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Income Investment Trusts - are these the times they (relatively...) shine?

General discussions about equity high-yield income strategies
Itsallaguess
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Income Investment Trusts - are these the times they (relatively...) shine?

#287809

Postby Itsallaguess » March 1st, 2020, 10:00 am

I'll be looking to invest some new ISA funds in a few weeks time, and I'll be trying to take advantage of some increased yields and discounts that the past few weeks have driven into the income-Investment Trust market areas.

The reason I've started this thread is to consider if it's during these periods of market volatility that the 'income-reserve' aspect of income-related Investment Trusts might come into play, and provide the sort of benefit that might enable income-IT's to ride out these periods in a slightly different way to 'single-share' income-investments.

Clearly we're unlikely to know everything about single-share investments when it comes to things like their potential wide-scale supply-chains, or how global employees might be affected by the health-scare that's affecting a large and growing number of locations throughout the world, and it's these factors that might strongly affect the short and medium term ability of some single-share income-stocks to continue paying dividends at their current rate.

Whilst it's clear that income-IT's are merely a 'collection' of such single-share investments, they often have the advantages of a wide-diversification of those holdings, and also the key aspect of their 'income-reserve', which can be used to smooth dividend payments if any problems with their underlying holdings puts pressure on those components to pay their own dividends.

So, is this the time for Investment Trust income-reserves to come into play?

Are we likely to see large numbers of single-share income-investments cut their dividends over the coming medium term?

If so, will the majority of income-IT's be able to ride out the issue using their income-reserves, and allow them to continue their normal distributions until the current health-scare issues can be improved?

I'm aware that there's no free lunches, of course, and that broadly speaking, income Investment Trusts are likely to pay out slightly lower yields than many often higher-yielding single-share options that might be available, but as i get older and my investment pot grows larger, I find myself much happier with a slightly lower, but much less volatile dividend-stream coming from IT's than I ever did with what was, for me at least, a much more volatile dividend-stream from my single-share holdings.

I'd be nervous in the current market to place too much faith in single-share income-stocks, but if yields are rising for income-IT's, and those rising yields are also often accompanied by larger discounts as well, then I'll be much less nervous about dripping new funds into income-Investment Trusts whilst this period of market volatility continues.

Cheers,

Itsallaguess

richfool
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Re: Income Investment Trusts - are these the times they (relatively...) shine?

#287835

Postby richfool » March 1st, 2020, 11:45 am

Just came across this whilst searching for JPGI, (which seems to have changed its ticker to JGGI), - an article from JP Morgan Asset Management with an assessment of world stock markets and which seems to conclude that the UK could be the way to go (for income).

https://www.trustnet.com/news/7461903/h ... ck-markets

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Re: Income Investment Trusts - are these the times they (relatively...) shine?

#287973

Postby funduffer » March 2nd, 2020, 9:17 am

Funny you should post this today - this is now my thinking.

I have looked at my HYP and I really don't fancy topping up anything there in the current high volatility climate.

So this morning I have modestly topped up Aberdeen Standard Equity Income Trust (ASEI). Currently at a 13% discount, yielding 6% and has just raised its latest dividend by 6%. Overall this trust has the highest dividend CAGR of the 8 that I hold (over 8%).

Hopefully the IT's income reserve will not see any major cut in the medium term future.

Seems like a bargain to me.

FD

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Re: Income Investment Trusts - are these the times they (relatively...) shine?

#288028

Postby monabri » March 2nd, 2020, 1:15 pm

Similar thoughts but yields on the likes of RDSB and a few others are so attractive.. :?

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Re: Income Investment Trusts - are these the times they (relatively...) shine?

#288747

Postby Charlottesquare » March 5th, 2020, 4:33 pm

ReallyVeryFoolish wrote:Anyone bought (or buying) into MRCH and HFEL in the sales?


HFEL yes, sold some at 332.40 on 25th, repurchased half at 316.80 this week.

Did similar with Aberdeen Asian, City, Fidelity China and Murray

I bailed into about 40% cash on the 25th and have since reentered with about half of that- some into the ITs but other purchases have been things like extra Berkshire, even more Shell and ITV (twice), today seemed an good time for a second purchase of its income.

Itsallaguess
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Re: Income Investment Trusts - are these the times they (relatively...) shine?

#288766

Postby Itsallaguess » March 5th, 2020, 5:53 pm

ReallyVeryFoolish wrote:
Anyone bought (or buying) into MRCH and HFEL in the sales?


Whilst there's a few income-related Investment Trusts I'm keeping an eye on, I'm curtailed somewhat by having to wait until the new tax year to be honest, as I'm sure is the case for many of us here.

In all honesty I can't see too much short-term upside at the moment, so I'm happy to sit on my hands and see how this plays out for a while.

Cheers,

Itsallaguess

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Re: Income Investment Trusts - are these the times they (relatively...) shine?

#288803

Postby 88V8 » March 5th, 2020, 11:02 pm

ReallyVeryFoolish wrote:Anyone bought (or buying) into MRCH and HFEL in the sales?


HFEL, yes. Now one of my largest holdings.
MRCH not so sure, do hold, but expecting further drops.

V8

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Re: Income Investment Trusts - are these the times they (relatively...) shine?

#288811

Postby JuanDB » March 6th, 2020, 12:19 am

I have a full holding of HFEL so top up limited to reinvesting dividends.

MRCH is currently a 4/7 holding so looking at a decent top up, ideally start of new tax year with ISA money.

MYI is also on my list. Have a 1/7 holding at present in Mrs Juan’s GIA so will be taking advantage of the current prices.

To think that a just few weeks ago I was worrying about where to put next years ISA money due to high prices.

Cheers,

Juan.

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Re: Income Investment Trusts - are these the times they (relatively...) shine?

#290385

Postby Julian » March 13th, 2020, 8:15 am

Interesting question posed by this thread. I have no idea but one observation I would make is that with the sharp share price declines pushing the yields of pretty much all HYP shares to unseen levels (yield as in most recently declared trailing-year payouts divided by current share price) there has been some discussion on the HYP boards as to whether some companies might use this as an opportunity to “rebase” their pence-per-share divi payouts to adjust the yields to closer than what they were at before the sell off. I can see the temptation in that for management of those companies especially ones that have rebased before but for certain income IT’s there is a strong counterforce that could dissuade the management from doing that, namely not wanting to break an impressive record of rising dividends. The most extreme example of that I can think of there is City of London IT (CTY). I can imagine that the managers there would do everything they can think of to maintain the dividend rather than break an over half a century record of rising dividends.

Of course such behaviour does beg the question as to what the cost of someone like CTY maintaining or even increasing my an extremely token amount might be if many of the underlying portfolio constituents are rebasing their divis. Presumably all that can be done is deplete the reserve and then sell off holdings if necessary but for those investors who focus entirely on the dividend income and take a longer term view of capital value, or even take the extreme “capital doesn’t matter” view, I suspect the income ITs with extremely long records of unbroken dividend rises (or at least never having cut) will deliver a smoother income stream to investors vs an individual-shares HYP over the next few years albeit possibly (probably?) at the expense of capital value.

- Julian

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Re: Income Investment Trusts - are these the times they (relatively...) shine?

#290420

Postby 77ss » March 13th, 2020, 9:52 am

Julian wrote:......for certain income IT’s there is a strong counterforce that could dissuade the management from doing that, namely not wanting to break an impressive record of rising dividends. The most extreme example of that I can think of there is City of London IT (CTY). I can imagine that the managers there would do everything they can think of to maintain the dividend rather than break an over half a century record of rising dividends.

Of course such behaviour does beg the question as to what the cost of someone like CTY maintaining or even increasing my an extremely token amount might be if many of the underlying portfolio constituents are rebasing their divis. Presumably all that can be done is deplete the reserve....

- Julian


I see the 'reserve' as a key feature. I normally avoid income ITs such as CTY, but have started to wonder whether now might be a good time to switch some funds into this sector. I'll be doing a bit of research over the w/e.

Just a quick look at CTY itself. The AIC website says it is yielding 6% - tempting enough if sustainable. The income reserves cover the dividend for 0.75 years - a bit less than I would like.

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Re: Income Investment Trusts - are these the times they (relatively...) shine?

#290440

Postby 88V8 » March 13th, 2020, 10:24 am

77ss wrote:...CTY itself. The AIC website says it is yielding 6% - tempting enough if sustainable. The income reserves cover the dividend for 0.75 years - a bit less than I would like.


But that's 9 months with no income. Are you expecting them to get pregnant?

Just added to CTY, even though they are up 3% today.

V8

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Re: Income Investment Trusts - are these the times they (relatively...) shine?

#290499

Postby richfool » March 13th, 2020, 12:51 pm

Whilst I like the fact that IT's can and do hold back dividend income for a rainy day, if the stocks held by an IT are forced to cut their dividends because of falling income, then it won't be too long before the IT is forced to cut its dividends.

Itsallaguess
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Re: Income Investment Trusts - are these the times they (relatively...) shine?

#290502

Postby Itsallaguess » March 13th, 2020, 1:07 pm

richfool wrote:
Whilst I like the fact that IT's can and do hold back dividend income for a rainy day, if the stocks held by an IT are forced to cut their dividends because of falling income, then it won't be too long before the IT is forced to cut its dividends.


Absolutely - but then it all depends on the type of 'revenue-shock' experienced by the individual companies.

If we see a technical recession for global health reasons, and it's a relatively 'short-sharp-shock' with a resulting u-shape recovery, then that was just the scenario I was suggesting might be a good time to take advantage of the income-reserves being held by the majority of income-related Investment Trusts.

If any such recover were a more prolonged affair, then of course those Investment Trusts would come under pressure trying to maintain payouts, so this is really around the idea that perhaps any of the expected revenue-shocks might be cushioned somewhat by IT income-reserves, and they are perhaps there precisely for these types of situations..

Cheers,

Itsallaguess

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Re: Income Investment Trusts - are these the times they (relatively...) shine?

#290630

Postby JuanDB » March 13th, 2020, 9:48 pm

CTY is due for its annual increase next dividend payment. It will be interesting to see the level of increase as a measure of confidence given their 54 year run of increases.

Current dividend is 0.0475
I would consider par to be 0.0495 (this is the value I have pencilled in my “growth projection” spreadsheet)
0.05 would be generous and I’d be very surprised given the current climate
Less than 0.0495 would be a warning sign for me.

Cheers,

Juan.

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Re: Income Investment Trusts - are these the times they (relatively...) shine?

#294014

Postby dundas666 » March 25th, 2020, 12:18 pm

JuanDB wrote:CTY is due for its annual increase next dividend payment. It will be interesting to see the level of increase as a measure of confidence given their 54 year run of increases.

Current dividend is 0.0475
I would consider par to be 0.0495 (this is the value I have pencilled in my “growth projection” spreadsheet)
0.05 would be generous and I’d be very surprised given the current climate
Less than 0.0495 would be a warning sign for me.

Cheers, Juan.


I ran the numbers for guidance and:
  • last year dividend growth was 4.4%
  • over the last 8 years dividend growth has averaged 4.5% per year
  • the lowest growth was 3.1% in 2013/14
  • the highest increase was 6.2% in 2017/18 (neatly, double the 3.1% low!)

So if they maintained last year's 4.4% increase we'd be looking at the dividend growing from 4.75p to 4.96p as you indicated, Juan.
If they grew using the previous low of 3.1% in 2013/14 then that would mean around 4.90p

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Re: Income Investment Trusts - are these the times they (relatively...) shine?

#294041

Postby richfool » March 25th, 2020, 1:42 pm

Itsallaguess wrote:
richfool wrote:
Whilst I like the fact that IT's can and do hold back dividend income for a rainy day, if the stocks held by an IT are forced to cut their dividends because of falling income, then it won't be too long before the IT is forced to cut its dividends.


Absolutely - but then it all depends on the type of 'revenue-shock' experienced by the individual companies.

If we see a technical recession for global health reasons, and it's a relatively 'short-sharp-shock' with a resulting u-shape recovery, then that was just the scenario I was suggesting might be a good time to take advantage of the income-reserves being held by the majority of income-related Investment Trusts.

If any such recover were a more prolonged affair, then of course those Investment Trusts would come under pressure trying to maintain payouts, so this is really around the idea that perhaps any of the expected revenue-shocks might be cushioned somewhat by IT income-reserves, and they are perhaps there precisely for these types of situations..

Cheers,

Itsallaguess

Whilst it is one of the IT's that supplement dividend income from capital, I still like JGGI because of its exposure to the US and to global growth stocks. It also gives exposure to different stocks than the other trusts, like HINT & MYI, in the same global G&I sector; hence I hold all three.

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Re: Income Investment Trusts - are these the times they (relatively...) shine?

#294052

Postby mike » March 25th, 2020, 2:10 pm

Itsallaguess wrote:
richfool wrote:
Whilst I like the fact that IT's can and do hold back dividend income for a rainy day, if the stocks held by an IT are forced to cut their dividends because of falling income, then it won't be too long before the IT is forced to cut its dividends.


Absolutely - but then it all depends on the type of 'revenue-shock' experienced by the individual companies.

If we see a technical recession for global health reasons, and it's a relatively 'short-sharp-shock' with a resulting u-shape recovery, then that was just the scenario I was suggesting might be a good time to take advantage of the income-reserves being held by the majority of income-related Investment Trusts.

If any such recover were a more prolonged affair, then of course those Investment Trusts would come under pressure trying to maintain payouts, so this is really around the idea that perhaps any of the expected revenue-shocks might be cushioned somewhat by IT income-reserves, and they are perhaps there precisely for these types of situations..

Cheers,

Itsallaguess


Based on previous years, Schroder Income Growth (SCF) is due to announce its quarterly dividend this afternoon. This may give us a clue as to how the ITs are beginning to think about the future. Schroder Oriental Income's is also due this afternoon.

Again, based on previous years, Dunedin Income (DIG) and Merchants (MRCH) are due to issue their final report for their years ending January 2020 at 7:00 am tomorrow.

Unfortunately, what has happened with reporting dates in previous years does not necessarily transfer forward, so perhaps these dates should be classed as best-guess-provisional !

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Re: Income Investment Trusts - are these the times they (relatively...) shine?

#294058

Postby mike » March 25th, 2020, 2:40 pm

mike wrote:Again, based on previous years, Dunedin Income (DIG) and Merchants (MRCH) are due to issue their final report for their years ending January 2020 at 7:00 am tomorrow.


Sorry, mis-quoted my notes

DIG is due tommorrow, 26 March
MRCH due on Friday, 27 March

Apologies if I led anyone astray

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Re: Income Investment Trusts - are these the times they (relatively...) shine?

#294067

Postby Dod101 » March 25th, 2020, 2:54 pm

JuanDB wrote:CTY is due for its annual increase next dividend payment. It will be interesting to see the level of increase as a measure of confidence given their 54 year run of increases.

Current dividend is 0.0475
I would consider par to be 0.0495 (this is the value I have pencilled in my “growth projection” spreadsheet)
0.05 would be generous and I’d be very surprised given the current climate
Less than 0.0495 would be a warning sign for me.


Don't forget that ITs need to pay out a minimum of 85% of their earnings in any one year to maintain IT status so that puts a floor under the dividend. Anything over that is a bonus to my mind. At this time, ITs should be reporting good income as it reflects the past 12 months but going forward? If I were running an income IT I would be cautious because there looks to be not much doubt that dividends as a whole will be well down in the next 12 months. Just look at the growing list of cuts and suspensions. However, CTY as a long record of dividend increases and that will obviously influence their their thoughts. I am not sure though that an increase on last year should be seen as a sign of confidence but rather a desire to keep their dividend record intact. They can of course use their Revenue Reserves to supplement current income and help to bridge any shortfall. I don't think you need a warning sign for CTY; it is all around us at the moment.

Dod

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Re: Income Investment Trusts - are these the times they (relatively...) shine?

#294079

Postby monabri » March 25th, 2020, 3:24 pm

JuanDB wrote:CTY is due for its annual increase next dividend payment. It will be interesting to see the level of increase as a measure of confidence given their 54 year run of increases.

Current dividend is 0.0475
I would consider par to be 0.0495 (this is the value I have pencilled in my “growth projection” spreadsheet)
0.05 would be generous and I’d be very surprised given the current climate
Less than 0.0495 would be a warning sign for me.


I think it might be prudent to set your expectations a bit lower ..I can't see them raising the divi by 4.2% ...maybe a 1% or 2% max increase ?


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