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High Yield vs Dividend Growth

General discussions about equity high-yield income strategies
IanTHughes
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Re: High Yield vs Dividend Growth

#664443

Postby IanTHughes » May 15th, 2024, 2:19 pm

Charlottesquare wrote:
IanTHughes wrote:First of all, with an annuity, the asset value is passed to the annuity provider. With one's own portfolio, the capital is not given away. That is a major difference in my view.

Secondly, all the portfolios under my control where dividends are paid away, have increased in value. You will have to further explain how it is that what was paid to buy the share initially is in part being returned to you by the company when the Market Value of the portfolio increases over time.

Also, for an investor in reliant on a portfolio to provide the cash needed to pay the bills, that cash can only come from Company dividends of Asset sales. Dividends make much more sense than asset sales, especially if the market is low - 2019/2020 30% down due to Economy lockdown - when selling may be a seriously bad move.

I cannot become relaxed about something being called income (dividends) unless it can be shown to be dividends out of current earnings (odd years excepted) I appreciate HYP sets cover as one of its selection criteria at outset but that cover may well change over a lifetime of ownership. (For one thing business models change- ask M & S )

I am sure your investment portfolios have done fine, as you say, but so have mine using a few different approaches over the years (now mainly ITs with portfolio yield at circa 4.6%), the past performance does not negate my view that where dividends paid erode company value in monetary terms or in lack of future investment, thus restricting future earnings growth, they need careful scrutiny.

No-one, let alone I, is suggesting any investment should be made without careful scrutiny!

Enjoy!


Ian

Arborbridge
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Re: High Yield vs Dividend Growth

#664444

Postby Arborbridge » May 15th, 2024, 2:21 pm

IanTHughes wrote:
Arborbridge wrote:Well, that's where it gets confusing. There weren't enough earnings to pay for the dividend (no cover), so the gap was plugged by borrowing more.

I can only repeat that, by law, dividends must be paid out of earnings!

https://www.informdirect.co.uk/shares/w ... -dividend/
A company may only make a distribution out of profits available for the purpose. – Companies Act 2006, section 830


Dividends can only be paid from the company’s profits after deducting all expenses and tax liabilities. After payment of the dividend, it is preferable for there to be sufficient retained earnings (see below) to plough back into the company for healthy growth.


I would say more, even suggest that maybe one should do some research into the subject, but do not want to risk upsetting the criticism police.

Enjoy!


Ian


Don't ask me to explain it, but I've known several companies in which it happens. In effect increasing borrowings have been made to pay dividends. There's nout so strange as company accounts and as others said here, there are many ways of obfuscating the truth.

Arb.

Arborbridge
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Re: High Yield vs Dividend Growth

#664445

Postby Arborbridge » May 15th, 2024, 2:25 pm

IanTHughes wrote:No-one, let alone I, is suggesting any investment should be made without careful scrutiny!

Enjoy!


Ian


Yet, you seem the only one in this conversation that hasn't noticed dividends being paid out from increasing company borrowings.

IanTHughes
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Re: High Yield vs Dividend Growth

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Postby IanTHughes » May 15th, 2024, 2:31 pm

Arborbridge wrote:
IanTHughes wrote:No-one, let alone I, is suggesting any investment should be made without careful scrutiny!

Yet, you seem the only one in this conversation that hasn't noticed dividends being paid out from increasing company borrowings.

I have known for decades that can and does happen! Levels of debt, whatever the cause, and the cash needed to service it is crucial, especially when looking for dividends.

What is your point exactly?

Enjoy!


Ian

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Re: High Yield vs Dividend Growth

#664457

Postby Arborbridge » May 15th, 2024, 5:01 pm

IanTHughes wrote:
Arborbridge wrote:Yet, you seem the only one in this conversation that hasn't noticed dividends being paid out from increasing company borrowings.

I have known for decades that can and does happen! Levels of debt, whatever the cause, and the cash needed to service it is crucial, especially when looking for dividends.

What is your point exactly?

Enjoy!


Ian


Had you been following the conversation, that would have been obvious. I shan't bother to waste any more time on your sterile argument.

Arb.

Alaric
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Re: High Yield vs Dividend Growth

#664463

Postby Alaric » May 15th, 2024, 5:38 pm

IanTHughes wrote:First of all, with an annuity, the asset value is passed to the annuity provider


That's correct but not the whole story. An annuity should pay more than the underlying bonds in which it's most likely to have been invested. That's because the expectesd gains from non-survivors are shared out as income to the survivors with a bit of profit to the provider for taking the investment and survivorship risks and because as the payments run down, not all the assets continue to be needed by the provider and this effect also increases the return. Those familiar with the produict usually known as "Purchased Life Annuity" will be aware that much of the income distribution to annuitants is treated as return of capital and thus not taxed.


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