The Lemon Fool

dealtn wrote:

tjh290633 wrote:Incidentally, how practical is holding a large part of your portfolio as Berkshire Hathaway shares and selling to provide an income. I realise that there are B-shares, which have a much lower capital value than the original shares, but with a high capital value, selling fractions is not a feasible way of obtaining income.

Not very practical at all I would say. It's never been a share I have had any interest in owning, and I can't see that changing.

I shall have to leave to someone else to provide a different answer if there is one, and presumably it is more meaningful if that came from somebody that owns it, and sought to derive an income in the manner you describe.

I own 100 of the B shares in BRK. As TJH notes even the lower-priced B shares are $280 each which is a lot, although less than MicroSoft, Amazon, Facebook, Tesla, Google and a few others. The A shares are ridiculous.

So it certainly would be practicable to sell off the B shares to create an "income". The appeal in this regard with BRK is that it collects dividends from its underlying investments but does not pay them out, which a fund could not legally do but since BRK is a common stock, it can choose to do that.

Assuming that someone is well off enough to not need dividends then holding only BRK and selling shares, fractionally if necessary, could work. For that matter if you are rich enough you do not need to invest at all, and then would never pay any tax until you die!

absolutezero wrote:Why not just shove all your money in a tracker?

First, it's no fun.

Secondly, once in drawdown, on the whole dividends are reliable whilst capital appreciation is not.

Do agree though that one should use one's CGT allowance.

V8

88V8 wrote:

absolutezero wrote:Why not just shove all your money in a tracker?

First, it's no fun.

Secondly, once in drawdown, on the whole dividends are reliable whilst capital appreciation is not.

You are aware that trackers can pay dividends too (should that be your investment objective)?

Natural yield can be a slippery beast. If an IT invests in middling yield US shares, collects the dividends (including specials and return of capital), lends the shares for a fee, sells some to crystallise a capital gain, collects option premium by writing covered calls, sells some shares to cover costs and then at the end of the year pays out the net cash achieved from all those sources it might achieve a "natural yield" of over 4%. Do those things yourself and what is the natural yield? Just the dividends (minus specials, etc)?

Another interesting aspect of natural yield is what happens with a position in a simple S&P 500 tracker. Very little churn in the portfolio so most of the income paid out will arise from the dividends. Typically a tiny amount might come from stock lending and return of capital type corporate actions. But if you hold that tracker your share of the ownership of corporate America will rise over time because of all the share buy backs taking place. In other words, there is a reinvestment of some of the cash flowing out of the underlying companies that might otherwise be paid out as dividends. And that is without even considering retained earnings. Is the income being paid by out by the tracker a true reflection of the natural yield of the market? I cannot see how it can be with that share buy back reinvestment taking place.

hiriskpaul wrote:Natural yield can be a slippery beast. If an IT invests in middling yield US shares, collects the dividends (including specials and return of capital), lends the shares for a fee, sells some to crystallise a capital gain, collects option premium by writing covered calls, sells some shares to cover costs and then at the end of the year pays out the net cash achieved from all those sources it might achieve a "natural yield" of over 4%. Do those things yourself and what is the natural yield? Just the dividends (minus specials, etc)?

You beat me to it. More eloquently than I would have said it, but you said it.

88V8 wrote:

absolutezero wrote:Why not just shove all your money in a tracker?

First, it's no fun.

There is that side of it, but that begs the question, why chase dividends instead of total return?
Surely beating the market would be more fun.

Lootman wrote:

dealtn wrote:

tjh290633 wrote:Incidentally, how practical is holding a large part of your portfolio as Berkshire Hathaway shares and selling to provide an income. I realise that there are B-shares, which have a much lower capital value than the original shares, but with a high capital value, selling fractions is not a feasible way of obtaining income.

Not very practical at all I would say. It's never been a share I have had any interest in owning, and I can't see that changing.

I shall have to leave to someone else to provide a different answer if there is one, and presumably it is more meaningful if that came from somebody that owns it, and sought to derive an income in the manner you describe.

I own 100 of the B shares in BRK. As TJH notes even the lower-priced B shares are $280 each which is a lot, although less than MicroSoft, Amazon, Facebook, Tesla, Google and a few others. The A shares are ridiculous.

So it certainly would be practicable to sell off the B shares to create an "income". The appeal in this regard with BRK is that it collects dividends from its underlying investments but does not pay them out, which a fund could not legally do but since BRK is a common stock, it can choose to do that.

Assuming that someone is well off enough to not need dividends then holding only BRK and selling shares, fractionally if necessary, could work. For that matter if you are rich enough you do not need to invest at all, and then would never pay any tax until you die!

A very good retirement income would have been achieved by someone selling BRK-B shares had they started in 1994: https://retireearlyhomepage.com/reallife21.html

absolutezero wrote:

Itsallaguess wrote:

absolutezero wrote:
So you're basically saying its psychological rather than financial?

Not necessarily 'psychological rather than financial' - I wouldn't put it like that myself - but perhaps rather I'm just trying to highlight that some people really value some particular investment 'processes', and perhaps gaining long-term confidence in them, over and above a stricter focus on *just* capital gain...

Cheers,

Itsallaguess

But again. £1 is £1. Money is fungible.

If people value one form of acquiring that £1 over another, then that ceases to be finance and start to be psychology.

"By George, I think he's got it!"
Homo economicus is a theoretical construct, as a plethora of behavioural finance professors will attest to.

torata

murraypaul wrote:

absolutezero wrote:Some ITs (from memory European Assets is one) sell shares worth a % of their NAV at year end.
They then send this cash, as a dividend, to holders of the Trust.
Is that a 'natural yield' or not?

If you are running the IT, no.
If you are buying it, and receiving their dividends, yes.
You buy their shares, they pay you a dividend. Doesn't matter to you how they achieve that.

Except of course it should because they are eroding the capital of the trust to achieve the dividend. If they have a few lean years you will soon know that using capital to pay you can be a big negative. That is not the natural yield of the trust; that is the directors deciding what the dividend is going to be.

Dod

Dod101 wrote: That is not the natural yield of the trust; that is the directors deciding what the dividend is going to be.

Dod

Exactly. Just like the Directors in any company.

The Natural Yield of the investment is the earnings/cashflow of the underlying investment(s), be that a financial IT, or a company in the real economy.

Calling a dividend a "natural" yield is a misnomer.

Dod101 wrote:...Except of course it should because they are eroding the capital of the trust to achieve the dividend.....

But surely every dividend paying company 'erodes its capital to achieve the dividend'?

I can understand the attraction of HYP - I myself am attracted - but I just do not get the distinction between between so-called TR and HYP, that is, the dividend itself is not important to me, it just happens that some companies I like feel their owners are best served by distribution rather than growth. If a company is 'ex-growth', then it had darn well better pay a dividend!

But I am still trying to accumulate. Companies like Microsoft and Apple therefore have appeal - their yield is low, and in 15 years their yield may still be low, but as they are growing, their dividend by then may well exceed that of a company currently yielding more. (Edit: what I mean is their yield relative to my purchase price, rather than their current cap)

Dod101 wrote:Except of course it should because they are eroding the capital of the trust to achieve the dividend. If they have a few lean years you will soon know that using capital to pay you can be a big negative. That is not the natural yield of the trust; that is the directors deciding what the dividend is going to be.

Dod

Isn't there an analogous issue with the dividend a business pays? The value is determined by the directors and is a balancing act between profit, keeping cash in the business for reinvestment and paying off any debt the company may be carrying?

edit:ninja'd by dealtn

NotSure wrote:

Dod101 wrote:...Except of course it should because they are eroding the capital of the trust to achieve the dividend.....

But surely every dividend paying company 'erodes its capital to achieve the dividend'?

Exactly. A payment of a 5% dividend just removes 5% from the value of the share and gives you that amount in cash.
You are no better off.

absolutezero wrote:Exactly. A payment of a 5% dividend just removes 5% from the value of the share and gives you that amount in cash.
You are no better off.

You do not understand this at all
please see my earlier and others posts

pje16 wrote:

absolutezero wrote:Exactly. A payment of a 5% dividend just removes 5% from the value of the share and gives you that amount in cash.
You are no better off.

You do not understand this at all
please see my earlier and others posts

Which earlier post?

Bar the moment between going ex-div and the commitment to pay cash and it becoming a real receipt of the dividend as cash, that is precisely what is happening. What part are you disagreeing with?

dealtn wrote:Which earlier post?

This one - the pregnancy analogy
viewtopic.php?f=31&t=31019&start=40#p439016

I get the impression that some people posting think a company's capital is fixed. Could this belief help explain their reluctance to sell shares for consumption?

Capital varies all the time. In particular retaining earnings increases capital. In contrast, losses, share buy backs and the payment of dividends depletes capital. The value of a shareholder's share (for want of a better word) of that capital can rise even if the shareholder occasionally sells shares.

pje16 wrote:

dealtn wrote:
Which earlier post?

This one - the pregnancy analogy

https://www.lemonfool.co.uk/viewtopic.php?f=31&t=31019&start=40#p439016

I don't buy the pregnancy analogy, as it's based on the fallacy of a nailed-on share-price rise between ex-dividend dates that clearly can't be guaranteed.

It's an analogy with an element of 'sleight of hand' being used to try to convince people of it's validity...

I think this whole argument is best served by all sides simply agreeing that there's no difference at all in monetary terms, and then we're left with what would hopefully be a sensible agreement that different investors might prefer different delivery-methods, and with all else being equal, then such preferences are valid on their own terms, ignoring completely the 'worth' of what's delivered using different methods, as it's equally the same no matter which one is used...

I really don't think there's a need for persistent arguing over this particular issue.

Cheers,

Itsallaguess

pje16 wrote:

dealtn wrote:Which earlier post?

This one - the pregnancy analogy
viewtopic.php?f=31&t=31019&start=40#p439016

Your analogy is incomplete. It does not account for a falling or flat share price.

Itsallaguess wrote:I don't buy the pregnancy analogy, as it's based on the fallacy of a nailed-on share-price rise between ex-dividend dates that clearly can't be guaranteed.
I really don't think there's a need for persistent arguing over this particular issue.
Itsallaguess

It is a theory and I do mention the assumption for there being other market movements
It IS correct and I am losing the will to carry on with this thread
A share IS worth MORE just before it goes Ex div
You will pay more as it has the value of the dividend (included in it)
I can't help it if some don't see that