remit was to select ITs with a target yield, without any reference to future Dividend Income return either

Actually, the remit was for a "steadily growing income stream".

dealtn wrote: Capital might go up, it might go down, or stay roughly the same. The argument about which would produce more likely capital growth is a complex one, and would depend on a number of factors. A lower, but growing starting yield may well turn out to lead to such outperformance - but it too will depend on many unpredictable future outcomes. I would suggest these are at least investigable from the outset, but Dividend Income Yield would be a poor single tool set to do so in selection. Earnings Yield would be a much better start point than Dividend Yield to start with, and metrics such as ROCE (to gauge the sustainability of such income at least).

My objection though is to judge with the hindsight of future history on the success of any portfolio, or individiual selection, on dividend income alone. It makes no sense when that is only part of an investments return. The poster measuring the alternatives of 12 years of different income streams - even if an income investor - is only looking at part of the job. (Do golfer's decide tournaments on "fairways hit" or "fewest puts", despite a high score on the former, or a low score on the latter, indicating success? I'm aware of "Total shots" being the usual determinant of the winner).

Without wishing to be rude, I really think you are failing to see beyond your own (undoubtedly well educated, but rather dogmatic) view of equity investment. As a golfer, allow me to explain two different ways in which "success" can be measured: Total shots can indeed be used to determine a winner, and is invariably the method used in professional golf and major club competitions, such as club championships. However, because a score can be ruined by one or two bad holes, there is also a method called Stableford, which is favoured in general club competitions. In such competitions, points are scored based on the score on each hole and tallied to give a total at the end. If a player were to take 15 shots on a hole, this would effectively put them out of the running on a "total shots" basis, but it would simply mean a scoreless hole in Stableford. It is quite possible for one player to have a better Stableford score and his opponent to have played fewer "total shots". So, which player has done better? It depends...

I would suggest that neither the worlds of golf nor investing are quite as black and white as you seem to believe.

dealtn wrote:Even if you were to eschew literal capital value as a component of "success" when comparing strategies, and decide it is income that is the sole measure of success consider the following. An initial £100k investment with an initial income of £6k growing at 1%. After 12 years it might still be worth £100k - but had delivered a meaningful income stream. An alternative £100k delivering £4k growing at 5% might after 12 years be worth £200k. Both strategies in year 13 are to sell and invest in the highest available yield for income at that point, which might be 7%. Does any income investor prefer £7k over £14k at that point, and onward?

Well, we've already looked at how that is a significant "might", so this really seems a bit of a pointless "hypothetical".
dealtn wrote:Total Return is a better measurement at all stages, regardless of your strategy or the constraints you place upon it, whether you are an income investor, a growth investor, a value investor, or indeed any investor.

If you say so. I'd certainly agree it's always nice to put in a good "total shots" round, but as long as I get a decent Stableford score, I'm happy...

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Re: If you were picking a new basket of 7/8 ITs for income

#522123

Postby 88V8 » August 13th, 2022, 3:25 pm

dealtn wrote:
88V8 wrote:
steveal wrote:Does it not make sense to aim for a more modest initial dividend, which is growing quickly?

Very true.
But taking a random example of a 4% yield growing at 5%, and a 6% yield growing at 1%, it takes twelve years for the tortoise's annual divi to catch the hare's, and twenty years for the cumulative payout to catch up.
If you're going to start with a low yielder, you'd better be very sure of your growth rate!

Only if you ignored Total Return and solely focussed on dividend income. What might happen to your capital over those 12 years or don't you care?

I suppose I do care, to a degree, hence my grumbling about HFEL.
But as I think I've commented before, on the whole one knows where one is with dividends. Growth however, might happen or not.
If I buy a 'growth' share and it doesn't, I've no dividends and no saleable growth.

So I prefer to stick with income investments, and if a degree of growth randomly occurs, that's a bonus.

Insofar as our portfolio has grown, it's been a combination of serendipitous growth and surplus income reinvestment, and even though we have more income that we need and I should perhaps give more thought to 'growth', I don't see it happening.
More likely next week I'm going to put money into Fixed Interest ITs - I topped up Shires SHRS yesterday, which I could have suggested as an alternative to NCYF.

Different of course, if I were forty years younger.
And it may become different if a change of govt brings about confiscatory income taxation. But fttb I'm content to plod on as I am.

V8

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Re: If you were picking a new basket of 7/8 ITs for income

#522161

Postby moorfield » August 13th, 2022, 6:29 pm

88V8 wrote:But as I think I've commented before, on the whole one knows where one is with dividends. Growth however, might happen or not.


Yes I believe so, and thus that it is easier to extrapolate how a portfolio income (of steady dividends) might look in the future through the combined effect of dividend increases cuts and reinvestment, and long term financial planning easier to do. Much harder to predict where share prices may or may not be over those same timescales.

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Re: If you were picking a new basket of 7/8 ITs for income

#522209

Postby dealtn » August 13th, 2022, 10:37 pm

88V8 wrote:
dealtn wrote:
88V8 wrote:
steveal wrote:Does it not make sense to aim for a more modest initial dividend, which is growing quickly?

Very true.
But taking a random example of a 4% yield growing at 5%, and a 6% yield growing at 1%, it takes twelve years for the tortoise's annual divi to catch the hare's, and twenty years for the cumulative payout to catch up.
If you're going to start with a low yielder, you'd better be very sure of your growth rate!

Only if you ignored Total Return and solely focussed on dividend income. What might happen to your capital over those 12 years or don't you care?

I suppose I do care, to a degree, hence my grumbling about HFEL.
But as I think I've commented before, on the whole one knows where one is with dividends. Growth however, might happen or not.
If I buy a 'growth' share and it doesn't, I've no dividends and no saleable growth.

So I prefer to stick with income investments, and if a degree of growth randomly occurs, that's a bonus.



Which is all fine, though missing the point I am making. I specifically entered the conversation when it was suggested comparing 2 income shares, both with steadily growing incomes. I have been extremely careful, given this board, not to enter into discussions around growth shares (or ITs). This conversation has been precisely about sticking with income investments.

It seems many here are unable to dislocate Total Return from some set of other strategies that aren't about income. I'm not sure if its the failure to spot "Total" or a feeling "Return" is a (different and this worse) measure to Income. But it is just literally a measure of a strategy's outcome. I rarely see any criticism on this board, or others, when people are talking about (X)IRR of a share, or a portfolio, yet when the dreaded words Total Return appear it seems many automatically see a threat to (Dividend) Income, or assume it must be about "growth" shares as a substitute for "income" ones. There are other places for such debates. Here however, IRR is an uncontroversial measure, yet is a Total Return.

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Re: If you were picking a new basket of 7/8 ITs for income

#522236

Postby CryptoPlankton » August 14th, 2022, 3:42 am

dealtn wrote:
88V8 wrote:
dealtn wrote:
88V8 wrote:
steveal wrote:Does it not make sense to aim for a more modest initial dividend, which is growing quickly?

Very true.
But taking a random example of a 4% yield growing at 5%, and a 6% yield growing at 1%, it takes twelve years for the tortoise's annual divi to catch the hare's, and twenty years for the cumulative payout to catch up.
If you're going to start with a low yielder, you'd better be very sure of your growth rate!

Only if you ignored Total Return and solely focussed on dividend income. What might happen to your capital over those 12 years or don't you care?

I suppose I do care, to a degree, hence my grumbling about HFEL.
But as I think I've commented before, on the whole one knows where one is with dividends. Growth however, might happen or not.
If I buy a 'growth' share and it doesn't, I've no dividends and no saleable growth.

So I prefer to stick with income investments, and if a degree of growth randomly occurs, that's a bonus.



Which is all fine, though missing the point I am making. I specifically entered the conversation when it was suggested comparing 2 income shares, both with steadily growing incomes. I have been extremely careful, given this board, not to enter into discussions around growth shares (or ITs). This conversation has been precisely about sticking with income investments.

It seems many here are unable to dislocate Total Return from some set of other strategies that aren't about income. I'm not sure if its the failure to spot "Total" or a feeling "Return" is a (different and this worse) measure to Income. But it is just literally a measure of a strategy's outcome. I rarely see any criticism on this board, or others, when people are talking about (X)IRR of a share, or a portfolio, yet when the dreaded words Total Return appear it seems many automatically see a threat to (Dividend) Income, or assume it must be about "growth" shares as a substitute for "income" ones. There are other places for such debates. Here however, IRR is an uncontroversial measure, yet is a Total Return.

I'm sorry, but this does come across (to me, at least) as really quite condescending, if not downright insulting. I would suggest that it is actually you who are missing the point that has been made to you several times. (Apologies to the OP and no more OT comment from me...)

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Re: If you were picking a new basket of 7/8 ITs for income

#522315

Postby dealtn » August 14th, 2022, 12:05 pm

CryptoPlankton wrote:
dealtn wrote:
88V8 wrote:
dealtn wrote:
88V8 wrote:Very true.
But taking a random example of a 4% yield growing at 5%, and a 6% yield growing at 1%, it takes twelve years for the tortoise's annual divi to catch the hare's, and twenty years for the cumulative payout to catch up.
If you're going to start with a low yielder, you'd better be very sure of your growth rate!

Only if you ignored Total Return and solely focussed on dividend income. What might happen to your capital over those 12 years or don't you care?

I suppose I do care, to a degree, hence my grumbling about HFEL.
But as I think I've commented before, on the whole one knows where one is with dividends. Growth however, might happen or not.
If I buy a 'growth' share and it doesn't, I've no dividends and no saleable growth.

So I prefer to stick with income investments, and if a degree of growth randomly occurs, that's a bonus.



Which is all fine, though missing the point I am making. I specifically entered the conversation when it was suggested comparing 2 income shares, both with steadily growing incomes. I have been extremely careful, given this board, not to enter into discussions around growth shares (or ITs). This conversation has been precisely about sticking with income investments.

It seems many here are unable to dislocate Total Return from some set of other strategies that aren't about income. I'm not sure if its the failure to spot "Total" or a feeling "Return" is a (different and this worse) measure to Income. But it is just literally a measure of a strategy's outcome. I rarely see any criticism on this board, or others, when people are talking about (X)IRR of a share, or a portfolio, yet when the dreaded words Total Return appear it seems many automatically see a threat to (Dividend) Income, or assume it must be about "growth" shares as a substitute for "income" ones. There are other places for such debates. Here however, IRR is an uncontroversial measure, yet is a Total Return.

I'm sorry, but this does come across (to me, at least) as really quite condescending, if not downright insulting. I would suggest that it is actually you who are missing the point that has been made to you several times. (Apologies to the OP and no more OT comment from me...)


So maybe explain, clearly what it is that I am not "getting".

Here was someone saying they care to a degree. They stick to income investments. None of which I have a problem with, and my posts have been in synch with.

My sole intervention here was regarding solely measuring dividend income, when my view, backed up by others in this thread and many others on the board is the reality that that isn't the sole concern - hence talking about XIRR and the ability for capital to grow to allow for that steady rising income desired.

Is anyone here really saying they are unconcerned by a scenario where a portfolio of 4% dividend yield growing at 5% might have turned £100k into £200k, against a 6% growing by 1% that remains at £100k over 12 years? The former has a 6.7% yield in year 12 (an improvement?) with the latter a 3.4% yield (a deterioration?)

More importantly, would it be of no concern were the 6% original portfolio to have dropped to £50k in value, with the same income pay out, as one that remained at £100k (or indeed against one that had risen to £150k)? The exact same £76k of dividends received (looking backwards) and a now 13.4% yield versus the 6.7% one (or 4.5%).

I am unconvinced holders of the portfolio in the £50k scenario wouldn't be having thoughts about the stability of the dividend stream going forward, and perhaps pondering whether previous dividends had unnecessarily been paid out of unearned income maybe, or from capital on the balance sheet?

I will have to concede if there are people that can't see the difference, or who can see it but would literally be unconcerned in such scenarios there is little I can do to convince them. I contend that most can see the difference, or would have at least thoughts about what that would mean to them should that scenario pan out.

As such I can't see the dogma that dividend income is all that matters to income investors

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Re: If you were picking a new basket of 7/8 ITs for income

#522355

Postby Itsallaguess » August 14th, 2022, 2:28 pm

dealtn wrote:
Is anyone here really saying they are unconcerned by a scenario where a portfolio of 4% dividend yield growing at 5% might have turned £100k into £200k, against a 6% growing by 1% that remains at £100k over 12 years? The former has a 6.7% yield in year 12 (an improvement?) with the latter a 3.4% yield (a deterioration?)

More importantly, would it be of no concern were the 6% original portfolio to have dropped to £50k in value, with the same income pay out, as one that remained at £100k (or indeed against one that had risen to £150k)? The exact same £76k of dividends received (looking backwards) and a now 13.4% yield versus the 6.7% one (or 4.5%).


An interesting thought-experiment, of course, but much more importantly, are you able to articulate a reliable process to identify those long term 'preferred outcomes' at all?

Cheers,

Itsallaguess

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Re: If you were picking a new basket of 7/8 ITs for income

#522366

Postby baldchap » August 14th, 2022, 3:15 pm

Another unreadable thread thanks to those that refuse to countenance that others may choose to apply an investment method different to their own, with their own money at that.

Please. The title is about income, which was quite a large warning that dividends would be discussed. I am sure the OP was expecting a few suggestions re income & growth, but yet again we descend into discussing how many angels can dance on the head of a pin.
Nobody needs to 'get' anything. Will everyone please realise that quite a lot of us are happy in the middle ground between HYP and TR purists.

Now, I have probably already gone beyond the pale, but you had all best brace yourselves for this....
I don't unitise and don't use XIRR either :D

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Re: If you were picking a new basket of 7/8 ITs for income

#522369

Postby TUK020 » August 14th, 2022, 3:25 pm

baldchap wrote:Another unreadable thread thanks to those that refuse to countenance that others may choose to apply an investment method different to their own, with their own money at that.

Please. The title is about income, which was quite a large warning that dividends would be discussed. I am sure the OP was expecting a few suggestions re income & growth, but yet again we descend into discussing how many angels can dance on the head of a pin.
Nobody needs to 'get' anything. Will everyone please realise that quite a lot of us are happy in the middle ground between HYP and TR purists.

Now, I have probably already gone beyond the pale, but you had all best brace yourselves for this....
I don't unitise and don't use XIRR either :D

Ah, but if the angels are line dancing, how many?

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Re: If you were picking a new basket of 7/8 ITs for income

#522370

Postby monabri » August 14th, 2022, 3:27 pm

I'll bring up "dividend policy" as a consideration. Certain ITs base their dividend on a percentage of start/end of year NAV, eg European Assets Trust (EAT).

EAT July 22 factsheet available here: https://www.theaic.co.uk/companydata/0P ... /documents

" The annual dividend is equivalent to 6% of the net asset value as at 31 December each year."

So, income will fluctuate year to year.

JGGI..."The Company makes quarterly distributions, that are set at the beginning of each financial year. On aggregate, the intention is to pay dividends totalling at least 4% of the NAV at the time of announcement "

JAGI.."The dividend policy aims to pay regular quarterly dividends funded from a combination of revenue and capital reserves equivalent to 1% of the Company's NAV on the last business day of each financial quarter, being the end of December, March, June and September."

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Re: If you were picking a new basket of 7/8 ITs for income

#522382

Postby dealtn » August 14th, 2022, 4:01 pm

Itsallaguess wrote:
dealtn wrote:
Is anyone here really saying they are unconcerned by a scenario where a portfolio of 4% dividend yield growing at 5% might have turned £100k into £200k, against a 6% growing by 1% that remains at £100k over 12 years? The former has a 6.7% yield in year 12 (an improvement?) with the latter a 3.4% yield (a deterioration?)

More importantly, would it be of no concern were the 6% original portfolio to have dropped to £50k in value, with the same income pay out, as one that remained at £100k (or indeed against one that had risen to £150k)? The exact same £76k of dividends received (looking backwards) and a now 13.4% yield versus the 6.7% one (or 4.5%).


An interesting thought-experiment, of course, but much more importantly, are you able to articulate a reliable process to identify those long term 'preferred outcomes' at all?

Cheers,

Itsallaguess


I disagree. It is much more important to accept that capital, its value, and its ability to be the driver of those (dividend) income returns. And to be clear my belief is that most investors of all types, including those labelled income investors, do understand that.

With respect to what you see as the most important thing though, it will be difficult. As such the important thing I would suggest is to have a well diversified spread of investments (and ITs relevant to this discussion provide that mainly) such that the downside is sufficiently protected, and not focus on those long term "preferred outcomes". I would suggest limiting the universe of potential investments to only those that are high in (dividend) income, or are solely UK based, or large caps etc do expose you (relatively) than even more diversification afforded by including those restricted by such a "strategy".

Were I to be looking at potential upsides though I would be looking at measures of "earnings yield", or returns on capital as my start point, and (almost) ignoring anything filtered by dividend income or yield - as it would be the performance of the underlying company that mattered to me, and not the dividend decision taken perhaps twice a year by a small group of (interested) Directors. What matters in the long term is the returns on the capital of the company and how that is invested, not by any ratio of what is retained for internal investment, and what is paid out.

I would be looking for the companies which I could buy for 100p, that generated 10p in earnings (preferably cash) regardless of whether they paid out 2p and retained 8p, or paid out 8p and retained 2p. I wouldn't be looking for companies available at the same price that generated only 5p which paid out 5p (or more).

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Re: If you were picking a new basket of 7/8 ITs for income

#522384

Postby richfool » August 14th, 2022, 4:14 pm

I don't mind the policy of JP Morgan, in terms of JGGI and JAGI's dividend formula, as it allows those trusts to invest in a wider range of stocks, including growth focused stocks, whilst still paying me a reasonable dividend.

A UK G&I trust that didn't get mentioned in earlier replies to the OP's question, is: Dunedin Income Growth trust (DIG), which currently offers a dividend yield of: 4.39% (at a discount of 1.21%), a fraction more than MUT's yield, also from the same Abrdn stable.
https://www.hl.co.uk/shares/shares-sear ... st-ord-25p

(Personally, I am on the lookout for more global G&I exposure).

Disc: In terms of dividend payers, I hold:
In the UK G&I sector: DIG, LWDB, MRCH.
In the Global G&I sector: JGGI, MYI, SAIN.
North America: BRSA and MCT
Asia Pacific: AAIF
Europe: EAT and JEGI.
Commodities/Miners/Energy: BERI and BRWM.
Plus REIT's and Renewable energy companies.

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Re: If you were picking a new basket of 7/8 ITs for income

#522387

Postby dealtn » August 14th, 2022, 4:33 pm

baldchap wrote:Another unreadable thread thanks to those that refuse to countenance that others may choose to apply an investment method different to their own, with their own money at that.

Please. The title is about income, which was quite a large warning that dividends would be discussed. I am sure the OP was expecting a few suggestions re income & growth, but yet again we descend into discussing how many angels can dance on the head of a pin.
Nobody needs to 'get' anything. Will everyone please realise that quite a lot of us are happy in the middle ground between HYP and TR purists.



Which is presumably directed at me. And so, to be clear, I have no issue with anyone that wishes to pursue an income strategy, and the OP was very clear what was required was in 3 parts

1) 4-5% yield, presumably a measure of current dividend income
2) Steadily growing
3) Isn't consuming Capital

Therefore 2) and 3) are important.

Hence a focus not just on 1) and considering how that income can steadily grow, and 2) not diminish is important. Hence the composition and ongoing delivery of that return on capital is a valid part of the discussion.

This means Total Return. This isn't, and never has been, a discussion about an alternative strategy to income, and seeking "growth shares". This is exactly in line with the OP's request, and his chosen investment method. TR clearly means something different to some other people - who seem to regard it as an alternative strategy, or a threat to an income strategy, when all it is is a "measure" that includes returns from dividends, but recognises returns come in other forms, and the combination determines long term (income and total) returns.

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Re: If you were picking a new basket of 7/8 ITs for income

#522412

Postby 88V8 » August 14th, 2022, 5:58 pm

dealtn wrote:.... I can't see the dogma that dividend income is all that matters to income investors

It's not that it's all that matters, although it's what mainly matters, but income is the only thing we can really hope to control.

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Re: If you were picking a new basket of 7/8 ITs for income

#522416

Postby CryptoPlankton » August 14th, 2022, 6:14 pm

dealtn wrote:So maybe explain, clearly what it is that I am not "getting".

I have tried, but one last time...
dealtn wrote:Here was someone saying they care to a degree. They stick to income investments. None of which I have a problem with, and my posts have been in synch with.
My sole intervention here was regarding solely measuring dividend income, when my view, backed up by others in this thread and many others on the board is the reality that that isn't the sole concern - hence talking about XIRR and the ability for capital to grow to allow for that steady rising income desired.

Well, measuring the dividend income is clearly a necessary part of satisfying the aim of the OP, which was to target "approx 4-5% (presumably, starting) yield". However, the objective was also to look for "a steadily growing income stream, without consuming its own capital. A basket to last you 30 years." So, I don't think anyone was under the illusion that that is the "sole concern" or has stated as such.
dealtn wrote:Is anyone here really saying they are unconcerned by a scenario where a portfolio of 4% dividend yield growing at 5% might have turned £100k into £200k, against a 6% growing by 1% that remains at £100k over 12 years? The former has a 6.7% yield in year 12 (an improvement?) with the latter a 3.4% yield (a deterioration?)

No, I don't believe anyone here is saying that. The key word in your example is "might". In an earlier post, I illustrated that those outcomes "might" well be reversed and that lower yield and higher dividend growth twelve years ago doesn't necessarily guarantee a superior total return up to today. The point is that if we concentrate on assessing the prospects for a sustainable and growing dividend of potential investments (and no reason not to consider historic IRR/total return figures as part of that assessment) then we shouldn't have to worry unduly about the prospects for capital growth. The aim is to build a portfolio that produces reliable (growing) income so that the short to medium term volatility (or noise) in capital value can largely be ignored. That isn't the same as being unconcerned about long-term capital performance which, if the portfolio has been researched well, hopefully shouldn't cause concern.
dealtn wrote:More importantly, would it be of no concern were the 6% original portfolio to have dropped to £50k in value, with the same income pay out, as one that remained at £100k (or indeed against one that had risen to £150k)? The exact same £76k of dividends received (looking backwards) and a now 13.4% yield versus the 6.7% one (or 4.5%).
I am unconvinced holders of the portfolio in the £50k scenario wouldn't be having thoughts about the stability of the dividend stream going forward, and perhaps pondering whether previous dividends had unnecessarily been paid out of unearned income maybe, or from capital on the balance sheet?

I am sure it would be of concern, and I agree that holders of the portfolio in the £50k scenario would be extremely likely to be having thoughts about the stability of the income going forward! However, I would suggest that most (if not all) investors here are savvy enough to recognise the alarm bells and reassess their strategy long before such a scenario developed.
dealtn wrote:I will have to concede if there are people that can't see the difference, or who can see it but would literally be unconcerned in such scenarios there is little I can do to convince them. I contend that most can see the difference, or would have at least thoughts about what that would mean to them should that scenario pan out.

I really don't think you need to worry about convincing anyone. I don't remember seeing anyone suggest that they wouldn't be concerned in such scenarios, and it difficult to understand why you keep bringing them up
dealtn wrote:As such I can't see the dogma that dividend income is all that matters to income investors

Perhaps it would be more accurate (and less provocative) to say that a sustainable/growing dividend income is what matters most to income investors. Clearly, consideration of capital is an integral part of ensuring that sustainability/growth is maintained. However, maximising TR is less important than feeling comfortable being able to draw solely on dividend income rather than having to sell to generate that income. To that end, a long-term TR of 7% (comprising 4% dividend and 3% capital growth) may actually be more acceptable in some circumstances than a long-term TR of 8% (comprising 2% dividend and 6% capital growth) if it avoids the potential of having to sell into short term depression of the share price to acquire the desired income. It may be this slight trade off that is anathema to you, but I don't believe anyone is ignoring the greater picture and simply being guided by dividend yield alone. The main driver (for me, at least) is that I seem to find it easier to spot reliable dividend growth than capital growth. Anyway, if I haven't managed to explain this clearly enough, please start another thread as this one has been corrupted enough by this diversion.


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